The rail franchise days look numbered

Transport secretary Grant Shapps is reportedly set to announce the end of rail franchises more than a generation after rail privatisation under the Railways Act in 1993.

Franchises are set to be replaced by fixed-fee contracts from April next year, The Telegraph has reported. These ‘concession’ agreements would be similar to outsourcing contracts of the kind used in the NHS and for schools.

Fares would go to the Treasury, which would pay train firms a fee. This model has been used before in the South East for instance, and means the Government will take on more responsibility for operations and the risk attached.

The news comes after the Government suspended the normal contractual arrangements for rail franchise agreements for six months in March this year due to the impact of COVID-19 and the national lockdown.

Ministers asked existing operators to run services under management contracts and since then train operators have been supported with billions of taxpayer funding to keep operations going in the wake of passenger numbers falling by up to 95%.

The emergency measures, which guarantee the franchises a fixed profit, are due to expire next week.

The Telegraph reports that official documents argue that the arrangement is ‘unsustainable going forwards given the economic position and significant pressure on public finances’.

Up until next April, new ‘conditional’ agreements, called ERMAs, will support the transition to the permanent changes, The Telegraph reports, adding that they will be confirmed by Dec 13, with operators forced to sign up to a ‘built-in franchise termination’ clause.

This clause would signal a permanent end to the franchise arrangements from April 2021.

The Government already operates the East Coast and Northern lines after prolonged difficulties with private companies and is available to step in if rail operators refuse to sign up to the new deals.

Operators are said to be in talks with officials, but given the low passenger numbers making current franchises economically unsustainable, their hands look tied.

The Government already had rail reforms in its sights after industrial action, timetable chaos, the failure of smart ticketing on the network and the yearly bad press of rail fare rises.

Keith Williams, chairman of Royal Mail and ex-BA boss, was hired to conduct a wide ranging review and his draft proposals were set to shake up the franchising system.

The Department for Transport said it does not comment on commercial matters.

Industry body, the Rail Delivery Group, have been contacted for comment.