THE PURPOSE OF PASSENGER RAIL FRANCHISING

  The outcomes from rail passenger franchising need to be measured against the objectives set by Government. Potentially, rail privatisation offers the opportunity of providing leaner, more efficient and market-based services which are both more attractive to the customer and cost the taxpayer less in government subsidy.

  The objectives of passenger rail privatisation have been to:

—    reduce the level of public subsidies for rail passenger services;

—    produce consumer benefits by attracting additional passengers through more attractive services and ticket prices;

—    lever in sufficient private sector investment in infrastructure and rolling stock, through competition for franchises, to create a more reliable railway with fewer capacity constraints; and

—    produce the conditions to deliver the Government's 10 Year Transport Plan target of a 50% growth in rail passenger traffic by 2010-11.

  The four stated objectives of the SRA's November 2002 Franchising Policy were to:

—    deliver a safe, more reliable service of consistently high quality for rail passengers;

—    provide clarity of service specification so that industry partners work together for passengers;

—    deliver a value for money service for passengers and taxpayers; and

—    secure accountable, viable operators who are passionate about delivering for their customers.

  (see Knowles, 1998 and 2004)

Are the franchise contracts the right size, type and length?

  Analysis of first round franchise commitments demonstrates that franchise bidders are not prepared to invest heavily in rolling stock and infrastructure without a franchise period of at least 10 and preferably 15 years (Knowles, 1998).

  A new template for a franchise agreement was developed by March 2003 with industry partners including the Association of Train Operating Companies. Second round franchises were cut to a norm of a five to eight year period, with good performance offering the prospect of an extended franchise. These short to medium term franchises are not generating the significant levels of private sector infrastructure investment in Britain's railways envisaged in the government's 10 Year Transport Plan (Knowles, 2004). This was a contributory cause of the Government abandoning its Ten Year Transport Plan target in July 2004 of a 50% growth in rail passenger traffic by 2010-11.

  At the time of the 10 Year Transport Plan, refranchising of passenger rail services for 10 to 20 year terms was intended to generate billions of pounds of private capital investment in infrastructure, rolling stock and services, many times greater than that achieved from first round franchises when 18 out of 25 franchises were let for shorter periods of up to seven years six months. With the loss of private sector confidence following the Hatfield derailment, Railtrack's demise and the unsustainable Annual Financial Improvement requirements of may first round franchises, most of the new franchises are for much shorter periods than 10 years, offer less investment in rolling stock, fewer service upgrades and very little infrastructure investment.

  The strategy of consolidating franchises operating out of major termini to simplify journey planning and improve services for passengers would be logical if applied to major provincial cities like Leeds, Manchester and Sheffield and not just to London.

Do we need more competition and vertical integration?

  Open access competition is only fair if there is a level playing field in terms of track access charges for the incumbent franchisee and the open access competitor. If the open access competitor only pays marginal access costs they have a substantial and unfair advantage against the incumbent franchisee. This is compounded if track capacity constraints prevent the franchisee from delivering its franchise service commitments because an open access competitor has been allocated all the spare train slots.

  Vertical integration, where the train operator is also the track operator, could be advantageous when one train operator operates all or most train services on a particular network. There would be more incentive to prioritise investment and maintenance in line with train operators' preferences. Vertical integration would also incentivise a reduction in the length of service disruption during routine maintenance.

CONCLUSION

  Rail privatisation has succeeded in growing rail passenger traffic to record levels, assisted by continuing economic growth and increasing road traffic congestion. However, annual subsidies have not decreased in real terms; in 2002-03 they were almost identical to those received before privatisation by British Rail in 1993-94.

  The policy of accepting the lowest subsidy bids for first round franchises proved to be unsustainable (Knowles, 2004, p 2078).

  Regions outside south-east England have suffered the most negative consequences of rail privatisation as Regional sector franchises faced the twin challenges of the highest annual financial improvements to replace declining subsidies and a dearth of capital investment. The average age of rolling stock is now, for example, much higher in the Northern franchise than in the south-east commuter franchises.

  Refranchising has not in most cases levered significant private capital investment in infrastructure, rolling stock and new services.

REFERENCES

Knowles R D (1998) Passenger rail privatization in Great Britain and its implications, especially for urban areas, Journal of Transport Geography, 6(2), 117-133.

Knowles R D (2004) Impacts of privatising Britain's rail passenger services—franchising, refranchising and Ten Year Transport Plan targets, Environment and Planning A, 36, 2065-2087.

29 June 2006