Rail Franchising, 1994 – 2020: An Honest Obituary

System exacerbated fragmented nature of National Rail network

Rail Franchising, a part of British railway policy since 1994, was laid to rest at the age of twenty-six. Its original aim was to raise standards across the rail network and improve on services launched by the outgoing British Railways Board. Today, it was announced by Transport Minister Grant Shapps that all franchised operations will be replaced by Emergency Recovery Management Agreements for six to eighteen month periods.

The franchising system has been criticised for offering poor value for money to the taxpayer. It was envisaged that a franchised system could have tamed the rail unions. In reality, the RMT and ASLEF unions gained more teeth, due to disparities in pay and conditions between franchisees.

Rail Franchising was born on the 01 April 1994. It is a product of that year’s Transport Act which saw the creation of Railtrack, the sale of rolling stock to leasing companies, and franchises for freight and parcels operations as well as passenger trains. What was hitherto part of the British Railways Board was split into 125 pieces. Twenty-five of which covered your train services. Freight operations was split into four parts: Railfreight Distribution; Loadhaul; Transrail; and Mainline. Two regulatory bodies were created in OPRAF (the Office of Passenger Rail Franchising) and the Office of the Rail Regulator.

The creation of 25 passenger rail franchises had their roots in British Rail’s sectorisation exercises. Firstly, BR had InterCity, Provincial, Network Southeast (née London and South East), Freight and Parcels sectors. In advance of privatisation, Freight operations were split into Trainload and Railfreight subsectors like Petroleum, Coal and Chemicals. Passenger operations ceased to be sovereign to BRB’s regions and became Profit Centres. The Provincial Sector, for example, was rebranded as Regional Railways with Anglia, Central, North West, North East, South Wales and West, and Scotrail profit centres.

After the 1994 Transport Act gained Royal Assent, an internal market was created. Each shadow franchisee began to pay Railtrack access charges, for the privilege of running trains. Rolling stock companies would hire trains to franchisees, who would pay them for the privilege of running a Pacer unit from Manchester Victoria to Wakefield Westgate. Track maintenance was performed by a series of smaller companies, depending on locality.

At the ‘height of its powers’, the internal market structure (drafted by Coopers and Lybrand and recommended by Malcolm Rifkind) saw fortunes being made by rail bosses. Despite assurances alluding to its continued public ownership, Railtrack eventually had a share issue and floated on the FTSE 100 in May 1996. Fragmentation between various companies led to obfuscation between parties as to why the 1055 left Manchester Victoria ten minutes late. At worst, it led to accidents at Southall and Hatfield which dented confidence in the rail industry.

After Hatfield, the internal market was on borrowed time. Therefore, the Labour Government brought Railtrack back into public hands, prior to being part of mutual company Network Rail. A significant development was greater standardisation in track maintenance, as Network Rail replaced dozens of subcontractors by taking it in-house. Nevertheless, rail franchises were still part and parcel in taking us from A to B across the UK.

Inconsistencies

With profitability being a factor in the success of a rail franchise, the most profitable franchises went first. First off the blocks was South West Trains which went to Stagecoach Holdings. The next was the London, Tilbury and Southend Railway, but issues with honouring the standard ticketing system delayed the contract award. The least profitable franchises were the last to be awarded. Scotrail, thanks to the losses made by its sleeper trains, was the last one to be awarded – nearly two months before the 1997 General Election.

With 25 passenger franchisees, any semblance of a national network went out of the window. Though nationwide ticketing was retained via the Rail Settlement Plan, franchisees were free to add their own promotional fares in addition to ‘regulated fares’ set by the Department for Transport and predecessors. From 1997 to 2019, passenger numbers continued to rise.

Apart from the plethora of fares, each franchisee wanted to stamp their own mark on their stations. Just to complicate things, Open Access operators were added to the mix outside the franchised structure.

Twilight years

By 2016, the original 25 franchisees had been chopped and changed. The former Regional Railways North East and North West Regional Railways profit centres became part of a single Northern franchise. The Trans-Pennine routes were spun off into a single franchise (no prizes for guessing which name was adopted), as were Scotrail’s Caledonian Sleeper routes. The one-time Central Trains franchise was split into West Midlands and East Midlands sections (the latter an expanded version of the original InterCity Midland Mainline franchise). The Welsh section became part of Arriva Trains Wales and today’s Transport for Wales operation.

Apart from confusing the passengers every seven to ten years, recasting the franchises was poor value for money. Money that could have been spent on improving services instead of legalese. The first step towards the end of franchised rail operations was the introduction of management contracts. After the expiration of Southern Railway’s franchise, the South Central, Southern, Thameslink and Great Northern franchises became part of a single management contract in 2015 (a joint venture with Go-Ahead and Keolis).

This change had a negative effect on South Eastern commuters; despite this, management contracts were the model for Britain’s largest and unappreciated franchise. In December 2016, Arriva Rail North won a Department for Transport management contract for the Northern franchise. The operator’s appointment was controversial due to their previous stints with the former MTL Holdings operations (Regional Railways North East and Merseyrail Electrics). The same problems that haunted Arriva Trains Northern haunted the expanded Northern franchise.

In the end, Arriva lost its franchise. It is argued that poor performance was one factor, particularly the cancellation of services, issues with drivers’ hours and ageing rolling stock. At the beginning of March 2020, it was ‘nationalised’, with the Department for Transport’s Operator of Last Resort taking over.

Historically, the DfT’s Operator of Last Resort had improved satisfaction among passengers on the East Coast Main Line (where financial problems had affected previous franchisees apart from its first holders, Sea Containers). Northern’s task – whether under ‘traditional franchising’ or the DfT’s control – was never an easy one. One was delays to important infrastructure projects in central Manchester and the opening of Ordsall Curve (without improved access to Manchester Piccadilly station). Another was the drivers’ hours, which had a greater affect on Northern’s operations from Newton Heath depot than at Neville Hill. For a while, things were challenging for the DfT’s own franchisee.

The one thing that got improved Northern’s punctuality and reliability was a pandemic. As lockdown from the COVID-19 pandemic reduced the need for public transport, Northern could run fewer trains. This helped to unblock Greater Manchester’s railways in a perverse way. At this time of writing, services have yet to return to pre-lockdown frequencies, though this is doubtful given the trend towards working from home. The same train which may have been rammed at 1730 in January is, at this time of writing, half full at best.

Towards Emergency Recovery Management Agreements

Ultimately, it was reduced demand for trains post lockdown that has made rail franchising in its 1994 form unsustainable. According to the Railway Gazette, it will be replaced by ‘a simpler and more effective structure’. Transport Minister Grant Shapps said “It will keep the best elements of the private sector, including competition and investment.” For anyone thinking that the end of franchising means the end of privatisation should be disappointed.

Whereas management contracts haven’t helped GTR and Northern franchises, they have worked with Merseyrail Electrics’ operations. The watchword there is local control, with Merseyrail accountable to Merseytravel Integrated Transport Authority, in the same way Metrolink is with Transport for Greater Manchester.

For a short term period, most of Great Britain’s rail franchises will make their transition towards management contracts via ERMAs (Emergency Recovery Management Agreements). By the middle of December, each franchisee would have to agree a termination sum based on the franchisee’s financial status. In layperson’s terms, they would be handing the keys to the DfT over a six to eighteen month period. If they cannot agree a sum, the DfT could terminate the deal early. Therefore:

  1. Each outgoing franchisee decides on a termination sum, based on lost revenues and deductions from a fixed management fee;
  2. Prior to the end of the ERMA period, the Department for Transport will negotiate a new Direct Award Contract. The winning bidder will take over as soon as the Emergency Recovery Management Agreement lapses.

The only operator that will not be subject to an ERMA is Northern, which is under the Department for Transport’s Operator of Last Resort. Transpennine Express is already covered by an Emergency Recovery Management Agreement till the end of March 2021, jointly overseen by Transport for the North. FirstGroup’s West Coast Partnership’s ERMA will continue till the end of March 2022.

Where next?

In some way, the end of rail franchising in its 1994 form could bring about two possibilities. One could be the return of public ownership, which RMT General Secretary Mick Cash hopes could be the case. Another way could see a similar style of contract to those offered by Transport for Greater Manchester for Metrolink routes. The latter could see a revival of the Railway Executive Committee, only with The Big Sixteen (or whatever number of awards are given) and a few Open Access operators instead of The Big Four. Perhaps the end of franchising could see the end of several disparate corporate identities at our railway stations.

One thing with ERMAs, according to ASLEF, the drivers’ union, is that they could be ‘a way of road testing what we understand will be the conclusions of the Williams Review’. Part of the Williams Review involves a push towards electronic ticketing – the end of card tickets. What it does not suggest is that a single state-owned company should be managing the trains and the tracks, which means rolling stock may still be owned by banks.

Another step should be German style S-Bahn systems across Metropolitan areas, based around the boundaries of Integrated Transport Authorities. All of which locally managed with significant input from Metro Mayors and Higher Tier Authorities. Suffice to say, the next year would be interesting at the very least.

S.V., 21 September 2020.

One Comment Add yours

  1. Tony Miles says:

    Not correct that Northern is the only company not on an ERMA. LNER isn’t as it is under OLR like Northern, neither is Merseyrail or London Overground. Also GWR, SouthEastern and CrossCountry are still on EMAs.

    Like

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