I'm sure that HMT would be ecstatic (NOT!) with the idea of the taxpayer effectively becoming the final insurer for OA operators while the profits disappear to the private company.
well obviously as per delay repay the at fault operator would foot the bill, unless it was force majeure or whatever the phrase is.
However, the broader point of why "privatised" rail doesn't work is that it is ultimately not acceptable for Avanti or FGW to fail (as in cease operating) - and therefore we have the OLR system which, logical for the functioning of the economy, makes a mockery of it being any normal form of private enterprise. It never was and it never could be. Similarly I think now if for example Lumo east coast or Hull trains were to cease trading overnight - on Lumo alone, 6 trains per day each way, 400 seats each train, generally quite a high load factor - in this busy season I could see them carrying 3-4000 passengers each day - in reality they like all these other "private" businesses have become too big to fail, and so I think some form of contractual arrangement would take place to ensure continuity of service, at least until those routes could be absorbed into LNER timetables - because again, "Joe Public" doesn't really understand why when "the railway" has cancelled their train to London, and they are standing on the same platform where another train is also going to London, why it is not acceptable to get on it.
Similarly if they had a medical need to use a toilet more frequently than a stop in Preston ... then surely it should be ok to use another train to the same place with a functioning toilet.
The specifics of how that all works is for someone cleverer than me, but the average overseas tourist or casual rail user should not have to concern themselves with the stupidity of railway internal contracting. I would love to see them try and defend a penalty fare given to a passenger with a condition who had got on the "wrong" train in order to use a toilet. Much is spoken about simplification of the fares system, but surely, above all, some common sense should be the guiding principle, often, sorely lacking.