Patrick McLoughlin, the secretary of state for transport, also announced two enquiries: one into what went wrong within the Department for Transport, and the other into what needs to change going forward.
These developments matter for commuters. The terms of a new franchise can have a huge impact on whether you get a seat, how much you pay and how clean your train is. The announcement could have big implications for new train orders and major new railway lines across the country. Over the next three years, services carrying around two thirds of all passenger journeys are up for renewal. Of the franchise competitions already suspended, many serve busy lines into and out of the capital. And many are due to deliver additional carriages and other improvements that rail travellers are impatient to see.
The Department for Transport has given some clues as to what it thinks has gone wrong, including problems with assessing operators’ bids. Many commentators see this as an ideal turning point for how we manage and deliver rail services in Great Britain. They are right.
When franchising was first introduced alongside rail privatisation in the 1990s, the huge increase in passenger traffic wasn’t anticipated. Last year, the national rail carried in excess of 1bn people: more than at any time since the 1920s. This has placed huge pressures on the system and demands for upgrades and expansions to reduce overcrowding. Worried about spiralling costs, the Department for Transport took full control of the railways from the now defunct Strategic Rail Authority in 2006. That decision is arguably the root cause of yesterday’s debacle.
While British Airways or National Express are free to make decisions about how many aircraft or coaches they buy and where they operate them, the railways are run largely by Whitehall. The reason often cited by governments is the significant amount of public money pouring into rail. But this argument is looking increasing difficult to sustain.
Long distance rail services in the UK are profitable. The West Coast franchise was all about how many hundreds of millions of pounds operators were prepared to give the Treasury. Bidders and passengers have been caught in a squeeze between increases in fares for the government’s coffers and highly prescriptive state rules covering nearly every aspect of running a train service. No other profitable business is regulated in this fashion.
One effect of Whitehall control is that it works against the most efficient and rational economic investment decisions being made by the industry. Financial handstands have to be performed to pay for trains with a life of 30 years to be run in a 10 or 15 year franchise. Operators end up with a centrally dictated mix of carriages that no rational private company would choose. These sorts of interventions have driven up fares and procurement and maintenance costs.
But from a problem springs an opportunity. By accident, or otherwise, McLoughlin has found himself at the crossroads of a policy choice. The secretary of state has already demonstrated his willingness to be very open about the franchising fiasco. McLoughlin should take the opportunity and announce plans to move the country’s profitable inter-city routes away from Whitehall and subject them to much lighter regulation. Concessions for 30 years (similar to High Speed One, the rail link to the Channel Tunnel) or auctioning long distance rail slots would provide a step change in how the railways are delivered. Competition from cars, coaches and airlines will keep the companies on their toes. Rail companies would be able to invest over sensible horizons. Perhaps best of all, from the government’s perspective, the Treasury would get paid upfront when the rights to run services are sold.
For commuter railways, the case for further devolution to the Mayor of London and other local authorities is also compelling. Locally elected, accountable individuals should have the final say in the fares people pay and the services they receive.
Taken together, these changes would help put the railway beyond the reach of Whitehall once and for all. As they say in America: “Never waste a crisis”. Or in McLoughlin’s case a judicial review.
Alexander Jan is global head of Arup’s Transaction Advice team for transport.