Rail fares and franchises - Transport Committee Contents

Examination of Witnesses (Questions 178-179)


4 FBRUARY 2009

  Q178 Chairman: Good afternoon, gentlemen, I apologise for keeping you so long. I think you both realise that we have been overrunning, perhaps given the importance of the issues we have, but I apologise to you. Could I ask you to identify yourselves, please, for our record.

  Mr Doherty: I am Gerry Doherty and I am the General Secretary of the Transport Salaried Staffs' Association.

  Mr Leach: Good afternoon. My name is John Leach and I am National President of the RMT.

  Q179  Chairman: Thank you very much. What changes do you think should be made to the current system of fares regulation?

  Mr Doherty: First of all, can I say, Chairman, that we certainly welcome the Committee's interest in this issue. It is not the first time that you have heard from the trade unions in the railway industry that we think privatisation has been a disaster, for just about everyone, except the private train operating companies, and indeed others within the industry. Our view is that the system of funding of the railway industry, regardless of the current economic circumstances (and they are exceptional at the moment) and we think that the current franchising model is inappropriate, does not work, and in fact is not fit-for-purpose even when times are good. If I can try and explain what I mean by that, Chairman. If you are bidding for a franchise, you obviously have to understand your competitors. They have been through the same process as you. You understand them and, as I understand it, something like 90% of the costs of running a franchise are fixed costs, so you have only got a 10% variable anyway to play with, so you are bidding for a franchise, you are looking at what you can get from revenue, you are looking for what you can get from the Government in terms of subsidy, and you recognise that the legislation says that you can increase fares by RPI plus 1%. Regardless of what RPI is (let us forget the 5%), if you construct your bid without maximising the revenue from fares then you are undercutting yourself as opposed to your opponent in the bidding process, so the natural reaction of everyone is that they will maximise the fares, and once you have maximised the fares and you have made the bid and you have won the bid, unless you then activate that, then you are putting yourself at a disadvantage in terms of how you actually perform as a company. The system itself, even in economic good times, is completely flawed and, frankly, is not fit-for-purpose. That is why we welcome this investigation. I am sorry it has to come in such economic circumstances, but we have always said that this system would at some stage hit the buffers. What we are seeing now is we have not even reached the buffers but the wheels are coming off.

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