Conclusions and recommendations
Rail franchising—on track?
1. As
we said three years ago, the current system of rail franchising
is a muddle. Within just three years, two franchise operators
have had to abandon a major franchise—both of them on the
East Coast Main Line. Whilst we fully support the Secretary of
State in his decision to take back responsibility for the East
Coast Main Line franchise, we remain convinced that these two
high profile failures are indicative of the underlying problems
in the current franchising model. (Paragraph 7)
2. We are concerned
that there is a lack of information available to us regarding
the financial stability of franchise operators. Many more franchises
may be struggling to meet their required financial agreements,
without our knowledge. Any additional failures in the franchise
system, coupled with risk sharing, will inevitably cost the Government
considerable sums. We are deeply concerned about the impact this
could have on the funding for other transport projects. (Paragraph
8)
3. Privately-owned
companies maximise profits and dividends in the good times when
the optimistic assumptions of their franchise bid are met. But
in hard times, when revenue stagnates and costs rise, there may
be insufficient financial resilience to get by without default
or at least significant fare rises and reductions to passenger
services such as ticket office closures and subsequent job losses.
Tightly specified franchise contracts limit the options available
to operators, and partially protect passengers, but also leave
tax payers at risk of having to pick up the bill. The current
risk-sharing arrangements mean operators are not held to account
on their promises. There is no point in involving the private
sector if it simply takes the profits in the good times, leaving
the tax payer to pick up the tab in bad times? (Paragraph 13)
4. The Government
must continue to hold firm on its commitment not to re-negotiate
franchising contracts. (Paragraph 14)
5. We believe it is
unacceptable that National Express may be able to cling on to
its remaining franchises through the use of a 'special purpose
vehicle'. The misuse of legal instruments, such as 'special purpose
vehicles', to insulate parent companies from potential losses
and legal problems as a result of the failure of subsidiaries
is sharp practice. (Paragraph 15)
6. The Government
should be willing to attempt different forms of franchising. Now
is an ideal opportunity to keep the lucrative East Coast franchise
in the public sector. The service could then be used as a comparator
for other types of franchises, both in terms of financial viability
and passenger service quality. (Paragraph 16)
7. The current length
of franchises does not encourage train operators to plan on a
long-term basis. It discourages investment in the services, and
contributes to train operators taking short-term cost-cutting
measures that reduce passenger service quality. The Government
should let franchises on a longer basis, albeit with break points
so that contracts can be terminated at pre-defined points where
performance is unsatisfactory. (Paragraph 19)
8. The needs of passengers
have not always been properly catered for within rail franchising
contracts. The Government must ensure that franchises are more
passenger-focused, and that commitments within existing franchise
contracts are also enforced. It would be good if the franchise
recently awarded for the South Central line, which includes monitoring
of passenger satisfaction, and the inclusion of additional factors
such as cycle and car parking space targets, were to become the
norm for future franchise negotiations. (Paragraph 21)
Fares
9. While
we recognise that the six-month gap between the benchmark RPI
and the subsequent fare rises could cut both ways, our concern
is that the train operating companies have taken advantage of
the mechanism to raise fares at the worst possible moment and
to a level which is out of all proportion to the real economy.
But as we noted in the previous chapter, short-termism is built
in to the franchising system as a perverse incentive. A short-term
approach and insensitive attitude towards passengers will damage
train operators' relationships with their customers in the long-term.
The system encourages and allows train operators to take their
passengers for granted. (Paragraph 25)
10. The complexity
of the fares structure still remains an issue for passengers.
Information on, and access to, the complete range of fares must
be available and easily accessible to all passengers. (Paragraph
29)
11. We welcome the
removal of regulated fares basket flexibility. No longer will
train operators be able to continue the unacceptable practice
of increasing selected regulated fares by six or seven times the
inflation rate. (Paragraph 31)
12. We welcome the
Secretary of State's confirmation that the RPI+1% formula will
apply for 2010 fares. This means regulated fares could decrease
next year. It is only right that passengers, who have borne the
brunt of unacceptable increases in recent years, should gain some
respite during these difficult financial times. (Paragraph 33)
| 
