Latest Rail News

06.02.17

MPs float longer-term deals as solution to broken franchising model

MPs have raised serious concerns about the UK’s current rail franchising model, arguing that it is unsustainable in the long term without lasting changes.

A report by the Transport Select Committee into rail franchising, one of an ongoing series of reports into the future of rail, has found that the existing model is failing to deliver for passengers, drive improvements in the industry or transfer financial risk to the private sector since it was initiated in 1992.

The committee once again slammed “serious shortcomings” in the DfT’s capacity to manage rail franchising and has urged the department to commission an independent review of its franchising functions, including the possibility of transferring its contract enforcement powers to the ORR.

“While franchising enabled passenger growth and service improvements when it was first rolled out, passenger satisfaction with the railways is falling,” commented Louise Ellman MP, chair of the committee.

“Its core objectives are no longer being met, potential benefits are being lost and the passenger is suffering through higher fares and continued underperformance.

“Our report explores why the current model is no longer fit for purpose. But this will not be solved overnight. There is no one-size-fits all approach and the government should work with other agencies to introduce steady, strategic reform to secure improvement.”

The committee said that the government could consider several steps to restructure franchises and the current bidding process, such as by allowing open access to operators on certain routes and by considering longer-term franchises, as the current model “reduces the incentive of operators to both invest and drive down cost”.

MPs also suggested streamlining operational alignment between Network Rail and TOCs, arguing that the relationship between the two is “not as co-ordinated as it should be”, leading to higher fares and poorer performance – although this is already being explored under fresh plans.

But the greatest criticism fell on DfT, as the committee said that the department has “failed to take responsibility” for some of the shortcomings in handling its contract with Govia Thameslink Railway (GTR), which oversees the major TSGN franchise. 

The news comes not long after the committee urged the DfT to stop “ducking” away from the issues of the contract, although the department claims it is unable to act while it still addressing GTR’s claims of force majeure.

In today’s report, the Transport Select Committee claimed that the government has “serious lessons to learn” from its management of the TSGN franchise, saying that a change of policy on performance reporting will help hold “serially underperforming” operators like GTR to account.

“If GTR is officially found to be in breach of contract – and the committee is still pushing ministers for an answer on this – the DfT should consider restructuring the franchise to realign the incentives and focus of the operator back to the passenger,” Ellman concluded.

Despite the committee’s criticisms, the Rail Delivery Group defended the franchising model, arguing that it has allowed companies to turn Britain’s railway into “a success story”, doubling passenger numbers and making it the safest railway in Europe.

“Passengers and taxpayers have benefitted from the franchising system where rail companies bring new ideas and innovation to Britain’s railway,” said Paul Plummer, chief executive of the RDG.

“Under franchising the railway has gone from costing taxpayers £2bn a year in terms of day-to-day costs to now contributing £200m, money which helps to fund the major rail upgrades making journeys more comfortable and reliable.”

The Transport Select Committee is still completing its inquiry into the future of rail as it is currently continuing to take evidence on the issue of rail safety. Its final inquiry into finance and governance in rail is expected to be completed this year.

Tell us what you think – have your say below or email opinion@railtechnologymagazine.com

Comments

Jimbo   06/02/2017 at 17:49

Wow, what a mishmash of ill-informed and ill-conceived rubbish. It shows a complete lack of understanding of how private companies operate. So they think that more Open Access Operators would be good, even though that reduces profits on the lines they run on. They want longer franchises, just so long as the profits made by the companies aren't too big. They want operators to invest more but at the same time drive down costs. Finally, franchises are not fit for purpose, just look at GTR, even through GTR is a management contract not a franchise. The private sector will do whatever you want them to, as long as it is profitable and not detrimental to their brand. If you ask for more, but give back less, they will leave, which is why most franchises are now run by foreign national railway companies. So what we are getting is nationalised railways again, just being run by foreign governments.

Lutz   06/02/2017 at 18:21

Grandstanding again.

J, Leicester   07/02/2017 at 10:56

Franchising is inherently broken, but it has nothing to do with the length of the contracts but rather the promises made within the tender process. No end of franchises start off with a flurry of new train orders, refurbishment and station investment, which then fizzle out or are left incomplete once the realities of day-to-day operation kick in. It's less noticeable on big, top-link franchises like VTEC, but far more telling where franchises must also incorporate regional and rural services, which bear the brunt of under-investment. Longer franchises would only increase the malaise within the industry - if anything, shorter contracts based on a cycle of a typical rolling stock procurement process would get TOCs to pull their finger out and commit to wider improvements in their second period of tender or risk losing their investment.

Dave Boy   07/02/2017 at 12:56

New trains being offered for new franchises is, in the long term, going to have a massive impact on a whole host of repair and overhaul company's. This isn't being considered. Whilst new trains are good for the big boys, it is not at all good for suppliers and leasing company's. Also not good for the environment having trains lying around doing nothing.

Mulsey   07/02/2017 at 22:51

Weren't longer franchises considered too risky not too long ago (i.e. after the NX East Coast hand back & Virgin/First Group debacle). Where operators could deliberately overstate the longer term revenue streams in order to win the franchise, pocket the early gains and then hand back the franchise when it became unprofitable? May be mistaken, but didn't the Brown report even suggest shorter franchises?

Jerry Alderson   08/02/2017 at 17:34

If we are to have franchises then, in my view, we need continuity. The biggest problem is that they are short term - investment is only done at the front and towards the end disinvestment occurs (such as nort recruiting new drivers). I will sell franchises with automatic extensions indefinitely providing that they deliver. As well as providing a good service, which would need to be measured somehow, they would need to show that are expanding the business i.e. attract more passengers to the railway. Perhaps rather than competitive re-tendering, every 10 years rivals could make a case of why they would do the job better, and that would give the incumbent a chance to up their game. Rather than operators paying premia I would add VAT to train fares, and that would be how the government earned the mone back. Of course, this would need to be introduced in a manner to avoid any 'bill shock' to passengers. Therecould also be a levy of super-normal profits on TOCs, such as the old ITV Levy in the 1960s and 1970s. Only the Scotland and Wales franchises should ever be loss making. The ones in England should be made large enough for cross-subsidy to support the operation.

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