Rail franchising in Great Britain
Encyclopedia
Rail franchising in Great Britain was created by the Railways Act 1993
. Passenger services are franchised, for a limited period, to train operating companies
. The award of the franchise is determined by competition.
. On 1 February 2001 the position of Franchising Director was abolished by the Transport Act 2000
and the passenger rail franchising functions were transferred to the newly-created Strategic Rail Authority
(SRA). The SRA was in turn abolished in 2006 and the SRA's franchising functions were taken over by the Secretary of State for Transport
.
(DfT) invites bidders to tender for the franchise. The DfT specifies the level of service required and judges bids on several criteria. In the past, many services required a public subsidy and the level of subsidy required by each bid was one of the factors considered by the DfT. Although recent franchise renewals have seen a reversal of this process and bidders are now expected to offer a premium (typically around GBP 1,000 million over 10 years) for the franchise, this masks the public subsidy of most rail franchises through the UK Government's direct grant to Network Rail, which therefore does not levy a full access charge to the franchisee for use of the infrastructure. In the interim McNulty report in September 2010 ["Rail Value for Money Study"] the Net Cost to government (£m) and Net Cost to government as % of total cost were shown as:
Long-distance franchises £693m / 25 % respectively
London and South East franchises £760m / 19% respectively
Regional franchises £1,873m / 61% respectively
on rail passengers. It has been impossible to compare premiums offered by successful and unsuccessful bidders because the DfT has refused to release the information. A decision on 28 July 2008 by the Information Commissioner may change this, but the matter is still unresolved because the DfT has appealed to the Information Tribunal
(case number EA/2008/0070). The DfT has now published the information in anonymised form for the South Western franchise
. The winning bidder offered a premium of £1,191 million (net present value
) over the life of the franchise, and the other bidders offered £636 million, £513 million and £501 million.
Passenger Rail Franchising has also been examined by the National Audit Office
and a report was published on 15 October 2008.
Railways Act 1993
The Railways Act 1993 was introduced by John Major's Conservative government and passed on 5 November 1993. It provided for the restructuring of the British Railways Board , the public corporation that owned and operated the national railway system...
. Passenger services are franchised, for a limited period, to train operating companies
Train operating company
The term train operating company is used in the United Kingdom to describe the various businesses operating passenger trains on the railway system of Great Britain under the collective National Rail brand...
. The award of the franchise is determined by competition.
Characteristics
Rail franchise holders in Great Britain accept commercial risk, although there are clauses in newer franchises which offer some compensation for lower-than-expected revenue (and also claw back some excess profits, should these occur). This should be compared with a "concession", such as those awarded to Stagecoach for Manchester Metrolink or to Serco for the TfL Docklands Light Railway. Concession holders are paid a fee to run the service, which is usually tightly specified by the awarding authority. They do not take commercial risk, although there are usually some penalties/rewards built into the contract for large variations in performance.Administration
Rail franchising was, initially, administered by the Director of Passenger Rail FranchisingDirector of Passenger Rail Franchising
The Director of Passenger Rail Franchising is a statutory office created in 1993 by the Railways Act 1993 and usually called the Franchising Director...
. On 1 February 2001 the position of Franchising Director was abolished by the Transport Act 2000
Transport Act 2000
The Transport Act 2000 is an Act of the Parliament of the United Kingdom. It provided for a number of measures regarding transport in Great Britain, most notably, the first major change in the structure of the privatised railway system established under the Railways Act 1993...
and the passenger rail franchising functions were transferred to the newly-created Strategic Rail Authority
Strategic Rail Authority
In existence from 2001 to 2006, the Strategic Rail Authority was a non-departmental public body in the United Kingdom set up under the Transport Act 2000 to provide strategic direction for the railway industry....
(SRA). The SRA was in turn abolished in 2006 and the SRA's franchising functions were taken over by the Secretary of State for Transport
Secretary of State for Transport
The Secretary of State for Transport is the member of the cabinet responsible for the British Department for Transport. The role has had a high turnover as new appointments are blamed for the failures of decades of their predecessors...
.
Operation
When a franchise becomes due for renewal, the Department for TransportDepartment for Transport
In the United Kingdom, the Department for Transport is the government department responsible for the English transport network and a limited number of transport matters in Scotland, Wales and Northern Ireland which are not devolved...
(DfT) invites bidders to tender for the franchise. The DfT specifies the level of service required and judges bids on several criteria. In the past, many services required a public subsidy and the level of subsidy required by each bid was one of the factors considered by the DfT. Although recent franchise renewals have seen a reversal of this process and bidders are now expected to offer a premium (typically around GBP 1,000 million over 10 years) for the franchise, this masks the public subsidy of most rail franchises through the UK Government's direct grant to Network Rail, which therefore does not levy a full access charge to the franchisee for use of the infrastructure. In the interim McNulty report in September 2010 ["Rail Value for Money Study"] the Net Cost to government (£m) and Net Cost to government as % of total cost were shown as:
Long-distance franchises £693m / 25 % respectively
London and South East franchises £760m / 19% respectively
Regional franchises £1,873m / 61% respectively
Criticism of the franchising process
In order to pay premiums to the government, Train Operating Companies have implemented large fare rises and this has led to the allegation that the premiums are a stealth taxStealth tax
A stealth tax is a tax levied in such a way that is largely unnoticed, or not recognized as a tax,. The phrase was generally used in the United Kingdom by Conservatives to attack the New Labour government's behaviour...
on rail passengers. It has been impossible to compare premiums offered by successful and unsuccessful bidders because the DfT has refused to release the information. A decision on 28 July 2008 by the Information Commissioner may change this, but the matter is still unresolved because the DfT has appealed to the Information Tribunal
Information Tribunal
The Information Tribunal was a tribunal non-departmental public body in the United Kingdom. It was established as the Data Protection Tribunal to hear appeals under the Data Protection Act 1984...
(case number EA/2008/0070). The DfT has now published the information in anonymised form for the South Western franchise
South West Trains
South West Trains is a British train operating company providing, under franchise, passenger rail services, mostly out of Waterloo station, to the southwest of London in the suburbs and in the counties of Surrey, Hampshire, Dorset, Devon, Somerset, Berkshire, and Wiltshire and on the Isle of Wight...
. The winning bidder offered a premium of £1,191 million (net present value
Net present value
In finance, the net present value or net present worth of a time series of cash flows, both incoming and outgoing, is defined as the sum of the present values of the individual cash flows of the same entity...
) over the life of the franchise, and the other bidders offered £636 million, £513 million and £501 million.
Passenger Rail Franchising has also been examined by the National Audit Office
National Audit Office (United Kingdom)
The National Audit Office is an independent Parliamentary body in the United Kingdom which is responsible for auditing central government departments, government agencies and non-departmental public bodies...
and a report was published on 15 October 2008.
See also
- Train operating companyTrain operating companyThe term train operating company is used in the United Kingdom to describe the various businesses operating passenger trains on the railway system of Great Britain under the collective National Rail brand...
- List of companies operating trains in the United Kingdom