What are Britain’s Plans for Major Reform of Rail Services?

by Tony Prosser, Professor of Public Law, University of Bristol Law School.

 

The UK Government has proposed major changes to the organisation of its rail services, which were privatised and split between a large number of different companies in the 1990s.  The change will introduce a new ‘guiding mind’ in the form of a public body, Great British Railways, which will be responsible for managing the infrastructure and for commissioning passenger services.  The services, however, will continue to be provided under contract by private companies.

British railways were privatised in the 1990s, and they were split up into over 100 different companies.  Ownership and management of the infrastructure was separated from the running of services, passenger services being provided under complex franchise contracts by 25 (later 15) private train operating companies.  The franchises effectively granted an operating company the right to run services in a particular part of the country or route, bundling up profitable and unprofitable services together.  The role of ‘open access’ companies competing with the franchise holders by running trains in their areas was extremely restricted, amounting to less than 1% of passenger services.

The system proved problematic from the beginning.  The private infrastructure owner effectively collapsed after serious accidents caused by inadequate maintenance of the lines, and was replaced by a new body, Network Rail.  This was originally given the status of a ‘public interest company’ which was non-profit making but not a public enterprise; however, it was taken fully into public ownership in 2014.  It is regulated by the independent Office of Rail and Road, which reviews its efficiency and determines its funding requirements within a framework set by the Department of Transport, part of central government.

Franchise contracts were drawn up by the Department for Transport and in principle allocated through competitive tendering, competition thus being for the award of the franchise rather than through provision of competing services on the tracks.  However, more recently around two-thirds of franchises have been awarded without competition, often through the extension of existing franchises.  Whilst the franchises specified service requirements in minute detail (typically covering around 1000 pages), they did not deal effectively with the allocation of risk between the government and the operating company.  As the result of bids based on over-optimistic passenger projections, one franchise was handed back to the government three different times and operated each time temporarily by a public operator of last resort.  A further franchise holder has since had to be replaced by the operator of last resort after serious service problems.  In 2018 the timetabling process effectively collapsed in two regions as a result of inadequate cooperation between the different bodies involved.  Allocation of responsibility for train delays between Network Rail and the operating companies was undertaken by a complex bureaucracy determining penalty payments to compensate for losses that they caused; this alone employed almost 400 staff.  The Covid pandemic resulted in a collapse of passenger revenues for the companies, and franchising was replaced by management contracts in which financial risk is borne by the government, rather than by the companies themselves.

In 2018 a review of the system was set up; this was delayed by the Covid pandemic, but it has now been published as a Government White Paper, Great British Railways: The Williams-Shapps Plan for Rail . The review acknowledges that there have been fundamental problems with the industry since privatisation and recommends major reforms.  It emphasised that the problems were largely due to the fragmentation of the system, and proposed the creation of a new public body, Great British Railways, which will act as a ‘guiding mind’ for the rail system as a whole.  It will take over from Network Rail the ownership and management of rail infrastructure, but it will also assume additional functions.  Great British Railways will be responsible for drawing up timetables and for determining most fares; previously, both were largely a matter for operating companies.  It will also commission the provision of passenger services, previously undertaken by the Department for Transport, part of central government.

This should represent a substantial step towards increasing the integration of the system and ensuring better collaboration between its constituent parts.  However, it does not represent a wholesale return of the rail system to public ownership.  In the past, apart from where the operator of last resort has had to step in where a franchise has failed, franchises could only be award to private operators; there is a statutory prohibition in s. 25 of the Railways Act 1993 preventing the award of the franchise to a public body.  Ironically, however, this only applies to British public bodies, and about half the franchises were run by subsidiaries of overseas publicly owned rail operators, notably Deutsche Bahn.  The White Paper envisages that services will continue to be provided by the private sector (the question of foreign ownership is not discussed), although the ability to appoint a public operator of last resort will remain.

Great British Railways will therefore not run services itself, but it will commission them from the private sector through ‘passenger service contracts’; the aim will be that all are put out to competitive tender.  The contracts will, however, be very different from those used for franchises.  They will take the form of ‘concessions’ which will not attempt to transfer revenue risk to the operator; such risk will be retained by the public sector so, for example, where passenger numbers drop dramatically, the public sector will bear the burden.  The operating companies will be paid a fee for the provision of the service rather than taking fare revenue.  In this respect the contracts will be similar to the concessions already used by local transport authorities in London and in Merseyside to procure the provision of rail passenger services.  There is no suggestion in the White Paper that public bodies will be able to bid for the concessions.  Freight services will continue to be provided through open access by private companies.

The White Paper remains vague in a number of respects.  It is unclear how stipulative the concessions will be as regards service and quality requirements, though the Paper suggests that they will be tailored to the needs of different passenger markets.  An important theme which emerged during the review was the growing role of local government in the provision of transport services.  Although Great British Railways will have regional divisions, arrangements for involvement of local government are only treated superficially in the White Paper.  Similarly, there is little discussion of the role of the devolved governments of Scotland and of Wales which have taken a different approach to the UK government on franchising and the role of the public sector.  Finally, the role of the Office of Rail and Road is to be expanded to monitor the performance of Great British Railways; it is unclear whether this will extend to monitoring the provision of services by the contractors or whether this will be left to Great British Railways itself using the terms of the contracts; it is also unclear to what extent government will be involved in monitoring.  New regulatory powers for the ORR in this area would be a major change for a body previously concerned with infrastructure and safety regulation.

The White Paper does represent a major step forward in tackling the problems of fragmentation which have bedevilled the rail system since privatisation; it also marks a belated recognition of the fact that competition is not feasible as a way of organising a complex network industry such as rail (in this respect is it highly un-Thatcherite).  Much detail needs to be clarified, and, in particular, it is uncertain whether a system which continues to be based on contracting services to private providers will be able to achieve the degree of cooperation and coordination which, as the review makes clear, was so lacking under the existing system.  Understandably, there is also major uncertainty about the long-term effects of the Covid pandemic, which, at the very least, seems likely to result in a permanent reduction in commuting to work by rail.  The White Paper is a useful first step, but much more needs to be done.

Previously published on Chemins Publics and republished here with permission.

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