Franchise model
“We probably need a less fragmented railway” - Transport Secretary hints at changes to rail franchising.
THE InterCity East Coast franchise will not be let as a conventional franchise in the future.
Speaking at the Transport Select Committee (TSC) inquiry on July 24 into the collapse of Virgin Trains East Coast, Secretary of State for Transport Chris Grayling said: “I don’t think we can go back to the conventional paradigm on this railway. It’s been tried three times and it’s failed three times. I’m not going to be the Secretary of State that says ‘well, let’s re-let the franchise again’. What I’m trying to do is something different.”
Grayling also hinted that wider changes to rail franchising could follow: “Franchising certainly needs some simplification. The system is too diluted… we probably need a less fragmented railway to deal with the pressures on it at the moment.
“The model that has existed up to now has seen the railways through a period of unprecedented growth. Now the need to join up the operation is absolutely vital. It’s common sense that the more we can integrate the teams, the more likely the railway is to be able to respond properly to the challenges it faces.”
Explaining the decision to transfer operation of the East Coast Main Line (ECML) to the Operator of Last Resort, he said: “My view all the way through was I do not think we can possibly be seen to bale out a company that’s made an ambitious bid. My job is to protect the interests of taxpayers, not Stagecoach shareholders. If you sign up to a contract, then unless there is a change in the practical circumstances that affects you - for example, a major issue around infrastructure - then it’s your job to deliver something extra.”
Asked by MPs whether the proposed start date of 2020 for the East Coast Partnership (ECP) franchise was realistic, Grayling said that one of the attractions of moving to the Operator of Last Resort, rather than giving VTEC a Direct Award, was that it allowed the nascent organisation to evolve rather than having a single big step, and that the evolution “can happen one step at a time - it doesn’t have to happen on one set date in 2020. There’s stuff we can take a bit more time over if necessary.”
He said the cost of transition to the Operator of Last Resort was relatively small - “at most low tens of millions of pounds, and that includes sunk cost”.
He added: “If it had been a
clear-cut decision that the taxpayer would have been better off if we’d left it with Virgin/Stagecoach, I would have done that. I was always very clear that I would follow what was in the best interests of the taxpayer.”
In terms of how the ECP franchise could work, he said: “The first stage is to drive devolution of Network Rail. I do not expect to simply advertise for a train operating company. It does not have to be the case that private participation has to come from a train operator. One of the things I’m very keen to see on that route is digital railway investment. So, bringing in a private sector to help establish it as part of the partnership is a very real alternative.”
Grayling also said he supported the idea of integrating the Great Northern operations out of London King’s Cross into the ECP franchise, pointing out that such a move would bring the majority of passenger-miles on the ECML into a single operation. However, he admitted: “If you were starting off with a strategy of joining track and train up, this isn’t the place you’d start. It’s circumstance that has brought us to this point.”
But the exact process of re-letting the franchise is unclear, with Grayling admitting: “We’ve not decided how we will run a competitive process. As far as I’m concerned, at the moment the challenge is to get on with Network Rail devolution, work out how to integrate those two more closely, look at employee participation, and we can build a model and then take a decision in a few months’ time about what do we want the private sector to bring to the table - it could be very different to what’s there in the past. We can do this a step at a time.”