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Comment: Issue 604 31 Aug 2012

How much did you say our railways can grow by?

The spotlight has been on rail franchises this week.

Lee Baker

The Government has claimed that it can secure more investment from the private sector with longer, more flexible franchises and the 13 year, four month contract drawn up for the West Coast main line is five years longer than the average length of other contracts currently held. Greater investment will, the argument runs, lead in turn to greater patronage and therefore ultimately greater value for the taxpayer.

As Justine Greening said on the radio this week, “We have to start getting better value-for-money out of lucrative franchises”. This followed the Conservative 2009 rail review, which promised longer franchises given that “operators are unwilling to commit their own money if they are unlikely to get a return on their investment”.

And Norman Baker popped up last week to say that longer franchises will lead to better facilities for cyclists in train stations and this would, in turn, help to continue to increase the number of rail passengers.

This follows a general trend for longer contracts, including, with some success, for highway maintenance. The Labour Government in its dying days proposed that in future franchises should be let for a minimum of ten years, with bidders allowed to bid for as long as European law allows – 15 years, or 22 with extensions.

Undoubtedly, giving contractors more scope to put money in so that more money can come out makes good business sense. However, the argument is over just how good the resulting business will be, not whether or not incentivising investment is a good idea.

As Baker’s toolkit designed to shift a focus from providing car parking spaces to cycle racks implicitly recognises, there is more than one way to run a railway business. Some decisions made for short-term gain, say car parking charges, could in the long-run be bad for the rail industry if the only easy way to access the stations is by car and the car parking spaces are full up.

Those who believe in good transport planning and good transport operational management will want to believe that the railways can continue to grow and that the premiums paid by rail franchisees to the Government each year can therefore increase. Sir Roy McNulty certainly believed it, in his report on overhauling the rail industry to reduce wasteful inefficiency.

But the fact that the current franchisee for the West Coast deal paid £168m in 2010/11 and that the average annual sum generated for taxpayers by profitable franchises in that year was only a shade over £100m means that the forecast that over £410m a year can be raised through the new West Coast deal does raise eyebrows.

If seat occupancy is currently 35% at best, as Vernon Barker, managing director of FirstGroup highlighted in an interview with LTT, then extra capacity, as promised, is not necessarily going to lead to more bums on seats. This is particularly the case if economic conditions do not improve significantly – and public sector spending restraint is promised until at least 2017.

And efforts to increase patronage will also be undermined by rail fares going up by more than inflation each year, and by more intense competition from other modes – with Virgin Atlantic promising three new daily flights connecting London and Manchester after losing the rail franchise.

On the other hand, there will be new services, from London to Telford and Shrewsbury and to Blackpool – services that Virgin committed to examine the potential for back in the 1990s – which will increase the number of potential passengers, and FirstGroup has promised to reduce Standard Anytime fares by an average of 15% within two years.

Whether such changes are enough to deliver such a huge improvement in revenue remains to be seen. The challenge will be whether the new franchise holder can, despite countervailing influences, continue to ‘grow the railway’ and therefore reap greater benefit for the taxpayer in future. This sounds like a very big ask, but supporters of public transport services will not want there to be failure. All eyes will now be on FirstGroup, legal action notwithstanding, to deliver.  

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