Rail agency proposal to 'cure chaos'

[rd749249]

https://www.thetimes.co.uk/edition/business/rail-agency-proposal-to-cure-chaos-62v6c08fx

Civil servants at the Department for Transport have put forward proposals to take much greater control of the running of the train operating companies, raising the spectre of the recreation of the defunct strategic rail authority.

A high level briefing document seen by The Times states: “The franchise model . . . faces real challenge — chiefly ensuring it remains commercial and politically sustainable.”

It continues: “Reforms may be required to better manage uncertainty, eg HMG [the government] retaining more or all revenue risk.

“DfT would need to build its capability to oversee management/costs . . . to ensure best outcomes for passengers and taxpayers.”

Rail executives believe civil servants are planning a return of the strategic rail authority [SRA], the arm’s length transport department agency that oversaw the railways between 2000 and 2005.

A key role of the SRA had been to manage relationships with the privately owned train companies operating the regional franchises.....

I was vaguely familiar with the workings of the SRA but have my doubts as to the 'worth' of any such initiative. I suppose it could help a fragmented system..

 

[edwin_m]

Shifting more revenue risk to the public sector is a new suggestion, unlikely to go down well with the likes of Grayling I suspect. And how many people would agree that more DfT micromanagement is the solution?

 

[furnessvale]

Shifting more revenue risk to the public sector is a new suggestion, unlikely to go down well with the likes of Grayling I suspect. And how many people would agree that more DfT micromanagement is the solution?

DfT civil servants looking at more well paid jobs?

 

[3141]

"Raising the spectre of the recreation of the defunct strategic rail authority" !!! Obviously The Times doesn't know what it's talking about, since the SRA certainly didn't take the revenue risk. Nor is it simply a matter of people looking for well-paid jobs. There is an issue in that some recent franchises have attracted only two bidders, and there's also the problem that if you want to win you have to be pretty bold, but it's becoming clear that the assumptions about traffic growth may be too optimistic. The likely slowdown during and for an unknown period after the Brexit negotiations won't help. So I think civil servants are suggesting to a government that wants to continue running a privatised railway [contradiction there!] a way in which it might be able to do so.

 

[CosherB]

"Raising the spectre of the recreation of the defunct strategic rail authority" !!! Obviously The Times doesn't know what it's talking about, since the SRA certainly didn't take the revenue risk. Nor is it simply a matter of people looking for well-paid jobs. There is an issue in that some recent franchises have attracted only two bidders, and there's also the problem that if you want to win you have to be pretty bold, but it's becoming clear that the assumptions about traffic growth may be too optimistic. The likely slowdown during and for an unknown period after the Brexit negotiations won't help. So I think civil servants are suggesting to a government that wants to continue running a privatised railway [contradiction there!] a way in which it might be able to do so.

I thought that was the definition of the franchising model - the UK doesn't have a 'privatised railway'?

 

[edwin_m]

There's no single definition of a franchise but not all of the TOCs that operate on National Rail take revenue risk (LO don't and nor I think do Merseyrail). I don't believe any TOC takes 100% of revenue risk because of the various cap and collar, moderation of competition, not primarily abstractive rules that effectively protect them to some degree from revenue loss due to external factors. This is because DfT knows that if a TOC had to take the full revenue risk, they would either bid lower premium/higher subsidy to avoid making a loss on something they can't control, or they would hand back the keys if actual revenue fell short of projections.

So in principle there's nothing to stop DfT keeping the revenue risk on all franchises, which would effectively become operating contracts similar to what TfL lets. However DfT would then face the risk of revenue shortfall. It would also have to monitor franchises much more closely and introduce more incentives/penalties for good and bad performance, because the TOC would no longer have the incentive to maximise revenue by providing a good service.

 

[Muzer]

Moving revenue risk to the DfT creates apathetic companies like GTR who don't care if they actually run trains or not

 

[Elecman]

Not if the franchise is let with onerous operating requirements like on LO

 

[plcd1]

Moving revenue risk to the DfT creates apathetic companies like GTR who don't care if they actually run trains or not

GTR are paid the cost of what is run aren't they? Therefore if trains don't run and the cause is attributable to GTR they don't get paid. Isn't that how it works? I'm the last person to "apologise" for GTR so don't get the wrong idea. GTR's failings are not without consequence for the company but there is, of course, an element of "too big to fail" and doing the DfT's (Wilkinson's) bidding on the IR front. The responsibility for that rests solely in Horseferry Road.

I wouldn't say London Overground or MTR Crossrail were particularly apathetic despite TfL taking all revenue risk on those concession contracts. I've reserved judgement about Arriva on LO as I've not used the routes very much since they took over but hear rumblings that all is not well behind the scenes.

 

[Muzer]

True; fair points, well-made. I suppose the main question is how well the contracts are written!

 

[plcd1]

The full Times article went on to say that the DfT exercising "more control" was seen as a way of trying to counter the public support for renationalisation as a policy. It also went on to say that moves towards more government control were not expected to be popular with Mr Grayling but his ideas for more "partnerships" and other forms of "operation" were not proving popular (colour me not surprised).

I also think that wider economic factors, uncertainty, declining competition for franchises, the shambles that is GTR south of the Thames and problems with delivery of enhancements must be concentrating minds as to how the railway will be run in future. Where timely enhancement delivery by NR is crucial for the operational and financial performance of a franchise the DfT must dread the inevitable consequences when said enhancement is delayed. They've instantly got a TOC knocking on the door for a renegotiation. If the economy wobbles or terrorists attack then you've got another ECML type of claim knocking at the door. Given how stretched the DfT must be it's no wonder civil servants are searching for another way to do things as the current situation can't be sustainable.

 

[ejstubbs]

True; fair points, well-made. I suppose the main question is how well the contracts are written!

This, coupled with effective management of the resulting contract, is always the #1 key factor in successful outsourcing (which is arguably closer to what was done to the UK's railways, as opposed to actual privatisation). Managing an outsource contract takes quite a different skill set to managing in-house functions. Unfortunately, not all the managers who are used to (and possibly even quite good at) managing in-house functions are any good at managing outsource contracts. Which isn't necessarily their fault; they may just need education in order to become effective in the role. However, higher levels of management all too often blithely assume that the same people that used to fulfil the old role can turn up the next day and start doing the new one just as well. After all, it's all "management", isn't it? (Tell them that, by the same logic, their jobs are also just "management", though, and see how they jump to defend their status and emoluments.)

 

[Moonshot]

I thought that was the definition of the franchising model - the UK doesn't have a 'privatised railway'?

To what extent Railways are indeed privatised is a very moot point. The DFT/treasury are responsible for the lions share on capital investment and also interfere with pricing signals in the form of regulated fares. Lets face it, the only difference between the days of BR and todays rail is that the actual operation of day to day services is run by the private sector under contract from the state.

 

[thenorthern]

I personally thing there needs to be better relations with TfL and Westminster as TfL and the Mayor of London keep going on about wanting to control all franchises in London which isn't going to happen for practical reasons and both the Mayor of London and TfL are Beginning to sound like they are more important than they are.

 

[HH]

I don't believe any TOC takes 100% of revenue risk because of the various cap and collar, moderation of competition, not primarily abstractive rules that effectively protect them to some degree from revenue loss due to external factors.

c2c have full revenue risk for starters. Cap and collar stopped being given several years ago. NPA has nothing to do with DfT.

You really are talking a load of tosh.

 

[Pumbaa]

And yet we expect new mechanisms for upcoming franchises in response to market apathy at the upcoming bids.

The Rail Exec tried having their cake and eating it, but it turns out the bakery has closed.

 

[Chrisgr31]

"to ensure best outcomes for passengers and taxpayers."

Taken from the article but isnt this a problem? The best outcomes for passengers and taxpayers are not the same thing. The taxpayer wants to make a profit, or at very least for subsidies to be as little as possible these means reducing costs through cutting staff etc.

Cutting staff is not necessarily what the passengers want arguably proved by the fact there is significant support in Southern for the staff.

It is also very unclear how having civil servants in charge will cure chaos. After all civil sevants are responsible for lots of the decisions on Southern and we would struggle to say chaos has been cured!

 

[ChiefPlanner]

Opraf / SRA had a quorum of people ex BR drafted in , who might have not particularly liked to assist the privatisation process , but did their best to impart their experience and knowledge.

X years on , they have almost totally retired. Whilst for shed loads of money you can get consultants for economic modelling etc , you cannot now get people with all round skills and never will again. (railway wise)

Difficult times .....Dft/ Rail Executive - call it what you will , hardly appears on the "I really want to work for that outfit list" - personal views.

 

[Busaholic]

To what extent Railways are indeed privatised is a very moot point. The DFT/treasury are responsible for the lions share on capital investment and also interfere with pricing signals in the form of regulated fares. Lets face it, the only difference between the days of BR and todays rail is that the actual operation of day to day services is run by the private sector under contract from the state.

Profits are privatised, the risks are nationalised.

 

[ChiefPlanner]

Profits are privatised, the risks are nationalised.

Well said

 

[thenorthern]

The current system for awarding franchises has lasted quite a long time as its been in place since 2006 so 11 years, the Strategic Rail Authority only lasted 5 years and the Director of Passenger Rail Franchising lasted 8 years.

 

[plcd1]

c2c have full revenue risk for starters. Cap and collar stopped being given several years ago. NPA has nothing to do with DfT.

You really are talking a load of tosh.

I thought there were other protections around the rate of economic growth / employment that were factored into post "cap and collar" contracts? I doubt franchisees are wholly unprotected against revenue related risks that if they arose could seriously harm the operation of the franchise / put the franchisee at risk of bankruptcy. No franchisee will sign up to open ended risks outside of their control - their lawyers and funders won't let them for a start!

If what is in the GTR contract around "force majeure" applies elsewhere then there are protections against terrorism for example and action by Network Rail that prevents the operation of trains.

Happy to be corrected as I've not kept up to date with the details of more recent franchise contracts.

 

[Shaw S Hunter]

Sounds to me like the Tories nervously moving towards nationalisation, or as close as they dare without upsetting the out-and-out free marketeers, without actually using the N word. It also underlines my own view that the actual ownership of organisations providing public services matters rather less than the rules and oversight governing them. Given the precarious state of HMG's working majority I expect we will see similar moves in other sectors of the economy in due course. Note that today's announcement on additional money for state schools is going to be taken from the budget for Free Schools, previously something of a Tory flagship.

 

[yorksrob]

Sounds to me like the Tories nervously moving towards nationalisation, or as close as they dare without upsetting the out-and-out free marketeers, without actually using the N word. It also underlines my own view that the actual ownership of organisations providing public services matters rather less than the rules and oversight governing them. Given the precarious state of HMG's working majority I expect we will see similar moves in other sectors of the economy in due course. Note that today's announcement on additional money for state schools is going to be taken from the budget for Free Schools, previously something of a Tory flagship.

Well it will be interesting if, from a philosophical point of view, the Tories feel that they can no longer justify unfettered market capitalism to the electorate (in fields other than just the railway).

 

[thenorthern]

It could be something to do with the recent financial issues with Virgin Trains East Coast as if VTEC was to default it would be the 3rd operator in a row to default and would strengthen Labour's case for re-nationalisation.

 

[jon0844]

Moving revenue risk to the DfT creates apathetic companies like GTR who don't care if they actually run trains or not

They will get in big trouble for not running trains. They're measured on the performance, and also having gatelines in operation for nn% of the day. Also big fines for ticket offices not open etc.

They may not necessarily worry about the money they take in, but they have to meet a lot of targets to get paid themselves.

Even the condition of stations is measured.

 

[Moonshot]

Profits are privatised, the risks are nationalised.

remind me again about how much premia is now returned to the state.....

is it wrong to make a profit? Who bears the risk for Open Access operators?

 

[edwin_m]

remind me again about how much premia is now returned to the state.....

is it wrong to make a profit? Who bears the risk for Open Access operators?

The problem arises where a franchise (or anyone else) makes super-profits, particularly if they are exploiting a monopoly position. I believe there are enough checks and balances in the franchise system to prevent this, and there are no TOCs making huge profits as far as I'm aware.

As I alluded to earlier, if you try and make a private company take on a risk they can't control, then they will just increase the price to ensure as far as possible that they aren't in the red if the risk arises. Alternatively they will set up some arrangement where they can walk away to limit their losses, but the various measures put in after the ECML franchise defaults mean that is now very costly.

 

[HH]

I thought there were other protections around the rate of economic growth / employment that were factored into post "cap and collar" contracts?

For some franchises, but these only partly mitigate the risk, they do not remove it. 0-1

I doubt franchisees are wholly unprotected against revenue related risks that if they arose could seriously harm the operation of the franchise / put the franchisee at risk of bankruptcy. No franchisee will sign up to open ended risks outside of their control - their lawyers and funders won't let them for a start!

I'm not sure what you're saying here. There are franchisees who are wholly unprotected and any franchise could go bankrupt. As franchises are SPVs that doesn't mean it will bring down the whole group. 0-3

If what is in the GTR contract around "force majeure" applies elsewhere then there are protections against terrorism for example and action by Network Rail that prevents the operation of trains.

You don't appear to understand force majeure. FM is granted, at DfT's discretion, on the TOC meeting certain obligations, like delay targets; it does nothing to protect them from revenue (or other) losses. They will probably have terrorism insurance to cover some risks - NR definitely insure stations and pass the cost on. 0-4

Happy to be corrected as I've not kept up to date with the details of more recent franchise contracts.

You clearly don't understand the details of old-style contracts either.

 

[edwin_m]

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You clearly don't understand the details of old-style contracts either.

You're making some interesting and educational points and improving our level of knowledge here, which is one of the benefits of the forum. But please spare us the know-better-than-you willy-waving!