Posted 29th June 2020 | 1 Comment

Monday essay: brave new world

If there was any remaining doubt about the survival of the established rail franchises that doubt was put to rest by transport secretary Grant Shapps on 24 June. What is not yet confirmed, writes Sim Harris, is the future shape of the passenger railway.

WE do have a fairish idea. Keith ‘root and branch review’ Williams has been dropping strong hints for well over a year.

It was in February 2019 that he told the industry audience at the annual Bradshaw lecture, when his review had been running for just five months, that things would have to change: ‘Put bluntly franchising cannot continue in the way that it is today. It is no longer delivering clear benefits for either taxpayers or farepayers. The review will continue to examine what the best commercial model or models are for the future what they might be.’

Mr Williams has, perhaps inevitably, absorbed some the mantras which are put about by the Department for Transport, including the wholly unproven assertion that privatisation caused passenger numbers to rise.

Those who favour the private sector naturally find it convenient, not to say agreeable, to support this idea, but there is very little evidence, particularly because the trend upwards can be seen to have become established as early as 1995-96, when British Rail was still almost entirely in charge of the passenger railway. (A mere handful of franchises had been awarded by the end of March 1996, and only a couple had actually started, less than eight weeks earlier).

Nonetheless it was in that same speech in February 2019 that Mr Williams asserted: ‘I have heard a great deal about the franchising model which has been one of the innovations of the railway since the nineteen nineties – driving growth in passengers and benefits in services.’

There have indeed been improvements during the franchising era – the railway has certainly become more innovative (and gained the funds to do so) and the staff enjoy the task of providing a service more. Compare the generally admirable attitude of most front line staff now with the grudging – indeed downright miserable – demeanour of many British Rail employees 30 years ago.

There would have been reasons for that – a feeling of being unwanted as an industry, of apparently irreversible decline and of being supervised by a hierarchy of managers who were obsessed about saving every penny, under the jackboot of HM Treasury.

But that could all have been reversed without privatisation if British governments had treated their railway in the same way as the French and the Germans did at the time.

Still, whatever the reality, franchising is over. Listen to Mr Shapps: ‘Without revealing too much we are already moving to a different type of railway and different types of contracts. With everything that is going on at the minute there is an opportunity to move things along faster than might have otherwise been the case.’

That railway seems set to have passenger operators run as concessions: virtually no-risk, fixed-fee contractors. They already exist on London Overground, TfL Rail (also known as Crossrail and the future Elizabeth Line), Manchester Metrolink, Docklands Light Railway and other systems.

But there are also siren calls for a different kind of model on intercity routes, and these callers point to the success of open access operators like Grand Central and Hull Trains. At the present level of open-access they do no harm, and many of their regular passengers like them very much.

Converting intercity franchises completely into sets of open access companies, without any base service underlying them, would be very courageous, to quote Yes Minister. When Hull Trains or Grand Central cannot run a train, they fall back on the franchised operators – LNER, Northern – to take their passengers home.

There are also going to be problems with track access charges. Under the general concession model, the DfT will pay these to Network Rail (having collected the revenue and paid the operators their fees). But up until now the franchises have been paying highly subsidised track access charges themselves (subsidised because the DfT also pays around £4 billion a year as a direct grant to Network Rail), both variable and fixed.

The open access companies have been paying only variable charges (there are some changes ahead in CP6 but they are limited), calculated by how many trains they run, how many axles they have, the weight of each train and so on. They are also vulnerable to any rise in charges, whereas the franchises have been protected from them. If track access costs more, the franchise premiums or the subsidies are adjusted to match.

Almost no franchises, incidentally, really pay net premiums. Those that do pay the DfT can usually only do so because their track access charges are subsidised (the average subsidy for each passenger kilometre travelled in 2018-19 was 8.8p, the year before it was 9.3p).

In 2018-19 just one franchised operator paid a net return to the government and that was c2c, which paid the equivalent of 1.4p/passenger km.

Most importantly, no intercity operator paid a net return. Allowing multiple open access may revive a fear from the earliest days of rail privatisation, that unhampered operators could ‘cherry pick’ the market. If they are truly free spirits, that seems almost inevitable. They cannot be forced, under the present rules, to run trains they don’t wish. The only answer would seem to be a government contractor to fill the gaps.

But isn't that where we came in?

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Reader Comments:

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

  • david c smith, Bletchley

    It seems most of us are agreed that local / commuter type operations are natural monopolies with captive markets, and even from an economic free market perspective, need public control . This can only work, though, if there is effective accountability, This in turn can only happen in more local areas, where
    direct democracy is feasible ( TfL, greater Manchester, Merseyrail,etc).

    Intercity (in a broad sense) , though is in a different situation , which needs accountability through a different mechanism - the most obvious being competition between operators.

    The point re. subsidy, I feel , is that the market on its own is too narrow / incomplete and leaves out relevant "hidden" costs and benefits. Personally, I'd favour the role of government moving away from "command and control"towards being proactive through injecting suitable incentives into the market , both as subsidy ( a typical , though not only, possibility might be where it saves the costs of parralell road construction, or where a particular town / city has social need for a rail service, etc etc ) and as charges( to discourage environmental harm, etc, etc,).

    A main reason for wanting to stop central government making all the decisions , is that frankly, it isn't and hasn't been very good at it - who remembers the nationalised road haulage British Road Services during the post war decade ?

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