On Tuesday 21 September there will be an Opposition Day Debate on the "Effect of Government policy on the finances of working people"
Documents to download
The future of rail (635 KB , PDF)
The current rail system
Following privatisation in 1993, British Rail was divided into two main parts: the national rail infrastructure (track, signalling, bridges, tunnels, stations and depots) and the operating companies whose trains run on that network. Other parts – such as trains and freight services – were hived off separately.
The infrastructure is owned, maintained and operated by Network Rail, a publicly-owned company (with some limited exceptions). Rail maintenance and upgrades are planned on a five-yearly basis as part of the industry-wide Periodic Review. The industry is currently in Control Period 6, which covers the period 2019 to 2024. Enhancements (e.g. electrification and new signalling) have, since 2017, been part of a separate process, called the Rail Network Enhancements Pipeline (RNEP).
Network Rail is regulated by the Office of Rail and Road (ORR), which is also the safety regulator. It does not regulate rail services.
Rail services are run by privately-owned train operating companies (TOCs) and freight operating companies (FOCs). Passenger services are let as multi-year franchises by the DfT, Scottish and Welsh Governments, except in London and Merseyside where they are let as concession agreements by the relevant local body. Currently two franchises – London North Eastern (LNER) and Northern Rail – are operated by the designated ‘Operator of Last Resort’ or OLR on behalf of the DfT, rather than under a franchise agreement. The OLR is supported and advised by Arup, SNC Lavalin and EY.
There are a limited number of ‘open access’ operators on the network, who run rail services outside of the franchising process by securing timetable slots from the regulator (e.g. Hull Trains, Grand Central).
The trains (rolling stock) are owned by private rolling stock leasing companies (ROSCOs) and leased to the TOCs. The franchising authorities (DfT, Scottish and Welsh governments) have a significant say in the types of trains that TOCs lease through the detailed Franchise Agreements.
Impact of the coronavirus pandemic
The number of people using the railways over the course of the last six months has been significantly below 2019-levels. The unprecedented fall in usage can be attributed almost entirely to the measures taken in March 2020 to limit the impact of the coronavirus pandemic. The most recent data shows that the week to 15 September had 35% of the number of passenger journeys compared to the same period last year.
With fewer people using the railways during the pandemic passenger revenue has fallen dramatically (by half a billion between October 2019 and March 2020). The Government approved £3.5 billion of additional spending to support train operating companies during the pandemic. Ultimately, this figure is expected to be much higher, and will depend on how long it takes passenger numbers to recover, particularly the number of those purchasing season tickets.
The next statistical release from the ORR expected later this year, which will cover Q1 of 2020-21 (April–June 2020), is likely to show further falls in passenger numbers, train service levels, and passenger revenue.
Reforms to rail franchises
Given the collapse in passenger numbers caused by the onset of the pandemic, on 23 March the Secretary of State for Transport, Grant Shapps, announced that train companies operating franchises let by the Department for Transport would be able to temporarily transition onto Emergency Measures Agreements (EMAs). The EMAs suspended the normal financial mechanisms of franchise agreements, transferring all revenue and cost risk to the Government for an initial period of six months while the incumbent private operators continued to run day-to-day services for a small, pre-determined management fee (a maximum of 2% of the cost base of the franchise before the pandemic began).
The EMAs expired on 20 September.
On 21 September the DfT announced that EMAs would be replaced with Emergency Recovery Management Agreements (ERMAs). The Government describes these as having tougher performance targets and lower management fees, set at a maximum of 1.5% of the cost base of the franchise before the pandemic began. They argued that this would allow the DfT to make an early start on key reforms, including requiring operators to co-ordinate better with each other and driving down the railways’ ‘excessive capital costs’.
The ERMAs run for up to 18 months (until March 2022) and are “designed to … bring current franchises to an end when these agreements expire”. In a stock market statement, First Group said that the DfT intends to begin discussions with train companies to “transition to new, directly-awarded contracts for the longer term, which would come into effect at the end of the ERMAs”. It is not clear what precisely this means, and it will depend on what, if any, legislative change the Government brings forward.
Williams Review, Government White Paper and long-term reform
The then Secretary of State for Transport, Chris Grayling, launched a ‘root-and-branch’ review of the railway on 20 September 2018. Keith Williams, deputy chairman of the John Lewis Partnership and former chief executive of British Airways, was appointed to chair the Review and was given a clear mandate to ‘deliver revolution’. At the heart of the Review was the aim to put customers – passengers and freight companies – first.
Throughout 2019 Keith Williams spoke publicly about his emerging findings and the options the Review was considering. These included: the creation of a new National Rail Body or ‘guiding mind’ with overall responsibility and accountability for track and train; removing the Department for Transport from the day-to-day running of the railway; ending franchising in its current form; more devolution; and greater standardisation across the industry.
The rail industry has already proposed sweeping reforms of the fare structure to make it simpler and easier to understand and the coronavirus pandemic has accelerated long-standing calls for flexible ticketing options for commuters who may no longer want to travel into major cities five days a week.
The Government has said repeatedly over the past 12-18 months that it intends to publish a White Paper informed by Williams’ recommendations. The publication of the White Paper has been delayed due to the General Election and by the coronavirus pandemic. On 21 September Grant Shapps said that the White Paper “will be published when the course of the pandemic becomes clearer”.
Documents to download
The future of rail (635 KB , PDF)
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