It has been just over twenty years since the first passenger rail franchises commenced in the UK and, although successful in increasing rail usage over this time, the system now finds itself faced with significant challenges and may need fundamental changes in the future.
In 2016, our thought leadership programme Tracks was set up to react to contemporary issues in the transport sector and its new research report, Ensuring a Sustainable Rail Industry, has found that while franchising looks successful, in practice the system is increasingly vulnerable to an economic slowdown, with a relatively small number of bidders facing increasing risks when bidding for and running franchises.
The research also highlights wider problems with the franchising system for passengers who face complex and confusing fares structures, outdated ticketing technology, and increased crowding. It suggests that franchising, as currently structured, is a barrier to sustained long term investment in the industry, especially on trains and stations.
But there is hope. The report sets out various recommendations for reform with a key proposal that the Government should set out a clear strategy for the economic and financial role of the railway in post-Brexit Britain, and then revisit how a more flexible franchising model can best support this.
We also need to see the Government lead a fundamental and bold review of fares to remove complexity, make the system more relevant for modern working patterns and stimulate greater innovation and flexibility in encouraging and managing demand.
In addition, the report suggests:
- A greater emphasis on the quality of services offered and long term investment rather than short term finance, and a full assessment of the wider economic and social benefits of bids
- Creating a fairer financial structure, giving certainty on future franchise payments, recycling any windfall profits within the industry and ensuring that no franchise becomes 'too big to fail'
- Creating a better alignment of risks with a common set of objectives for network development, consistency on the nature of competition and greater flexibility to link with longer term changes in travel patterns
- Creating a clear strategy for operators and third parties to fund and develop the rail network
- Reviewing the financial sustainability of franchises let since 2012, to ensure they can withstand any downturns in rail revenues and wider economic problems
- A potential move away from the standard franchise model towards smaller, different franchising models, including concessions for local rail services in rural as well as urban areas. It says this should be accompanied by further devolution of responsibility and oversight of local rail services to local levels, where rail can become part of local transport networks, though national government should retain overall responsibility for the national railway.
Hopefully the franchising model will evolve in a way which builds on the successes of the last twenty years but creates more flexibility to meet the needs of different customers and responds to the economic, social and technology changes which are anticipated in the years ahead.