Transport Committee: Press Notice

Session 2008-09, 27 July 2009

Publication of Report Rail fares and franchises


Publication of Report Rail fares and franchises

Rail franchising off the rails

Rail franchising remains a mess where private operators can abandon their obligations when times get tough. The time has come for fundamental reform of the franchising system, says the Transport Select Committee in its latest report.

In its report on Rail Fares and Franchises, the Committee concludes that the fare increases, service reductions and staff cuts seen in 2009 are unacceptable practices which the Government must take steps to prevent. Fare rises of more than 11% on some routes when inflation is close to zero are not acceptable. MPs therefore welcome transport minister Lord Adonis' decision to honour his promise to the Committee to close the loophole - the fares basket - that made these exorbitant rises possible.

Launching the report, Committee Chairman Louise Ellman said: "Current risk-sharing arrangements are probably storing up problems for the future. There is no point involving the private sector if companies can cream off the profits in good times, but leave passengers and tax payers to pick up the bill when hard times hit. The Government must continue to hold firm on its commitment not to re-negotiate franchising contracts."

"We support the Secretary of State's decision to take back responsibility for the East Coast Main Line franchise but the failure of two major contracts in three years is evidence of serious underlying problems with the current franchising model. We need to get these problems sorted out as a matter of urgency.

"Many more franchises may be struggling to meet their financial obligations, without our knowledge. More failures in the franchise system will cost a lot of public money and we are deeply concerned about the impact this could have on the funding for other transport projects.

MPs also believe it is unacceptable for an operator who has failed in one franchise to be able to cling onto its other franchises. The misuse of legal instruments, such as 'special purpose vehicles' to insulate parent companies from potential losses and legal problems when subsidiaries fail is sharp practice, says the Committee.

In its key recommendations on franchises the Committee calls for:

  • Government to attempt different forms of franchising, keeping the 'lucrative' East Coast Main Line franchise in the public sector to provide a benchmark against which to compare the performance of other types of franchises, both in terms of financial viability and passenger service quality.
  • Franchises to be let on a longer term basis €” albeit with break points so that contracts can be terminated at pre-defined points if performance is unsatisfactory. Longer franchises will remove perverse incentives that currently encourage short-term cost-cutting measures that reduce service quality.
  • All franchises to be made more passenger-focused over time, using provisions such as those applied in the recently let South Central franchise (which includes monitoring of passenger satisfaction along with cycle and car parking space targets).

With regard to fares the Committee:

  • Criticises the six month gap between the benchmark RPI and subsequent fare rises because it permits price hikes at the worst time and increases out of all proportion to trends in the real economy.
  • Concludes that fare structures remain too complex. Information on, and access to, the complete range of fares must be improved for all passengers.
  • Welcomes the Secretary of State's confirmation that the RPI+1% formula will apply for 2010 fares such that regulated fares could decrease next year.

Commenting on this last point Louise Ellman adds,

"The fare rises we saw this year were excessive. We are pleased that Lord Adonis has decided to tighten the rules and to hold firm in the face of pressure from operators. The system which allowed quite unreasonable fare rises this year will be kept in place next year when it will be disadvantageous to train operators. This means that the price of regulated fares should go down next January, giving a little respite to long-suffering passengers."