I don't think the 'fragmented market' has anything to do with it, really. It's the cost of the 'step change' that provides the limiting factor. Sticking with Hexham as an example, adding an extra train an hour would need the line to be resignalled to provide the train path (even if the line wasn't to be electrified); but 3 tph would be a much more attractive service than two tph. Even if the entire public transport system was nationalised, there'd still be a huge investment cost; or, if the railways had been fully privatised (rather than this 'half way house' we have at the moment), then the private sector might have been incentivised to provide the necessary capital. Sadly, 'micro-management' of the railways by the DfT seems to produce the worst of both worlds...