Rail fares and franchises - Transport Committee Contents

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)


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)

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