Rail 720: Franchise timetable shows system is unworkable

My alter ego, Mystic Wolmar, sometimes gets predictions so wrong that I have contemplated smashing his crystal once and for all. But just occasionally he hits the mark as sweetly as a Gareth Bale piledriver. So allow him, for once, a little bit of glory. When the Department for Transport published its franchise plans, Mystic was quoted in The Sun (I know, but they did ask…) saying ‘I suspect they [the private train operators] will be so pleased with this announcement they will quietly drop the legal bid to get their money back on the failed franchise bids. And the next day, heyho, they did.

That’s hardly surprising. For ensuring that they make short term profits, which seems to be the main aim of most of the operators, the announcement is perfect. The extensions that will have to be granted to most of the franchises will have to be thrashed out in negotiations in which the operators hold the upper hand. Sure, there is Directly Operated Railways (a name that Simon Burns, the rail minister, seemed unfamiliar with when I appeared with him on the Daily Politics Show as he got it wrong), the back up state-owned company that will take up any franchises that cannot be given to the private sector, but clearly the private operators will know that the Department will only very reluctantly hand a franchise to DOR. This was made apparent by the fact that ministers chose to fast track (well, in their terms) the franchising out the East Coast franchise despite the fact that it had been successfully by DOR since 2009, paying vast levels of premium back to the Department without part of it being siphoned off by private company.

The delay periods are just extraordinarily long and do not seem to relate to performance or need for investment. So the incumbents on South Eastern have been given 50 months; Cross Country has got 43 months; Great Western, 33 months; East Midlands, 30 months; West Coast 29 months; and so on. That is, by the way, the same West Coast that caused this fiasco and which, originally, the government had said could not be extended by more than a year because it would fall foul of EU rules. It is fascinating how the EU requirements have been forgotten in all this, presumably because they were always used as an excuse for the government to pursue its franchising agenda, rather than because of any real threat that Brussels would intervene (see, too, my previous column).

At every level, the statement was a disgrace and an abject recognition of government failings in both policy and implementation. It is impossible to exaggerate the extent of this failure. I’m afraid I take issue (yet again) with my esteemed editor whose optimism in his editorial last issue about this announcement seems misplaced. On every criteria which franchising is supposed to deliver, this programme fails: investment, reducing taxpayers’ contribution, efficiency, certainty, staff morale and the devolution programme.

On investment, the delay to most of the franchising programme is already causing damage to the industry. While the train operators do not invest much themselves, the agreements they thrash out with the Department are supposed to include improvements and, in particular, arrangements for new rolling stock. Now there is widespread dismay that many of these improvements cannot be made. For example, in East Anglia, the long term franchise was supposed to have started next summer but now will not begin for at least two more years (there is no guarantee that the Department will be able to cope even with this revived schedule). That means plans to either upgrade the existing locomotive hauled stock with the purchase of new faster engines, or to buy an entire new fleet has been put on hold. There are countless similar stories from around the country. The only realistic way of this mess is for the Department to underwrite some of these investments, or otherwise decisions which may become critical will lead to rushed mistakes.

The second potentially disastrous implication is that the expected savings which were supposed to be made from the franchising programme, as recommended in the McNulty report, will now not be achieved. As I mention above, the negotiations over extensions to the franchises will take place with the Department having one arm tied behinds its back and therefore it is unlikely they will negotiate reductions in subsidy or increased premiums, especially as so many franchises are already in cap and collar arrangements. Network Rail’s investment programme is dependent on these savings and without them there are bound to be reductions in its plans.

Thirdly, the short term perspective will undoubtedly create inefficiency. Assets will be neglected, the longer term implications of decisions will not be considered. Patch and mend will be the order of the day. Why bother doing much if the franchise is going to be relet in a few months time and probably someone else will get it?

Fourthly, the delays to letting permanent contracts for the franchises means years of uncertainty and muddle in an industry where long term planning is the key to success. As I have always argued, rail is a mature industry which, by and large, is very predictable and stable on a day to day basis. Over the long term, however, it needs strategic thinking and gradual change, which cannot be delivered in an environment where no one knows who will be involved in a couple of years time.

Then there is staff morale. Here’s a quote from a guard who wrote to me in the wake of the franchising fiasco: ‘Having had three owners in charge of me, I know how disruptive this whole re franchising process is even at my lowly level. We will now have two years of uncertainty till the new incumbent takes over. Words on maintaining service quality etc. will be issued but the managers will be looking to securing their futures. Developing the service and maintaining quality will be less important than protecting their backs and ensuring they have a job to go to.’  Managers, too, will be disappointed to be working in a framework of uncertainty and muddle.

The other issue being delayed is devolution. This basically a good idea although the details need to be worked out. However, the renewal of the Northern franchise, which will be the key beneficiary of this new policy, had already been postponed for six months, and now has been given another two years, which means it will not be let until February 2016.

And finally, while the Association of Train Operating Companies may be relishing the prospect of its members getting a good deal in the short term extensions, actually this delay is bad for its members. Its bland and lukewarm response to the announcement, which said ‘Getting franchising back on track, as today’s announcement does, will ensure that train companies, Network Rail and our suppliers can continue to provide the best possible deal for passengers and taxpayers’ suggests that their members do not think it is all good news, even if they did drop their crazy legal challenge. They will wonder if it is worth the bother of going through the franchising process which has shown to be deeply flawed. They will also know that with an election in 2015, the arrangements for the future may well change again. Perhaps some of them are cheering quietly, and thinking they got what they wanted by pressing for a legal challenge over the lost cost of the bids, but I suspect deep down they know that this announcement, with its emphasis on the short term, is not good news for the industry.

Let’s just remember what happened at the beginning of the franchising process. Roger Salmon, the franchising director, began preparing as soon as he was appointed in 1994 and then his successor, John O’Brien let the whole lot, 25 franchises between the autumn of 1995 and the spring of 1997, a mere 18 months. At times two or three results were announced together, and this, remember, was from a standing start when franchises had not been let before. If it were possible then, why not now? One key reason is that it was done by a semi independent agency, the Office of Passenger Rail Franchising, rather than civil servants.

Surely, what Richard Brown should have done is say: we need simplified franchising process allows the franchises to be let quickly and efficiently, with less government interference. Moreover, it needs to be carried out by an agency separate from Whitehall (see my column in Rail 708). Instead, he suggested the programme of three or four franchises every year, that is seen as feasible for an incompetent department run by interfering ministers who have little understanding of business or the railways.

This debacle is a great shame given the amount of money being poured into the industry and the ever growing passenger numbers. It is all a result of a flawed structure and a bone headed obsession with a neo-liberal agenda that simply does not work. The only hope is that the next government will see sense and either move towards a long term concession system, or simply recreating a body to run state owned franchises.



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