Franchises still have no purpose

The recent allocation of franchises on the basis of very tight optimistic projections on revenue and passenger numbers begs the question which I have been asking ever since the railways were first privatised a decade ago: ‘what is franchising for?’

The impetus behind franchising as developed by the Tory government of the mid 1990s was that the private sector would be better at operating the railways than the old British Rail. There would be innovation, more customer care and investment as well as be scope for the new train operators to run extra services. Little evidence of this was seen. Instead, as the franchises, which were largely for seven year terms were let, it became clear that largely the system was a way of forcing the private operators to reduce costs, as the amounts of subsidy were planned to be reduced sharply over the length of the franchises.

It proved impossible. BR had been far more efficient than the private sector bidders had realised and several had to throw the towel in when their assumptions about cutting costs proved unrealistic. Others found themselves short of drivers and having to run emergency timetables.

So, instead, the newly created Strategic Rail Authority under the late Alistair Morton tried to draw up longer term franchises of 20 year which involved considerable investment from the operators. All kinds of ambitious schemes, involving tunnels under London, flyovers and track quadrupling were put forward but only one deal, Chiltern, was signed, the Treasury noticed that most of this would effectively be predicated on the back of huge amounts of public cash and pulled the plug. Investment, it seemed, was not to be the focus of the franchising system.

Then there was a brief period under Richard Bowker, who took over from Morton at the SRA, when there was an attempt to ensure franchise bids were achievable even though there was constant pressure from the Treasury to reduce public subsidy of the rail industry following the collapse of Railtrack.

With the abolition of the SRA, any such attempt to ensure bids were realistic was abandoned as the franchising process was taken over by civil servants with little knowledge of the railway but under even greater pressure from the Treasury to reduce subsidy. The current series of franchise deals seem to be an attempt to outdo each other in terms of the heroic nature of the assumptions on growth.

Passengers are already being made to feel the pinch with new franchises quickly having to find new sources of revenue. First Capital Connect imposed restrictions on travelling out of London on cheap tickets in the evening rush hour, Stagecoach put up some off peak fares by 20 per cent on South West Trains and Arriva Trains Wales has scrapped the supersaver.

The Department for Transport is deliberately turning a blind eye to the all too obvious consequences of the massive reductions in subsidy (or increases in premiums) being required of the successful bidders: higher fares, a lack of concern about overcrowding and no scope on board staff to treat customers flexibly.

A remarkable example of the latter was told to me by a friend who wanted to board a train at Wokingham. He waited for several minutes at the crowded booking office but when his train arrived he saw there was a conductor aboard with a portable ticket machine. My pal approached the conductor and asked to buy a ticket from him, only to receive the response:’ Put one step on this train and I will charge you a £20 penalty fare, and then sell you a ticket’. He decided it was not worth £20 to save 15 minutes and took the next train. This sort of behaviour by conductors is, of course, a result of pressure from the rail companies which makes their job not only more difficult but also riskier since there is much higher chance that they will face abuse from passengers.

Overall, fares went up by 6.8 per cent last year, double the rate of inflation and the trend is set to continue. Arriva, which won the recent Crosscountry franchise, ousting Virgin has stated that it will increase unregulated fares by 3.4 per cent above the rate of inflation. The railway, in other words, is turning into Ryanrailways, with the same level of ‘customer care’ and aggressive revenue maximisation as Michael O’Leary’s unpleasant airline, with passengers assumed to be fare dodgers out to cheat the rail companies.

A senior source in the Department admitted privately that the franchise deals now been signed are a recipe for deteriorating conditions on the railway: ‘We need something in the franchise process to stop these companies outdoing each other solely on the basis of price, but we are bound to accept the lowest bid’, the source commented.

There are, too, doubts about whether these franchises are viable. Already, we have seen GNER’s franchise collapse, despite recent high growth, because of the temporary reduction in passenger numbers in the aftermath of the 7/7 bombings on the London Underground two years ago. Others could soon follow. With interest rates rising and the likelihood that the economic growth of the past decade will slow down, many of these new franchises could quickly find themselves in trouble, raising again the question of why the railways are run entirely through a franchising system that is clearly less than perfect. .

The question ‘what are franchises for?’ therefore still has no answer. Franchisees are not expected to invest in the railway, or if they do that is costed into their bid through higher subsidies or reduced premiums. They take the revenue risk and yet if there is a big shortfall, as happened with GNER, they can throw the towel in. In reality, the sole reason seems to be that this is a way of keeping the operation of the railways out of the public sector which many senior rail managers and, even ministers, think would result in a greater likelihood of industrial relations trouble. But they never dare say that in public.

Christian Wolmar’s new book Fire & Steam, a new history of the railways in Britain, will be published in September. To find out how to obtain a signed copy, email him via his website, www.christianwolmar.co.uk

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