Tuesday 23 June 2020 12:50 pm

Calls for rail reform rise as cost of bailout revealed

Transport secretary Grant Shapps will appear before the transport select committee tomorrow amid growing calls for the government to use its temporary control of the railways to enact reform of the franchise system.

In March, the onslaught of the coronavirus crisis prompted ministers to take the UK’s rail firms under emergency measures for six months, protecting them from any losses incurred by the slump in passenger numbers.

Read more: Railway bailout has cost £3.5bn so far, government reveals

Last week junior rail minister Chris Heaton-Harris told parliament that the temporary nationalisation had thus far cost £3.5bn. 

Attention is now turning to what will happen when the measures expire in September, with one senior industry source telling City A.M. that some franchises were facing an “existential threat” if the measures were not renewed.

The DfT has repeatedly said that the measures can be extended if necessary, as is looking increasingly likely.

Many industry stakeholders have suggested however that the temporary measures provide the government with an opportunity to shake-up the existing system, which had been creaking even before coronavirus struck.

In January, Northern Rail was renationalised and taken under the control of the government’s Operator of Last Resort.

Dr Nigel Harris of the Railway Consultancy warned that the majority of the existing rail franchises could not turn a profit even on 80 per cent of usual passenger numbers.

He said the government had a gilt-edged opportunity to make some changes to the system, saying:

“One of the advantages of it all being under government control is that you can change a lot of things without upsetting anybody”.

Read more: HS2: MPs say controversial rail project ‘badly off course’

He warned that until there was a clear sense of what passenger numbers will be in the future, the industry would be stuck in a holding pattern.

“You can’t let a contract for a business if you have no idea what the demand is going to be like. Until we know roughly what it’s going to look like I would expect the government to roll over these emergency measures agreements”.

However, he warned that the system was in a “dangerous place”, with questions beginning to abound over the point of a franchise system.

Prior to the crisis, the industry had been waiting for the Williams’ review into the system to report, but last week Heaton-Harris said that the coronavirus meant more work would have to be done on the investigation.

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Of the most recent contracts to be awarded, several, such as Southeastern, have followed the management contract model, which seems to be in line with the findings of the review.

Last August, when First Group and Trenitalia were awarded the joint contract to run the new Avanti West Coast line, a contract which will switch over to become a so-called management contract in 2026, Williams said:

“This West Coast Partnership delivers for passengers. It is a step forward that is firmly in line with the review, introducing benefits for passengers today and capable of incorporating the reforms needed for the future”.

Harris is among those who say the government should implement some of the review’s findings now, as does industry body the Rail Delivery Group.

Read more: Struggling Northern Rail franchise nationalised and renamed Northern Trains

For the RDG, evolution, not revolution is the order of the day, with the focus on on reducing the burden on the taxpayer and giving operators more freedom to conduct business and start getting the rail market and wider economy of the UK back on track.

Policy director John Williams said: “As Britain emerges from the pandemic, we need meaningful change that will enable all parts of the railway to fully support the recovery. 

“Rail companies want to work with the government to accelerate reform and achieve a reformed, more customer-focused and accountable railway”.

However, another group believes that the time is right to do away with the franchise system in its entirety.

Emily Yates of the Association of British Commuters (ABC) said that current events had overtaken the Williams review.

“Williams’ review now looks like it has been folded up and put away. The government has said that it is doing more work on it, but many are saying that the work won’t ever see the light of day.

‘We may never seen the same levels of passenger demand again, and by being locked into the rail franchising system we are seriously inhibiting any chance of developing a coherent and integrated transport policy”.

Yates said that the Operator of Last Resort, which received £20m in financing last year, now stood ready to take over all of the existing franchises on a permanent basis, as the Railway Gazette revealed last month.

A campaign launched last week pushing for renationalisation has already resulted 17,000 emails being sent to the government on the issue, she told City A.M..

The policy has the support of rail union the RMT, which last week urged ministers to “come clean” over their long-term plans for the sector.

And last week a report from influential think tank the Institute for Government suggested that the railways would be a prime candidate for renationalisation.

Read more: Rail franchises to introduce social distancing measures as lockdown eases

Ultimately, however, Harris doubts that this will be the long-term solution. He said:

“I just can’t imagine a centre-right wing government being happy with this arrangement. You would have thought that at some stage they’d want to get back to something more commercial, but I just don’t see how you can do it in 2020”.