Rail Franchises to be Replaced with Fixed Fee Contracts

[Ianno87]

Whilst I agree with most of your post, this assertion isn't true; a strong majority of British adults support nationalising the railways, at 64% of respondents (only 19% opposed renationalisation).
Source: https://fullfact.org/economy/do-public-want-railways-renationalised/

Do 64% of respondents actually understand what that means (and does not mean)?

"Renationalisation" is a buzzword, with little clarity on the problem it is trying to solve nor how it would solve it, ususlly used by people with a very rose-tinted view of what BR was like.

 

[willgreen]

Do 64% of respondents actually understand what that means (and does not mean)?

"Renationalisation" is a buzzword, with little clarity on the problem it is trying to solve nor how it would solve it, ususlly used by people with a very rose-tinted view of what BR was like.

I agree. That doesn't invalidate my point, though! If anything, it demonstrates the success of the 'union agenda' (inverted commas very much applied) in persuading the public that nationalisation will be a magic bullet.

 

[The Ham]

Let's not forget how massively lucrative rail franchising was for a long time, which is what led to companies wanting to run franchises and bid big to win them. From 2017:

All on board the gravy train - rail firms’ £3.5bn profit despite dire service

The huge profits raked in by rail firms are used to pay fatcat wages and dividends as passengers have to deal with overcrowding and delays

www.google.com

Reading that it looks like they've taken the total profits from the likes of Stagecoach and First and added them up.

As an example they talk of Branson being paid over £8 million, I suspect that was from all income sources and not just Virgin Trains.

It is carefully worded and is thin on actual data of what the train elements of those businesses earned over that time, in doing so it appears to be a collection of half truths to "prove" a point. As such it comes across as spin trying to show something which may not actually be the case.

 

[Sean Davidson]

The railway would do well to stop wasting money, like Greater Anglia replacing 8 year old trains on Stanstead Express, utterly ridiculous as they will be in storage for ages.
I have seen platform information screens replaced that are only a couple of years old on Southeastern, I am quite sure that there are other examples around the country.

 

[BeHereNow]

Query the figures if you like but the point still stands. For a long time rail franchising made companies a lot of money: here's Northern making almost £40m two years running not so long ago.

Profit nears £40m for Northern Rail

Northern Rail has paid dividends of more than £28m to its two shareholders Abellio and Serco after the train operator's pre-tax profit neared the £40m mark.

www.insidermedia.com

"Northern, which operates services linking Manchester, Liverpool, Leeds and Newcastle and includes about 20 per cent of the UK's stations within its portfolio, has posted a pre-tax profit of £39.4m for the year to 4 January 2014. This is up from £38.5m in the previous year."

In recent years that income has turned to losses in many cases but the DfT didn't force anyone to bid.

I think we can all agree that, good times or bad, the system needs redesigning.

 

[BigVern]

Will this spell the end of 'operator only' fares?

 

[irish_rail]

The railway would do well to stop wasting money, like Greater Anglia replacing 8 year old trains on Stanstead Express, utterly ridiculous as they will be in storage for ages.
I have seen platform information screens replaced that are only a couple of years old on Southeastern, I am quite sure that there are other examples around the country.

Completely agree with this. Greater Anglia another example, deciding to replace its entire fleet for the sake of it. Or south west binning the brand new 707 fleet.

 

[dk1]

Completely agree with this. Greater Anglia another example, deciding to replace its entire fleet for the sake of it. Or south west binning the brand new 707 fleet.

To be fair most of the GA rolling stock was very old indeed. The 360s & 379s where only a small proportion of the fleet.

 

[Bletchleyite]

That’s effectively how the DfT have operated the franchise system up to now, using the premium from one to pay for the subsidy for another.

And it also happens internally e.g. in GWR.

 

[Simon11]

The railway would do well to stop wasting money, like Greater Anglia replacing 8 year old trains on Stanstead Express, utterly ridiculous as they will be in storage for ages.
I have seen platform information screens replaced that are only a couple of years old on Southeastern, I am quite sure that there are other examples around the country.

The reason the Stanstead Express trains were replaced was that it was cheaper leasing brand new trains than the older ones..... The issue lies with the owning company and the manufacturer which built expensive stock. All bidders would have made the decision to replace the stock, to reduce costs and hopefully save the tax payer in the process.

 

[Ianno87]

Will this spell the end of 'operator only' fares?

Where they are used for revenue generation, possibly.

Less likely where they are used as a means of encouraging passengers onto quieter routes.

 

[Clarence Yard]

Query the figures if you like but the point still stands. For a long time rail franchising made companies a lot of money: here's Northern making almost £40m two years running not so long ago.

Profit nears £40m for Northern Rail

Northern Rail has paid dividends of more than £28m to its two shareholders Abellio and Serco after the train operator's pre-tax profit neared the £40m mark.

www.insidermedia.com

"Northern, which operates services linking Manchester, Liverpool, Leeds and Newcastle and includes about 20 per cent of the UK's stations within its portfolio, has posted a pre-tax profit of £39.4m for the year to 4 January 2014. This is up from £38.5m in the previous year."

In recent years that income has turned to losses in many cases but the DfT didn't force anyone to bid.

I think we can all agree that, good times or bad, the system needs redesigning.

But what was the turnover that generated that profit? If you are only talking about 1% or less, that’s not a great deal for the risk you are taking.

Even if you are talking about OLR or other management contracts, your fee will have to cover funding requirements, as you are still operating a cash flow company, even if the finances eventually flow to the Government coffers. So there will have to be a return on risk for that.

 

[Sleepy]

Stansted 379 units are looking very tired considering their age !

 

[CptCharlee]

Wonder if franchises as they are now will be one package or wether separate routes and lines would be bid for separate.

 

[colchesterken]

They could do away with payments to private companies, Have one boss to oversee the whole thing like a mayor ( fat controller )
Dont know how she/he gets appointed but needs to be non political.
They could then shuffle the stock around to make best use of stuff removed from the front line, in Greater Anglia world we have the Renatus fleet was it 30m spent on refit good for another 20 what will happen to them. also need to freeze out the ROSCS s the have a guaranteed income that is an added Burdon on the system
Lets think ahead on this one the Fat controller could have overall responsibility for the track and stations and trains. all staff could be employed by the company like TFL, unlike TFL not run under contract but directly with a minimum number of managers.
What shall we call the new company ??????

 

[DB]

also need to freeze out the ROSCS s the have a guaranteed income that is an added Burdon on the system

Some people have a very simplistic view of this.

The alternative is for the government to buy the stock outright, which would be a large number on the balance sheet and they probably want to avoid that. Leasing is common in all sorts of scenarios (I would be surprised if the road vehicle fleets of a large number of government bodies aren't leased), plus increasingly service provision is going more towards the 'service' model. Most notable in things like software ("the cloud"), but also seen similarly with trains, where Hitachi have a contract to supply X number of IEP sets per day to X operator, and everything else is their responsibility.

And as for 'guaranteed income', that's simply not true and fingers have been badly burned in recent years, with trains which are fairly new or have recently had a lot of money spent on them going off-lease, with no planned future user, following a franchise change. The ROSCOs might have had it easy a couple of decades ago, when they picked up the BR stock relatively cheaply, but as less and less of that remains in service they have had to spend a lot on new stock.

 

[Meerkat]

Dont know how she/he gets appointed but needs to be non political.

You can’t have no political control over the spending of large sums of taxpayer cash!

 

[Lampshade]

Great news for the likes of Serco, bad news for anyone who actually knows anything about running a railway.

 

[DorkingMain]

The reason the Stanstead Express trains were replaced was that it was cheaper leasing brand new trains than the older ones..... The issue lies with the owning company and the manufacturer which built expensive stock. All bidders would have made the decision to replace the stock, to reduce costs and hopefully save the tax payer in the process.

Indeed, rolling stock replacement is largely a red herring when ROSCOs are fronting the risk on it

 

[LNW-GW Joint]

They could do away with payments to private companies, Have one boss to oversee the whole thing like a mayor ( fat controller )
Dont know how she/he gets appointed but needs to be non political.
They could then shuffle the stock around to make best use of stuff removed from the front line, in Greater Anglia world we have the Renatus fleet was it 30m spent on refit good for another 20 what will happen to them. also need to freeze out the ROSCS s the have a guaranteed income that is an added Burdon on the system
Lets think ahead on this one the Fat controller could have overall responsibility for the track and stations and trains. all staff could be employed by the company like TFL, unlike TFL not run under contract but directly with a minimum number of managers.
What shall we call the new company ??????

So you'd buy back the national train set and give it to an unaccountable railwayperson to run as he/she likes?
This isn't the Soviet Union, you can't abrogate contracts negotiated in good faith between government and private companies.
For example HMG has signed 27-year contracts with Agility/Hitachi for the IEP fleet, and a 10+ year contract with First/Trenitalia for Avanti.
WG has signed a 15-year contract with Keolis Amey for TfW in Wales (including an electrification contract).
Wales and Scotland will want their own "fat controllers" - so will TfN, TfWM and all the local politicians.
Even Labour did not propose to "nationalise" rolling stock, freight or open access (and failed to get elected).
There may be much wrong with the present railway structure, but BR-style nationalisation is not going to be the answer - the world has changed in the last 30 years.
Politicians will remain in charge as long as the railway needs major government funding (ie as far as the eye can see).

 

[hwl]

also need to freeze out the ROSCS s the have a guaranteed income that is an added Burdon on the system

DfT effectively removed the guaranteed income with the end of most section 54 agreements over 6 years ago. (GTR being the first of the new regime)
The current ROSCO profit margins are pretty low and they now shoulder much more risk than they used to (as seen with the soon to be homeless Renatus 321s, which despite a lot of money spend ton them still lack a lot of useful functionality -replacing them was cheaper in the current environment especially as modern rolling stock maintenance requirements are much lower).
You are proposing a solution to a problem that no longer exists and had a much simpler solution.

 

[Ianno87]

So you'd buy back the national train set and give it to an unaccountable railwayperson to run as he/she likes?
This isn't the Soviet Union, you can't abrogate contracts negotiated in good faith between government and private companies.
For example HMG has signed 27-year contracts with Agility/Hitachi for the IEP fleet, and a 10+ year contract with First/Trenitalia for Avanti.
WG has signed a 15-year contract with Keolis Amey for TfW in Wales (including an electrification contract).
Wales and Scotland will want their own "fat controllers" - so will TfN, TfWM and all the local politicians.
Even Labour did not propose to "nationalise" rolling stock, freight or open access (and failed to get elected).
There may be much wrong with the present railway structure, but BR-style nationalisation is not going to be the answer - the world has changed in the last 30 years.
Politicians will remain in charge as long as the railway needs major government funding (ie as far as the eye can see).

We should ban any reference to a "Fat Controller" role within a future industry structure.

4 years of watching Thomas just demonstates Sir Topham Hatt's ridiculous micromanagement, lack of strategic view, lack of standarisation or effeiciency, and autocratic management style. Not to mention the lack of diversity within his workforce.

 

[DynamicSpirit]

I think the opposite. Concessions are a guaranteed revenue stream. Profits won't be high but they will be consistent and, without any revenue risk or private investment required, it really would be free money.

Isn't that a bit like saying that if I get a gardener in regularly to do my garden, the gardener is getting free money (because it's a guaranteed revenue stream)? Of course, it's not free money - it's money being paid in return for doing some work. Just as, in a concession, the money the companies getting would be money paid for doing some work (ie. running the trains).

 

[DorkingMain]

Isn't that a bit like saying that if I get a gardener in regularly to do my garden, the gardener is getting free money (because it's a guaranteed revenue stream)? Of course, it's not free money - it's money being paid in return for doing some work. Just as, in a concession, the money the companies getting would be money paid for doing some work (ie. running the trains).

I agree, but I suspect the relatively stable income stream is still attractive to a lot of TOCs. Someone else in here mentioned the London bus market - despite the razor thin margins and potential penalties, there is still a healthy level of competition between operators. Admittedly a lot of that has been achieved via race to the bottom conditions for staff.

 

[Tetchytyke]

Isn't that a bit like saying that if I get a gardener in regularly to do my garden, the gardener is getting free money

No, not really. It's a bit like hiring a company to hire a gardener to come and mow your lawn. The gardener gets paid what he gets paid, you just pay more compared to hiring a gardener directly because there's a middleman taking a cut.

There's no reason why TOC staff, including management- who generally TUPE between franchises anyway- couldn't just be on civil service contracts.

Outsourcing- which is all a concession is, really- rarely saves money compared to doing it yourself. And given DfT micro-management, it seems daft to hire a dog then bark yourself.

 

[RT4038]

I agree, but I suspect the relatively stable income stream is still attractive to a lot of TOCs. Someone else in here mentioned the London bus market - despite the razor thin margins and potential penalties, there is still a healthy level of competition between operators. Admittedly a lot of that has been achieved via race to the bottom conditions for staff.

One mans 'race to the bottom conditions for staff' is another mans 'finding the market level for staff conditions'

 

[Tetchytyke]

But what was the turnover that generated that profit? If you are only talking about 1% or less, that’s not a great deal for the risk you are taking.

Talking about turnover is a red herring when it comes to profit. What you need to look at is investment and risk.

If you don't invest a single penny of your own money, and you don't have any revenue risk, then a profit of £40m is great news. It is as close as you'll ever get to free money.

DfT will be taking on revenue risk, the concession operators won't have any risk at all. So margins compared to turnover are meaningless.

 

[RT4038]

There's no reason why TOC staff, including management- who generally TUPE between franchises anyway- couldn't just be on civil service contracts.

I suspect that the reason is that it is cheaper and more flexible not to.

 

[ForTheLoveOf]

And given DfT micro-management, it seems daft to hire a dog then bark yourself.

If the DfT hires in a bogeyman it can play the blame game. Not so if it's personally responsible for operating services.

 

[RT4038]

Talking about turnover is a red herring when it comes to profit. What you need to look at is investment and risk.

If you don't invest a single penny of your own money, and you don't have any revenue risk, then a profit of £40m is great news. It is as close as you'll ever get to free money.

DfT will be taking on revenue risk, the concession operators won't have any risk at all. So margins compared to turnover are meaningless.

That is not quite true - there is still the risk of employing staff, operating safely and legally etc., which can be quite onerous. I suspect that Government just do not want to take on this risk. As pointed out in post #59.