Increasing fares, delays and standing room only. Does the railway represent value for money? Yet another review has been announced, this time root and branch.1 Consultation is ongoing but the RDG’s response has attracted media attention.2
(1) Customer-focused public service concessions
One major proposal is to replace franchises with concessions. The arguments for introducing more concessions are not new.3 Franchises were originally intended to give private sector operators flexibility to design services; however, the Government has increasingly prescribed service specifications leaving limited scope for innovation. Operators have also borne unmanageable risks e.g. to generate revenue against exogenous factors outside their control. More recently, concessions have been successfully trialled as part of devolved strategies for regional rail. The London Overground is an example by which TfL pays the operator a fee to provide services and who does not bear revenue risk. However, the Railways Act 1993 continues to treat such concessions as legal exceptions.
The RDG proposes two types. The first is a TfL-style gross-cost concession awarded by a national/regional/local authority to an operator but under a single unified transport brand to maximise accountability. Unlike a franchise, the authority simply pays the price for running a service with no or little transfer of revenue risk. This is envisaged for commuter routes where there is little choice but to use the train and customers demand a standard service. The second is a ‘customer outcome-based’ net-cost contract involving a balance of risk and reward between the authority and operator. This is envisaged for markets (including long distance journeys) where there is competition with other forms of transport, different reasons for travel e.g. leisure and, thus, scope for tailoring outcomes to more diverse customer preferences.
However, the proposals remain unclear about how risk will be allocated. For instance, the RDG proposes that arrangements should not be “weighed down with inflexible contractual requirements” and should be “altered to suit new conditions”. The legal risk and commercial uncertainty of modifying contracts is not addressed. There is also an unresolved question about how these concessions will be regulated. Research has shown that the Railways Act 1993 can facilitate deregulation to ensure regional autonomy but at the expense of subjecting concessions to continuing centralised control not dissimilar to franchises.4 There is also a need to ensure consistency and accountability of provision across regions.
(2) “Independent organising body”
Recent franchise fiascos have highlighted the difficulty of pinpointing who is responsible for procurement and management failures across the DfT, Network Rail, operators and other bodies with overlapping remits. One major RDG proposal is for an “independent organising body” that will reduce political interference, better coordinate track and train, and hold operators to account.
It is argued that this body is not feasible as its proposed functions are too diffuse to coordinate. For instance, it is proposed to combine certain functions of existing bodies,5 covering everything from coordinating investment and network capacity to overseeing major procurement and applying penalties. These functions even go beyond those of the Strategic Rail Authority which, it is recalled, had an uneasy relationship with the regulator before its abolition in 2006. Practically, it is also unclear how this body will be given more capacity than the DfT’s limited capacity as a “systems integrator”. This would also inevitably require complex legislation to delimit its powers relative to other bodies. Perhaps debate should equally focus on reform of existing bodies.
Rail Regulation Research
The RDG’s proposals raise many questions about the regulatory design of rail services. There is considerable potential for research on rail regulation to illuminate the challenges and opportunities for delivering this vital public service.
- Read more details on the Williams Rail Review. See L. R. A. Butler, Evidence to the Williams Rail Review, 12/02/19 (on franchise procurement). Professor Tony Prosser (University of Bristol), has also submitted evidence based on co-authored research concerning the role of competition and concessions.
- Rail Delivery Group, “Changing Track, Proposals for a more customer-focussed, joined-up and accountable railway”, 30 April 2019.
- See T Prosser and L Butler, ‘Rail Franchises, Competition and Public Service’ (2018) 81(1) Modern Law Review 23-50 and citations therein.
- L.R.A. Butler, ‘An Inspection of Rail Franchise Procurement: First-Class Regulation for Privatised Passenger Rail?’ (2018) 27(6) Public Procurement Law Review 251-278.
- Those listed include the DfT, the Office of Rail and Road, the RDG, Network Rail, the Rail Standards and Safety Board, the National Skills Academy for Rail and Transport Focus. However, not all relevant bodies are listed but which also require consideration e.g. certain functions of the Competition and Markets Authority.