Rail 650: Villiers reforms leave empty feeling

The franchising system in the rail industry is rather like those cheap Chinese buffets that have become commonplace in places with little culinary tradition. It all looks rather good and tasty but once you tuck in, none of it is very satisfactory and what promised to be a feast turns out to be a rather inadequate lunch.

 And so it is with franchises. Several recipes have been tried and whatever happens no one is very happy at the result. So the question is, will franchising version – well let’s call it 4.0 but it could be 5 or 6 – work any better than previous ones?

 The distinguishing characteristics of the Villiers version published in a consultation paper at the end of last month are rather difficult to discern. She sets out three core reasons for franchise reform: better quality services, with less overcrowding for commuters, better value for money (of course!) and ‘creating the right conditions for a successful and sustainable rail industry’ by harnessing private sector skills and driving efficiency improvements. Interesting that bringing in substantial investments has been quietly dropped, because of a realisation that it is unrealistic.

 Hmmm. All that seems pretty much the kind of motherhood and apple pie aspirations which have driven every franchise model so far. The problem is how to achieve it. The overall impression of the consultation is one of confusion and uncertainty about how to make things better.

 Poor Ms Villiers has been charging round the country for the past three years saying that the Department for Transport has been micromanaging the franchises and that the operators must be given more freedom but she is now finding that the realities of government are rather more difficult than the fantasies of opposition. She has been warned by officials in the Department that allowing the operators greater scope to make changes could result in highly unpopular decisions. She wanted, for example, to allow them total control of the timetable but it was made clear to her that the consequence would be reductions in unprofitable trains which would damage the service.

 Shock horror, Ms Villiers finds that ‘some timetables may not have changed since the days of British Rail’. Well, there may be good reasons for that such as the fact that the industry was then run by people who knew their customers or that there are operational constraints which means that it is impossible to make significant changes. Therefore it may well be that the current timetable is optimal on many routes thanks to the relatively tight control that has been exerted over the operator.

 Throughout the paper the watchword is ‘flexibility’ but almost every time ways of giving the operators more freedom are set out, then qualifications are mentioned in the next sentence. She will have been reminded that when National Express started losing money on East Coast, its then boss Richard Bowker threatened to withdraw all catering from the trains because they were losing money.

 As an example, the paper mentions the issue of on-board toilets. Not surprisingly, this is the area of most dissatisfaction for passengers – 39 per cent are unhappy – and the paper says ‘we envisage more flexible franchise agreements which give operators stronger incentives to make the improvements they know are important to their customers’. But hold on a sec. Nothing stops the operators from improving their lousy toilets now – except it is a cost that has no direct return and therefore they do not bother. So is this not a case for more prescription rather than less?  Overall, throughout the paper, it is very unclear precisely what new flexibility the government is prepared to offer to the operators.

 There is the same confusion over franchise length. Take this section whose intellectual contortions are almost painful: ‘The current franchise length, typically seven to ten years, is too short. It does not encourage operators to plan and invest for the long term and frequent competitions carry substantial costs, both for industry and Central Government. On the other hand, there is evidence that by testing the market frequently Government has secured higher premia/lower subsidy through regular competition. However, it should be noted that regular market testing also imposes administrative costs on the Government and substantial bid costs on the rail industry.’

 To a professional writer like me, this breaks every rule. If I wrote a paragraph like that, I would be sacked for incoherence. It makes a point, debunks it, and then tries to rescue it. Later on, in the next paragraph, it knocks down the longer franchise argument by saying that any new arrangement must prevent avoid the creation of ‘an indefensibly poor deal for the Government and unacceptably large profits for the operator’. There are suggestions of mitigating this risk by, for example, linking the level of subsidy/premium to GDP but there will always be the possibility that external factors – road congestion, fuel prices – would lead to sharp rises in rail travel and, in turn, big profits for operators.

 Assessing risks over long periods is pretty much guesswork and that could end up being costly. It was noticeable that Peter Hendy, the transport commissioner in London, at the recent Rail conference spoke out against the idea of longer franchises, based on his experience of the London bus market, suggesting that they would lead to higher costs because operators would be taking on risks that were more difficult to quantify. The Villiers paper recognises this saying that the C2C model, where there was a 15 year franchise, ‘could significantly increase costs to the taxpayer because operators would price this risk in their bids, impacting on the level of premium/subsidy lines.’ There is, too, a difficulty over allowing bidders to pitch for different lengths of franchise as the paper suggests because the National Audit Office suggests they are not easily comparable.

 Therefore, as ever with discussions of franchise length and flexibility, we end up in circuitous arguments that start off suggesting change, then debunk it or clothe it in so many qualifications that it seems best to leave things as they are.

 And that’s the most important conclusion from all this. The paper itself suggests that there is no one model that fits all and therefore one wonders why on earth this whole ‘review’ process was necessary other than the fact that the ‘microfranchising’ issue was built up by Ms Villiers before the election. The review process, by the way, has not come cheap. An inside source at the DfT suggests that at least £50m will have been wasted, partly through the process itself but mostly because the existing franchises have had to be extended on terms that are generous to the incumbents since they have the Department ‘over a barrel’ and get what is essential a generous ‘cost plus nice profit’ contract.

 Rather than yet more tinkering around with franchises, if Ms Villiers is interested in improving the lot of passengers, she should be defending the electrification proposals which are now under threat even though it is clear that in the long term they will save money and improve the railway. Creating franchise model 4.0 will be costly and ultimately lead to the same problems as before. The Wolmar question – ‘what is franchising for?’ – remains unanswered

Why does it take so long to see the blindingly obvious?

While I was away in July cycling to Italy, two reports were published which in many respects were statements of the blindingly obvious. First, there was the review by Sir Andrew Foster of the Intercity Express Project and then there was Lord Mawhinney’s findings on the Heathrow connection with the proposed High Speed Line.

 Both effectively came up with the predicted and obvious answer. Sir Andrew’s damning report – the language is just about the right side of polite but you don’t have to read between the lines to see that he thinks the Department officials are incompetent – found that the IEP had not been properly thought out and that there were bound to be cheaper and more sensible alternatives.

 Then Mawhinney came up with the very sensible finding, which we knew anyway from the excellent and comprehensive HS2 report, that the Tories’ election commitment to run the line through Heathrow would be expensive because of the tunnelling and would substantially reduce the benefits by slowing down services on the line. Moreover, a very small proportion of passengers would the line to access Heathrow. The commitment to connect Heathrow has always been a fig leaf for the notion that the high speed line will take passengers out of aeroplanes and onto rail, which has always been nonsense.

 These reports, of course, cost a fortune to produce – and all because we do not have a railway agency with the expertise and self-confidence to make these decisions. If the government really wants to get off the back of the railways, and allow them to flourish, the creation of such an agency would be top of its agenda.

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