Posted 11th January 2013 | 8 Comments

Scrapping franchise system rejected by Brown review

THE REVIEW of franchising by Eurostar chairman Richard Brown has concluded that the system is not fundamentally flawed, and that a major reorganisation would 'risk throwing the baby out with the bathwater'. But he has identified a need for better focus and the employment of some 'hard hitters' to deal with franchises on behalf of the Government, and has spelt out some key options to transport minister Patrick McLoughlin.

Basically, there are three ways forward, Mr Brown told Railnews. One is to move franchising away from the DfT to a new standalone body which could resemble the former Strategic Rail Authority or more probably its smaller predecessor OPRAF.

The second is to create a new agency to handle franchising within the DfT structure, like the Highways Agency, while the third is to leave the present arrangements roughly unchanged, with a group of DfT civil servants within the Department's Rail Group responsible for assessing bids and monitoring the performance of contracted operators.

It was flaws within the DfT Rail Group which triggered the franchising crisis last autumn, when the transport secretary was forced to withdraw the award of the intercity West Coast franchise to FirstGroup after runner-up Virgin had mounted a legal challenge to the accuracy of the DfT's calculations about the risks posed by each bid.

Franchising is currently on hold following the West Coast collapse, and Mr Brown is urging an early restart to the negotiations. Three franchises are due to end this year, while the Government had also intended to return the currently state-run East Coast operation to the private sector in December.

Mr Brown said it was not true, as some critics had claimed, that franchising was 'broken'. He pointed to the many successes since privatisation and the continuing growth in demand for rail, where passenger figures are now approaching an all-time record.

He told Railnews that it was 'important not to have a false start' when franchising resumes. He also examined the possibility of concessions replacing franchises and thus removing the commercial risk which they involve for operators.

"I did look at concessions," he told Railnews, and he also agreed that there are some successful examples of such contracts, including the Docklands Light Railway, London Overground and Manchester Metrolink.

He continued: "But all these contracts require a trunk body with the ability to take care of marketing and ticketing, like Transport for London. If you were to create such a trunk for National Rail as a whole, or indeed try to revive the SRA or OPRAF, you would need primary legislation – which would take some time. I don't believe such a delay is justified, because in so many ways franchising has worked.

"What is needed is a new focus and some hard hitters to deal with the details, but we shouldn't be pulling the whole plant out by the roots."

The transport secretary Patrick McLoughlin welcomed Mr Brown's report, and said: "The review has confirmed that government’s approach to rail franchising system is still the best way to secure the rail services for taxpayers and farepayers alike. It has identified a number of detailed improvements, which I will carefully consider before publishing a further statement regarding the government’s franchising policy in the spring."

The Review has received a mixed response from the industry. ATOC said it was important that franchising was restarted, and that operators would now consider the recommendations carefully. Its chief executive Michael Roberts also urged 'clarity' from the DfT about what is to happen next.

FirstGroup UK Rail managing director Vernon Barker said: "The independent review by Richard Brown is an important development for the rail industry as it calls for an early return to refranchising, which has allowed the private sector to provide effective and efficient passenger rail services for many years."

The Chartered Institute of Logistics and Transport also welcomed Richard Brown's conclusions, saying: "The Institute is pleased to see that the report has taken an holistic view of franchising, including an appreciation of the relationship between the rail industry and its supply chain, which has suffered from the uncertainty following the collapse of the West Coast refranchising process."

However, others were less impressed. TUC general secretary and chair of the Action for Rail campaign Frances O’Grady said: "This report shows how successive models of franchising have failed. However, instead of recognising that privatised rail operators are ill-equipped to provide a sustainable long-term public service, the review concludes that the UK needs more of the same.

"Our current system of corporate welfare – where train operators make a play of bidding for contracts knowing that their future revenue will be underwritten by the taxpayer – sadly looks here to stay."

TSSA general secretary Manuel Cortes added: "The Brown Report is simply the green light for the train operators to carry on printing money at the passenger's expense. The current system is broken but both he and the Secretary of  State want to carry on regardless. Rail fares have doubled since the Tories voted to privatise rail 20 years ago and this report means they will carry on rising above the rate of inflation for the next decade as well."

Reader Comments:

Views expressed in submitted comments are that of the author, and not necessarily shared by Railnews.

  • david c smith, milton keynes

    Franchising started off as a minimum service requirement, with TOC's able to expand and develop beyond this. Then along came, firstly the Strategic Rail Authority, followed by DfT, who put a stop to this.

    Result - TOC's now have very little opportunity to exercise enterprise, innovation or investment and are just responsible for little more than day-to-day running.

    At present we have "pretend privatisation" and the "worst of both ( private and public ) worlds".

  • Tony Pearce, Reading

    UK Railways are very like banks - they are too big and important to fail. Which is why they like the Banks will always be bailed out. But unlike the Banks where many of the staff lost their jobs, the Trade Unions have a stranglehold in the rail industry, and redundancies will never happen. Everyone in the Industry from Management, Franchise holders to Union members seem to be greedily milking the situation for all its worth. So progress which will save money like Automatic trains with no drivers will never happen.

  • Philip Russell, Carlisle

    Privitisation in this manner has not superceeded anything British Rail could have done as far as the passanger railway is concerned, history shows the start up costs of aquiring trains and the lengthy time to teach drivers or expense of poaching them from other firms means that any meaningfull competition to benefit farepayers is unlikely to ever happen on most routes so it appears the only main benificaries of franchising are the major transport companies themselves

  • Chris Neville-Smith, Durham, England

    "The franchise system is intended to reduce fares by introducing competition, however that only happens at the franchise renewal stage."

    Sadly, not even that. Competition at franchising stage is based on who will run the service with either the least subsidy from the government or - as is increasingly the case on the main lines - who will pay the government the most money. As a result, it's mainline rail passengers who ultimately lose out.

    I'm undecided between fixing the current franchising system and switching to the concession model used by TfL, but I don't think primary legislation is a good argument. Surely, if a change in the railways will be good for the country in the long run, Parliamentary time should be the least important issue to worry about.

  • Ray Shill, Birmingham

    I agree with Leslie, railway franchising is a flawed system. The DfT dictate how each should operate and where their trains should run. There are systems thet enablke the franchisee to recoup funds and in effect it appears to be a subsidy far greater than in British Railways times. In fact the model of OfQ1 may well have been a better model, and were it not for the determination of John Major's Government, may be still be the model. A casuality of the franchise system is innovation and the ability to adapt to changing needs. Only the DfT seem to decide on what changes are needed. Another sad loss is the through European services planned to our major cities outside London. I suspect that had BR remained cities like Birmiingham, Manchester, Leeds and York as well as Edinburgh , Glasgow and Cardiff, would benefit from a direct service to French, Belgium, German and Dutch destinations.

  • Lee, Manchester

    I agree with Gordon Smith. We are hearing more references to transport poverty as it is slowly dawning on people that the cost of commuting by rail and road is soaring faster than wage increases. True, people can work from home, but neither of the organisations I work for, one a local authority and the other a multi-national corporation, will let me do that. I'm sure a great many other commuters are in the same position.

    The franchise system is intended to reduce fares by introducing competition, however that only happens at the franchise renewal stage. With increased franchise lengths, there is little scope to introduce competition unless more operators such as Grand Central for example, start operating services. However, the fact that Network Rail has just announced it will be reliant on another ten years of fare hikes, on top of the ten already experienced, does not sell rail travel to commuters who are already facing the highest fares in Europe for services which are not perceived to be significantly improving despite the 'improvements' Network Rail and the TOC's might claim.

  • Gordon smith, Glasgow

    I think the growth will continue to be there but it wouldve been there under british rail if they government didnt starve it of money it would have been self sustaining on its own profits.

    Weve had the boom and bust in the banks other places sufferring its only a matter of time transport will have its bust.

    As people willnot be able to afford fuel prices and train fares this could be on the cards if the government dont wake up!!!

  • Leslie burge, leicester

    I can't agree that the franchise system isn't broke and the argument that more people are using the railway is flawed because the motorists are being driven onto the railways by ever increasing fuel prices.The franchise system does need root and branch alterations as it is skewed in favour of the franchisee and not the Public who use it. after all it is supposed to be a service not a cash cow for government and shareholders.or scrap franchises altogether and privatise it.