The move to devolution

Authorities must find best operational contract structures

Transport for London and the emerging Combined Authorities outside the capital have formed the Urban Transport Group (UTG), with the aim of developing public transport strategy.

It will absorb the existing Passenger Transport Executive Group (pteg), which has co-ordinated the actions of Transport for Greater Manchester, the West Yorkshire Combined Authority, Merseytravel, Centro, the North East Combined Authority and the West Yorkshire Passenger Transport Executive.

Nottingham City Council and the Strathclyde Partnership for Transport will be associate members of the UTG, along with the West of England Local Authorities, which are to be given devolved powers for the provision of public transport services in Devon and Cornwall. A population centre such as Bristol is an obvious candidate for addition to the group.

The change is part of the Government’s direction of travel to move decisionmaking nearer to users under the control of elected Mayors (such as in London and local authorities), rather than centralised direction by Westminster.

A number of actions are taking place on the ground to solidify local control, including a decision that many more franchised rail services could become part of London Overground. Although the intention is that this will cover routes within Greater London, the operating pattern will require extension beyond the boundary - for example, between Moorgate and Welwyn Garden City/Hertford it would make little sense to terminate the trains at New Barnet.

The proposed take- over of some Southeastern routes when the franchise expires in 2018 will be controversial. This is because local authorities outside London have been concerned that services used by longer- distance passengers will worsen if a greater frequency of inner suburban trains is provided and a greater number of stops are made. Similar Southern franchise transfers are proposed in 2021.

There is little dispute that the London Overground business model has been a huge success, with improvements to all key performance indicators. These formerly rundown services have been transformed by setting a tight specification for the provision of train services, and by the staffing and upkeep of stations.

For example, the concession holder is charged with removing any graffiti immediately, or face penalties. A trip around stations operated by the franchised operators in London shows a very different regime is in place.

Proposals for the expansion of London Overground are part of a current consultation exercise, after which decisions will be made about which services are to be transferred. There is a lot of precedent from the past, driven by the need to provide more capacity for longer-distance services. This took the form of a transfer of services to London Underground, whereby the Central Line was extended to Epping and the Northern Line to High Barnet.

In both these cases new infrastructure was built, to link the former main line branches to the Underground network and to release paths to enhance main line operations. Similar strategies are needed now, and indeed are planned with the Crossrail 2 proposal that will divert services heading for Waterloo at Wimbledon, to provide additional capacity for trains using the Portsmouth, Southampton and Salisbury routes.

But initiatives are needed elsewhere if aspirations to run faster airport services and to operate a 125mph service to Norwich are to be delivered.

Away from rail, there is a much bigger change to the provision of bus services. To many the debate about running services as part of a franchise specified by central government or as a concession operated to terms laid down by local authorities is not that great a change, but measures proposed in the Buses Bill to allow franchising are bitterly opposed by the big privately owned groups.

The critical relationship between public authorities and the operators of franchises and concessions is the responsibility for revenue.

In the London Overground model the concession owner (LOROL) is paid by Transport for London for providing the service regardless of the revenue earned. TfL uses the revenue (combined with other sources of funding) to provide new rolling stock, and is responsible for the leasing cost whatever the fare box income.

A similar approach is being followed in the re-equipment of Merseyrail services - trains are acquired by Merseytravel with support from the Liverpool Combined Authority.

In the recently agreed Northern franchise award a different model is followed, with Arriva Rail North taking responsibility to acquire 281 vehicles worth £490 million (to be funded by Eversholt Leasing and built by CAF).

The attractiveness of this arrangement to the embryonic Rail North organisation is that the Combined Authorities represented do not have to take on the cost of funding. At the same time they will benefit from reduced subsidy payments, as the creation of a Northern Connect Express network will bring large fare box benefits ( as seen from a similar strategy to develop TransPennine Express routes). From revenue support of £ 281m in the first year of the franchise contract, the sum that Arriva has committed to receive falls to £ 53m in 2025/26.

The concession style of contract applied to the current Thameslink Southern Great Northern franchise (that started in September 2014) is problematic. The operator’s performance shortfall is linked to the structure of the contract, which is wrong for longer- distance operations where revenue can be influenced by product enhancement.

To win the contract Govia offered to run the operations at some £40m per year less than the incumbent. This had to be a cost reduction, as all revenue was paid to the Department for Transport.

Revenue growth has been greater than expected, and in a normal franchise model this extra cash could have been put into operational resilience and customer-facing improvement.

Instead cost saving has had to be found, which has resulted in operational unreliability and customer service deficiencies that have made the journey experience miserable.

“There is little dispute that the London Overground business model has been a huge success.”