Franchising structure a barrier to sustained rail investment, report warns

The franchising system in its current state is becoming increasingly vulnerable to economic slowdown, a report released today has argued.

Produced by Credo Business Consulting for a new transport think tank established by the Campaign for Better Transport called Tracks, the findings stated that though the franchising model looks successful, cracks are beginning to show in its structure.

The research concluded that franchising in its current state is actually a barrier to sustained long-term investment in the industry, especially with trains and stations. Credo also found that a relatively small number of bidders are facing increased risk when bidding and running franchises.

Wider concerns were raised with regards to the complex ticketing system that customers are faced with, as well as confusing fare structures and outdated ticketing technology.

A number of recommendations are raised in the report. Firstly, the government was instructed to set out a clear strategy for what the role of the railway was post-Brexit, economically and financially.

On top of that, Credo called on Whitehall to conduct a “fundamental and bold review of fares” to make the system more relevant and passenger-friendly for modern working patterns.

In response, Stephen Joseph, chief executive of the Campaign for better Transport, said: “This report shows the challenges facing rail franchising, especially if there is a slowdown in rail use or in the wider economy.

“It also sets out some coherent proposals for ways forward, including the need for a clear rail strategy linked to the wider economy and for fares reform. We hope that the next government, if it continues with rail franchising, takes note of this and finds this research useful."

The report also argued that a fairer financial structure should be implemented that ensured no franchise is “too big to fail”. Another suggestion that was tabled was moving away from the current model towards smaller, different models that accommodate for the rail differences in urban and rural areas.

Partner at Credo Business Consulting and the author of the report, Matt Lovering, said: “The success of franchising has been one of the key factors in the dramatic increase in rail usage over the last 20 years.

“But this growth has significantly increased the social and economic importance of the railway, making it essential that the network continues to evolve and offer attractive services to all customers.”

However, the current franchising model carries significant risks and limitations which may hinder this process going into the future, Lovering added.

“We hope that the model will evolve in a way which builds on the successes of the last 20 years but creates more flexibility to meet the needs of different customer segments and respond to the economic, social and technology changes which are anticipated in the years ahead,” he stated.

But the Rail Delivery Group maintained that franchising has had a positive impact on British rail and the economy.

“Franchising has helped to transform the finances of Britain’s railway, meaning there is more money to support investment in improvements to make journeys better and local economies stronger, now and for the long term,” its spokesman stated.

“The whole rail industry is focussed on delivering the successful railway Britain will need as it exits the European Union. This includes working with governments and other authorities to evolve the franchising process so that it continues to deliver for passengers and taxpayers.”

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Manchester Mike   03/05/2017 at 17:30

Well duh. When only a couple ToCs can be arsed to take a long term perspective at their business, you have a systematic problem that should've been obvious when setting up privatisation.

Rodger Bradley   04/05/2017 at 20:33

Well Manchester Mike - it was obvious to many at the time, including the OECD, who thought the UK approach was not a recommended option. There was a fascinating docudrama made shortly afterwards called "The Navigators" which did a frighteningly good job of illustrating just how hopeless, and potentially unsafe UK privatisation would become.

Samir Kahn   06/05/2017 at 09:27

So even a group that make the false claim that the current system looks successful admit it is not working. What economic slowdown do they expect? We have been in a depression since the crash of 2007, or did that somehow not count? The UK industry is fully government and taxpayer funded. What I and pretty much everyone I speak to would really like to know is why there are so many private companies making guaranteed shareholder dividends and executive bonus payments while? One rail industry, one board of directors, one body answerable to the public, not this thousands of pay packets and contract management agencies

Rail Realist   06/05/2017 at 10:17

Why all the negativity guys? Surely the numbers speak for themselves; passenger travel massively up since privatisation. Many new routes and journey opportunities created. Would these have happened under BR, very doubtful. Ok, its not perfect but what in this world is? Ticketing is an issue but people are getting good at it and huge savings are available for those who persist. Ever tried buying an air ticket? Its the same jungle but people seem to accept it. Lets give privatisation some credit and not the doom and gloom message by yet another consultants report

Jerry Alderson   14/05/2017 at 19:40

There's much to criticise about the current franchising model but let's be clear, franchising is merely one of many flavours that could have been implemented. There was no need to franchise out the passenger railway. In other industries such as restaurants (McDonalds, Burger King...) and retailing (e.g. Body Shop) it is done because the chains do not have access to sufficient capital to own all of their outlets. Also it shares some of their risk. Franchising was introduced into Britain's passenger railway for one simple reason: the government did not trust the companies to run a passenger railway. Mitigating a lack of trust is always a bad reason for choosing any model. The government did not franchise rail freight. It sold it off. That was because the government would not have been heavily blamed had it collapsed - rail freight was seen as a low-profile business that the public was barely aware of. My personal choice (after a mutual solution where users own the business not the state) would have been perpetual franchises whereby a franchise is only surrendered if it fails to perform. As long as the business improves and meets certain objectives they it would continue indefinitely. That would allow the franchisee to invest for the long term. That model would need a way for the government to cream off profit (a bit like the old ITV Levy in the 1970s) to invest in the network. It's why I believe VAT should be added to rail fares (over time - not as a big bang) so that the government gets a share of all rail revenue and is incentivised to support a bigger and better railway.

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