Anthony provides a useful summary of where we have reached in the franchising of rail services. The development has (at times) been painful, but has also been seen as a testing ground by other parts of the world who have subsequently benefited from the UK’s experience. Like Peter Wilkinson, I agree that the terms ‘franchise’ and ‘franchisee’ are confusing. It is really about service providers and how the public sector commissions those services.
Getting the balance right between what the Government wants from a franchise and the length of time an operator has to deliver it is a difficult balance. Even the 20-year Chiltern franchise did not give that company a blank 20-year period to run the franchise. The initial period was much less, with extensions of the term up to 20 years being ‘earned’ from the franchising authority, via new projects to improve the services (including through building new infrastructure) being proposed by the company and accepted by the franchising body.
Franchises or concessions
Whether to have a concession or franchise is primarily about who takes the farebox risk. A franchise can have as detailed a specification as a concession (and arguably in some cases does!).
As Anthony notes, franchising started with the railways in decline, with incentives required for the private sector to try and improve services by taking upside on additional fares they could generate. Current franchises have much less freedom for the franchisee to innovate (particularly around new services), and are now more like concessions. While there are certain passenger flows that are still unpredictable and which have a certain level of risk associated with the income from those services, the renaissance of rail travel has certainly reduced this risk - although seismic shocks such as the banking crisis of 2008 can still cause major problems.
Concessions work well in city regions where there is a reasonable certainty of use and where the local transport authority can provide reasonable predictions of its income. The authority should have a good idea of what its citizens want by way of a rail service, and simply needs an operator to provide that. Good service can be rewarded by a performance regime and a lower cost from the operator, as it is taking less risk in the services. An additional benefit from a local authority controlling the fares is that it can look to establish a common fares policy across its transport area. Common in the majority of European cities, as well as London, it provides a powerful benefit to the travelling public to know that a single ticket or pass will be able to take them where they want to go, irrespective of the organisation providing the actual transport service.
The private sector will generally take the risk, so the question is then how much you wish to pay for that risk and who is the party best placed to manage that risk? On those parts of the network where the service requirements are well known and where most trains are likely to be fairly full, there is an argument to say that these should be the subject of concessions. The funds retained by the local authorities could then be reinvested in improving local transport, including funding other modes such as trams, to bring commuters into centres of cities with reduced numbers of interchanges. Most commuter services could operate as concessions, with only the longer-distance, inter-city routes having the unpredictability in flows that would benefit from franchise operations.
Franchises and open access operations
Competition on a specific route within the rail mode is a relatively recent occurrence. Apart from some joint running, most rail companies ran competing routes. The argument that open access operators (OAOs) will unlock new markets is an exciting one, but there needs to be a reasoned balance between introducing new services if existing services have to be removed to accommodate them. That is not to say that a little-used existing flow should be guaranteed over a potentially new and more popular flow.
Even buses are not completely open access. Routes need to be agreed and the Traffic Commissioners do check to ensure that there is a level of service and reliability for the public. With the introduction of the Bus Services Bill there will be more opportunity for local authorities to establish routes that will be operated under concessions similar to those in London. This will be the ability to provide choice to consumers being constrained by the requirements of the state, or arguably the ability for the state to support routes that would otherwise not be provided in an open market.
The argument about cost of access favouring OAOs can be looked at as a simple money movement exercise. While fixed costs are paid by franchisees but not by OAOs, it would be possible for Government to pay the fixed costs directly to Network Rail rather than include it in the subsidy paid to (or receive a smaller premium from) a franchisee. Having NR on the Government’s books makes this more possible, rather than when Railtrack was a private sector company. Changing the payment route for fixed access charges would then entail all freight and passenger services paying variable charges, arguably making it easier to assess value received from the services that operators wish to run on the railway infrastructure. This would have the potential of making the ORR’s life a little easier, when it assesses whether an open access operation should go ahead or adjudicates over an access dispute between parties trying to gain access to the rail network.
Ticketing and ticket prices are an issue for passengers, especially those who are not regular users. It is incredibly important to be able to have a set of tickets that are available for use on all services and which can be used on a turn-up and go basis. The capacity for looking at getting discounts for specific trains or services is helpful, but a number of users are unable to guarantee which train they will travel on. Having new OAOs with tickets that can only be used on their services can be seen as an issue, but are the benefits of having new services sufficient to outweigh the potential ticketing confusion?
For too long ticketing has sat in the ‘too hard’ category, as any re-casting will see winners and losers. Undertaking a comprehensive review could unlock a number of solutions for operating competing services over the same routes, especially as new technology becomes more common. Rather than paying a penalty fare or buying a completely new ticket for using a different service, maybe a passenger can simply buy an ‘add-on’ related to the current cheapest offer for the service on which they are travelling.
Given that one of the growth areas in public transport is coming from the younger generation who cannot afford to run a private car, we should be looking at embracing the technology we now have available to improve the choices and make it easier to travel. We can even look at integrating it with the rest of their journey!
