Nationalisation: Dead-end debate?
'It wouldn't work widely' says ex-Head of public East Coast
“CBT is right to criticise the lack of integration with Network Rail, but that is something wholly within DfT’s power to correct. It sets franchise goals and NR goals. Is it too much to ask for consistency from DfT?”
PURDAH is that period of silence from government departments before an election. It prevents whichever party is in power from using government news machines to trumpet policies.
For civil servants, it can provide a breathing space between one government and another. It can be a time to prepare for new ministers and for new policies. It can be used to clarify thinking, a pause for thought and a chance to reset.
There is plenty of pressure mounting on the Department for Transport to review the way it lets passenger franchises. The Campaign for Better Transport is the latest to apply heat, with its Tracks report ( RAIL 826).
CBT suggests that franchising could be facing significant risks and uncertainties that could make it unsustainable. The campaign group suggests that the risks come from bids being based on continued strong revenue growth, and from the concentration of franchises into the hands of fewer companies. It says that franchising doesn’t support the wider development of Britain’s railway, doesn’t encourage decisions based on whole-life costs, doesn’t integrate well with Network Rail, and doesn’t link well to Britain’s emerging industrial strategy.
Franchising has changed since the first deals were created at privatisation. Those deals essentially handed British Rail’s’ passenger business unit to private hands after a competition.
Since then, we have seen longer franchises briefly tried (Chiltern was the only beneficiary, with a 20-year deal that started in 2002). The map has been changed to cut the overall number, chiefly by splitting what was Central Trains and by joining the suburban and inter-city operations into Paddington and into Liverpool Street.
The process suffered a nervous breakdown in 2012, when First’s win on West Coast was overturned after the DfT admitted to errors. DfT promised a more structured approach and this has resulted in several franchises successfully being awarded, albeit on a timetable that continues to slip right.
Meanwhile, devolution has passed to local control franchises covering Scotland and Wales and a concession let for Liverpool. In addition, London Overground has been created - closely controlled by Transport for London, which takes revenue risk (unlike ordinary franchises).
Finally, the latest Thameslink franchise was bundled with Southern and let as a management contract, to cope with the risks surrounding Network Rail’s delivery of its major Thameslink track, signalling and station project.
CBT would like to see more changes. It suggests four areas, calling on DfT to: ■ Switch from finance to quality, to ask bidders to propose a service within affordability limits. ■ Change its evaluation process, to give more weight to quality and evaluate the economic benefits of proposals. ■ Create a fairer financial structure, to give more certainty to franchise payments and keep windfall payments within the rail industry. ■ Create a better alignment of risks and better links to other government strategies.
It’s too simplistic to see criticism of franchising as criticism of franchise operators. Whether they are private companies such as Stagecoach, First or Go-Ahead or foreign operators such as DB, SNCF or Abellio, they run on tight profit margins with the Government careful to see that excess cash flows to Whitehall rather than shareholders.
That’s not to say that these operators should not be criticised when they cut costs too sharply to the detriment of passengers. Fares for captive passengers such as daily commuters come under Government control. Other fares can capture headlines from their sheer size, but for every £769 First Class return ticket from Penzance to Wick (via London) that’s sold, countless cheap Advance tickets are snapped up. These cheap tickets go some way to explaining why inter-city passenger journeys have risen 105% since 1998 while train mileage has increased 35%.
The DfT sits at the centre of rail franchising. It decides what to buy and how to buy it (except in Scotland, Wales and Merseyside). Its website provides a vision for franchising, although it takes deeper digging to find any sort of strategy. Its vision, as published on its website, is: “To provide world-class train services that drive economic growth and exceed passenger expectations.”
Within its internal document, Franchise Competition Guide (published in January 2016), the vision is slightly different: “To lead a world-class railway that creates opportunity for people and
businesses.”
It lists five strategic objectives (see panel), which include meeting demand and growing an efficient railway. At best, these objectives appear to be more of a series of desired tactical outcomes rather than a strategy - they don’t describe how franchising can help deliver Government’s economic or environmental policies, for example.
With a pressing programme of franchises to be let, it’s debatable whether the DfT can wait for Government to clearly express its policies so that strategies can be developed and implemented. It may be simpler to rely on tactical outcomes.
But the CBT is right when it suggests there’s a crunch coming. That crunch could come with lower levels of annual growth that puts train operator finances in peril. It could come from the sort of economic recession that put a dent in passenger growth getting on for a decade ago.
That recession, triggered by a banking crisis, led to National Express handing back the keys to East Coast. However, the trains kept running from King’s Cross, and Stagecoach and Virgin are now responsible for them.
Those who believe in a market for franchises must accept that failures will occur. If you bid too much premium you run the risk of failure. Bid too little and you don’t win the deal. If you call for more certainty, you’re calling for less risk and potentially more Government support.
Premium payments generally increase (or subsidies decrease) for every year of a franchise. The biggest payments come at the end of a deal. Yet few franchises ever appear to reach that point - history suggests that usually something happens along the way whereby the Government changes its mind and a renegotiation takes place. This puts the franchisee in a decent position to revise payments and the Government in a poor position to argue.
Recent franchise competitions have shifted the balance away from purely looking at the subsidy/ premium numbers. Compared with TransPennine, Greater Anglia featured an increased emphasis on quality and South West featured even more emphasis on quality over money.
The perception that it’s all about the money is becoming detached from the reality. DfT’s Invitation to Tender for South West allocated 12.5% of total quality marks to bidders’ customer experience plans. This compares with 8% for performance (admittedly one has an impact on the other).
There’s a crunch coming on Britain’s busiest networks. Waterloo is Britain’s busiest station. It has an intensive service. First and MTR promise an even better service when they take over this summer, with a new fleet of trains that can devote more space to passengers.
Running long fixed-formation trains rather than trains created from several shorter units allows passenger into the space that would today be taken by a driver’s cab. But that’s not a massive increase in capacity - at best it’s marginal.
More capacity could come from running more trains, trimming the stopping times at each station to speed overall journeys and help overall stock and staff utilisation. But if you want a major increase you need new tracks or radically longer trains. Yet many London trains are already running 12-car services, and it will be hugely expensive to go beyond this limit.
Perhaps rail could support a Government policy of rebalancing Britain, so that London has a lower proportion of overall economic power? It should be easier to double the length of two and fourcar trains running in the Midlands or northern England than to squeeze yet more into London.
In 2012, DfT did increase its demands on Network Rail for peak capacity into major northern cities. Later, it asked bidders for Northern and TransPennine for a further increase. This disconnected the operators’ goals from Network Rail’s. So CBT is right to criticise the lack of integration with Network Rail, but that is something wholly within DfT’s power to correct. It sets franchise goals and NR goals. Is it too much to ask for consistency from DfT?
In the remaining weeks before the General Election, perhaps before a new Transport Secretary appears, civil servants within the Department for Transport should calculate what Britain needs from its railway and then craft policies to deliver it.