6 APRIL 2020

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Article from BTNews 6 APRIL 2020

ON TOUR Railways update

Britain’s railways get government backing. 

BTN’s expert on these matters Andrew Smart, the former director general of the International Air-Rail Organisation, explains.

Since Sir John Major’s rail privatisation in the 1990s, most passenger trains have been operated under franchise agreements. Geographical packages of train services have been offered, with government specifications about frequencies, first and last trains, rolling stock and other details: potential operators have bid for these. They are asked for a year-by-year forecast of how much subsidy they’ll need or how much premium they’ll pay to the government. Sometimes it’s the lowest bidder that wins, sometimes it’s the most attractive bid in terms of innovations and new trains – it depends on the policy of the government of the day.

Franchises have sometimes fallen apart. This is sometimes because revenue forecasts were too optimistic – could you accurately forecast revenue of £1bn a year nine years in advance, especially when it depends on things like employment and commuting patterns, both of which are changing?  Sometimes it’s because the planned timetables were based on improvements by Network Rail which got delayed (often because of government financing problems). If franchises fail, the Department for Transport (DfT) ‘takes back the keys’ and runs the trains themselves – sometimes quite efficiently, as in the case of the East Coast Main Line on occasion. Top management jobs go, but staff get transferred across to the new organisation (as they do when a franchise changes hands).

The system has also suffered from frequent changes of policy – it’s reckoned that there have been over 30 enquiries into different aspects of the rail industry since 2006.  Partly because of this, there is a shortage of bidders, especially from the UK – and there needs to be enough to preserve an element of competition.

It is often said that most of our trains are state-run – just not by this state! Netherlands Railways, Arriva Trains (part of German Railways), Trenitalia (part of Italian State Railways) and the Mass Transit Rail Corporation of Hong Kong are among those operating our trains. Some companies – National Express, Stagecoach, Virgin – are either not bidding or not allowed to bid mainly because of what they see as over-onerous requirements to bolster the railway pension scheme (the author, a railway pensioner, declares an interest here). A further disincentive is the cost of putting together a franchise bid (£5m – £10m) when only one bidder can win.

Even before the coronavirus outbreak, some train operators were in difficulties. Northern and East Coast have been operated by the DfT for some time: Great Western and Southeastern have been since 30 March when they were awarded short-term operating contracts by the government. South Western, TransPennine, West Midlands and Greater Anglia are among those thought most likely to be brought back under government control.

As a result of the outbreak, the government suspended franchising altogether for six months: instead, existing operators will continue to run services – many reduced, of course – and be paid a management fee. This will be 2% of their average costs of the franchise. They will also be paid their net costs (expenditure minus income).

An 18-month review of the franchising system by Keith Williams, former chief executive of British Airways, is nearing its conclusion. This is review no. 32, and Mr Williams apparently describes himself as the independent chair of a DfT review, rather than the chair of an independent review – so don’t expect too much.

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