End of the Line for the Private Sector? Continual Change
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COMMENT rail policy Easter 2015 engineering should it win power, are nothing new. Indeed, works at New Cross, undertaken by Network Rail if the Conservatives retain power or there is - a national company, owned some form of coalition, it is unlikely that the and financed by the taxpayer railways will escape scrutiny. Public sector involvement in railways Firstly, there are a few myths that can be dispelled. The first is the apparent perception in some quarters that the public sector is not heavily involved in running the railways already. True, following the re-franchising of the East Coast service, there is no public sector operator in Great Britain (as was always intended since Directly Operated Railways took over from National Express as the operator of last resort). Nonetheless, the Department for Transport and Transport Scotland north of the border specify all franchise agreements and run the competitions to appoint operators. Transport for London adopts a similar role in London and there are other examples of local devolution elsewhere. So the public sector governs what services need to be run, specifies those services and enforces the contracts with operators. The same applies to annual increases for the majority of fares - and importantly, therefore, the balance of railway End of the line for funding between the taxpayer and farepayers. Furthermore, Network Rail is a national company and so owned and financed by the private sector? the taxpayer after coming back on the Labour has a radical vision for Britain’s railways, but what are the government’s balance sheet in September 2014. The government specifies exactly what implications, ask Tammy Samuel and Farah Al-Hassani it wants Network Rail to do and how much it is willing to pay through the periodic review The rail policies set out by the Labour Party McNulty review in 2010 and the Brown and process. for next month’s general election appear to Laidlaw reviews following the collapse of the The public sector, therefore, already has reach beyond its previous position and to be West Coast competition in 2012. a great deal of control over the railways. far firmer than before. High on the agenda Each time something goes wrong the system Rather than giving Network Rail more is allowing for public sector operators and gets looked at again, and tweaks and changes powers and control (for example over rolling reviewing the current franchising system. are made. The battlefield of the complex stock procurement and leasing as Labour has But what are the implications from a legal, legislative and contractual framework that suggested), government arguably should focus operational and practical perspective? Is it the governs the railways bears the scars of this on ensuring Network Rail performs its existing end of the line for the private sector? continual change. In this context, Labour’s role more effectively. Those of us who have worked with the commitments to set up a public sector privatised railway industry for many years company to bid for franchise contracts and to The public sector and franchising understand the spectre of continual change. undertake a further wide-ranging rail review, Turning to public sector operators, the In the 20 years since privatisation, there have Railways Act 1993 does not currently allow been three separate bodies responsible for public sector bodies to act as a franchisee, and franchising, the insolvency of Railtrack and “Each time something places a duty on the DfT to franchise railways the birth of Network Rail, a never-fulfilled goes wrong the system services. So as the law stands, public bodies promise from the Labour party to are prevented from competing in franchise re-nationalise in 1997, the wide ranging gets looked at again” competitions and, unless there is a valid reason 24 | 10 April 2015 www.passengertransport.co.uk “Undoubtedly, there are things that could be improved in the current structure” for specific services to be moved out of the franchising system, the government must grant franchises. There are some exemptions from franchising - London Underground is one and London Overground and Crossrail services are not franchised - and a few instances where the public sector has been involved (for example Nexus’s in-house bid for its Tyne and Wear concession). Any further expansion would undoubtedly require new primary legislation to amend the Railways Act. Taking services outside of franchising (perhaps as franchises come to an end) and then granting them to the public sector would also go against the spirit of the law and current trends in Europe, where there is a move to open up railway markets to greater competition and release the public sector’s Virgin Trains East Coast has promised to return a premium stranglehold on railway operations. Not only of £2.3bn in real terms over might primary legislation changes be needed, the course of its franchise but concessions from Europe as well. From a practical perspective, there would difference to the public purse. operators had to be granted pending the also have to be careful thought as to how Furthermore, it is worth remembering that, system getting started again - often not for long a public sector bidder would be able to whilst bidders from the nationalised railways enough to allow operators to plan longer term effectively (and fairly) compete with private of other European countries successfully run or offer passenger benefits that could have sector bidders. It is likely that the government regional and commuter franchises across Great been achieved through a full new franchise. would need to form a separate body away Britain, they have not yet been able to make a Franchises are now lined up and ready to be from the DfT and the procurement process case for, nor effectively compete to run, long relet, with the Northern Rail, TransPennine to bid for franchises. This body would need distance services (such as West Coast and East Express, East Anglia, West Coast and West to be funded, at the expense of the taxpayer, Coast) which are very different in nature and Midlands franchises all underway or expected to bid for franchises in a similar way to the require high premium payments and revenue later this year. If these competitions were private sector - which would not be cheap risk. It would be interesting to see if a GB stopped or never started, then a big question (estimates are that a franchise bid can cost government bidder can buck that trend. would be around what would happen to around £10m). There would also have to be fair those operations? Many of them could not and transparent evaluation criteria to ensure Impact on the industry be extended again under current EU and a level playing field between the public and Undoubtedly, there are things that could UK law and would need to potentially revert private sector, and avoid any actual or implied be improved in the current structure - and into public hands before a review is actually prejudice towards one or other of them. given the continually changing nature of the completed - and certainly before a new policy This would be key if any effective private industry, this will inevitably happen whatever was effectively up and running. sector participation in the industry is to be government finds itself in power in May. Any new government should therefore maintained However, it is unlikely that a full review, consider carefully how it goes about any There are also questions around whether a potential stop order in relation to franchising review. It should take care to maintain the public sector bidder in the UK would ever be or fundamental reallocation of Network Rail’s status quo and continue with the current able to win a franchise when competing with responsibilities would be well received by those programme, taking its time to consider how a private sector that has much deeper pockets people who run and work in the industry. it goes forward and providing for change in an - and what would happen if a winning public Following the failed West Coast ordered fashion. sector bidder could not then deliver on its procurement, there was a well-publicised commitments? It is worth recalling that when halt to franchising whilst the government East Coast was in public ownership, it paid undertook the Brown and Laidlaw reviews. abOuT ThE auThOrS at its best a premium of £216m per annum to This invoked a great deal of uncertainty across Tammy Samuel is a partner and Farah the government. Virgin Trains East Coast has the industry, and innovation and spending in Al-Hassani is an associate in the rail team at promised to return a premium of £2.3bn in real the railways stagnated. The short term sticking Stephenson Harwood LLP terms over the course of the franchise - a big plasters of direct award agreements to existing www.passengertransport.co.uk 10 April 2015 | 25.