Why has the government declared the end of the rail franchise system now?
Since privatization, the profit or loss of a rail operator, with the state receiving a share of the profits or covering a part of the losses, has largely depended on the number of passengers carried on the route. Normal franchise deals were put on hold in March when the government told people not to travel because of the coronavirus. Virtually all of the rail companies would have defaulted or gone bankrupt under existing contracts this year. These emergency agreements expired on Sunday evening and were succeeded by transitional “take-back” contracts, or Ermas, while the exact form of the future rail system is destroyed.
Is the coronavirus entirely to blame?
No – in fact, several companies had already got their money wrong and desperately tried to renegotiate terms over the past two or three years, with Virgin Trains East Coast and Northern eventually to be brought under state control, and others facing heavy losses.
Does this mean the end of private sector participation in railways?
Far from there. If the deals had not been reached, the government was ready to intervene with its own “operator of last resort” on more lines. Rather, the contracts ensure that railways can operate profitably for another six to 18 months while the effects of the pandemic continue, receiving management fees rather than taking the risk on passenger numbers and fares.
So why are they getting paid now?
Workers and unions argue that money is being sucked out of the system more than ever for few reasons. However, the rail companies argue that the margins are reasonable, if not low, while new contracts are supposed to have performance incentives to allow them to run trains on time.
What does this mean for the tariffs?
Difficult to know. The government’s long-term plan to get passengers to pay more for rail spending has been overturned by the pandemic. The shift to working from home can be permanent and significantly reduce income from daily commuting. Revenue is needed – but in the short term, to attract passengers, the industry talk is more about lowering fares and providing flexible subscriptions.
Will there be more rail services?
Most businesses will be operating almost full pre-pandemic hours by the end of the year, with social distancing even at 1 meter with masks, meaning effective capacity is less than half a train. In the longer term, if demand remains weak and the Treasury subsidy therefore remains high, a slaughter of less used services seems more likely. Fewer trains – and fewer passengers – made the railroad much more punctual and efficient.
What will a whole new rail system look like?
On the surface, it might not be much different – despite everything Keith Williams, the chair of the Rail Reform Review, has talked about putting passengers first. But the desire to end fragmentation could mean bringing Network Rail, which manages the track, closer to the companies that operate the trains, potentially meaning less disruption. The fare system is likely to be simplified, which may end the confusion over traveling on the wrong service or paying too much – although such ambitions and promises have long been made without change.