Rail 763: Passengers in the dark over compensation

One of the unfathomable complexities of the rail system for passengers is the compensation scheme for delays. Many people are unaware of it or have not idea how to claim, or whether they are eligible.

The TSSA has sought to highlight the train operators’s failing in this respect by annually pointing out that the train operators profit from the imbalance in the compensation system between the money they receive from Network Rail and the amount they pay out to passengers.

This year, according to the press release TSSA issued earlier this autumn, the amount was the biggest ever recorded by TSSA. The operators trousered (as Private Eye always expresses cash payments of which it disapproves) some £167  million from Network Rail, while they only paid out £22m to passengers. It is a neat way for the TSSA to have a pop at the operators in the union’s campaign in favour of renationalisation. This does, indeed, appear to be an enormous disparity and Manuel Cortes, the leader of the union, was moved to describe the operators as behaving ‘like modern day Robin Hoods in reverse’ .

Inevitably, however, the issue is rather more convoluted and more about the crazy complexity of the financial structure of the industry rather than any attempt by the operators to profit from delays. While there is indeed a scandal, it is not necessarily the one that the TSSA is has highlighted.

The problem with the TSSA analysis is it is comparing apples with pears. The compensation payments made by Network Rail for delays has no relationship with the money refunded to passengers. Of course in an ideal it would but the calculations are made entirely separately and on a completely different basis.

As I explained in Rail 725, compensation for scheduled closures paid by Network Rail is calculated through a Byzantine formula that takes into account factors such as extra mileage that has to be run by buses and estimated extra length of journey times. Unscheduled delays are paid through a different formula and unlike compensation paid to passengers, relate to every minute of delays greater than three minutes. (Actually, this varies between franchises but the below three minute cut off used in many areas is rightly viewed by operators as a disincentive for Network Rail to examine causes of short delays which can often, especially on commuter lines, have a knock on effect.) Moreover, as I explained in Rail 725, the amount operators are expected to earn in compensation is taken into account in their franchise bids and consequently they are effectively reclaiming their own money.

There are, just to add further complication, two different schemes for long distance journeys – and separate arrangements for season ticket holders. Under the old one, still current in a majority of franchises, the basic arrangement for long journeys is that for a delay of an hour or more people receive 20 per cent of the fare (the leg they are on, so only 10 per cent if they are only delayed on half of a return journey) refunded with vouchers, provided they apply. Some operators have better terms according to the details of the Passenger Charter and may pay up to 50 per cent of the ticket price, depending on what they signed up to on the start of the franchise. However, the key point is that this only applies to delays that are rail industry caused – so the vast majority of delays including those resulting from suicides, bad weather and lineside fires are not eligible. And irritatingly for passengers who book through the internet, the compensation is routinely paid in vouchers rather than cash, although Passenger Focus tell me that people who are persistent will normally get cash.

Season ticket holders are subject to a completely different arrangement. Their refund is based on the average performance of the group of trains in which their usual service operates. If the targets are not met – which again vary from route to route and franchise to franchise – then compensation will be available, and this can be highly anomalous. These groups encompass diverse routes and it may well be that a passenger’s normal train performs particularly badly but other trains in the group do well, and therefore no compensation is payable. And, of course, vice versa. Inevitably, in these circumstances, if a passenger has had a good year on the trains, they are unlikely to realise they are eligible for a refund.

A simpler new system, called ‘delay repay’ is now being introduced in franchises by the Department. Compensation is be payable provided the train is 30 minutes or more late and, crucially, any delay, whether rail caused or not, is eligible.  There is also to be a new system for season ticket holders. They will essentially have the same rights as long distance travellers and therefore be able to claim for any train that is more than 30 minutes late

Now for the problems with the TSSA analysis. First, the figure of £22m relates only to the nine franchises who operate the delay repay system (interestingly £14.5m of that total comes from the West and East Coast lines). Therefore it is an underestimate of the amount actually paid out. But the real scandal is the small proportion of people who claim. A survey by Passenger Focus in 2013 found that 88 per cent of those eligible for compensation did not claim so, with almost half saying they had never considered it and another third saying they thought they would not be entitled. Similarly, research by the Office of Rail Regulation found that 68 per cent of respondents would never claim compensation. Passenger Focus would like to see operators forced to make announcements once the 30 minute time delay limit had been breached, the creation of an online claim form (note to TOCs – this is 2014, not 1914!) and payment in the form it was made to purchase the ticket – or at least the ability to use vouchers online.

There are several explanations for the low claim rate. There is no obligation on the operators to hand out forms when there is a long delay and I have had personal experience of this. Moreover, given the complexity of the rules and the variation between train companies, many people will not know of their rights. And, of course, the situation with season tickets where the performance on the overall ‘route’ rather than the particular service a passenger uses regularly, determines eligibility means many people will be unaware they can claim. TSSA then has it half right – there is a compensation scandal, but not quite the one the union describes.



East Coast – will it be third time lucky?


There were red faces in Fleet Street when it turned out that the East Coast franchise is going to give us red trains as a coalition of Stagecoach and Virgin won the bid rather than, as had been widely trailed, the French owned Keolis and Eurostar. This is a different company from the one operation on West Coast where the split between the two is almost 50 – 50 whereas on East Coast Stagecoach is very much the dominant player with 90 percent, though the Virgin brand is to be used. This is not uncommon in Richard Branson’s group of companies – he often lends the Virgin name to companies in which Virgin only holds a small stake because it is the brand that is valuable.

Although details of the financial arrangements are not yet known – they have to wait for confirmation of the deal going through later this month – my industry sources say that the basis of the franchise bid is quite challenging in terms of passenger revenue. However, the introduction of the much more expensive new trains makes any comparison with the previous franchise arrangement very difficult and I would be very surprised if the winning consortium would risk going the way of the past two private East Coast franchisees which both ended up throwing the towel in.

There is no doubt that prioritising the East Coast franchise over other deals which needed sorting out more urgently was a deliberate attempt by the Coalition government to rid itself of a successful publicly operated business and to try to put the Labour party on the back foot. In fact, it has probably done Labour a favour. The party is very reluctant to commit itself to public operation of franchises, as shown by its current policy of merely seeking to have a public sector bidder in future franchises deals, rather than merely allowing them to be taken back in house. So its probably trebles all round for the politicians, even if taxpayers are lumbered with yet another opaque financial deal and passengers have to pay over the odds for the improvements on the line.


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