Rail bosses urge ministers to restore powers to train operators

Railway bosses have urged ministers to hand greater powers back to private train companies, including sharing more commercial risk to help fix the financial black hole that has contributed to a wave of strikes.

The government is moving towards a shake-up of the industry under which private companies would permanently lose a “risk and reward” exposure to passenger numbers and ticket revenues, and instead would just be paid set contractor fees for running trains.

But the team of senior executives charged with setting up a new state-owned body to oversee the railways has drawn up a series of more market-orientated reforms, according to documents seen by the Financial Times.

The proposals include moving to contracts that “restore commercial incentives for operators”, the plans show.

Ministers nearly two years ago unveiled a landmark white paper that proposed to undo much of the old privatised franchise system and laid out a vision for a central state-owned body called Great British Railways to act as a “guiding mind” for the industry.

The white paper set out a model that would pay private companies a fee to run services under prescriptive management contracts.

This was seen as the natural progression from the emergency contracts that companies were moved on to during the coronavirus pandemic, when ridership and revenue collapsed and government assumed nearly all financial risk.

The government has still not announced when it will introduce legislation to create Great British Railways, leaving many in the industry to question whether ministers are still enthusiastic about the plans.

But the new proposals, from the Great British Railways Transition Team and private sector body Rail Partners indicate that the industry is still planning for large reforms.

The document suggests that the industry believes the 2021 reforms went too far, and that the private sector needs greater freedoms as the railway battles to fix its finances.

“We support progressively dialling up the level of cost and revenue incentivisation and risk transfer within service contracts, starting immediately,” it said.

The proposal suggests that companies are put on different contracts for different routes, with the state maintaining more control over many commuter lines or where there are major upgrade works.

But it also recommends returning many inter-city routes, such as the East Coast mainline, to a model more similar to the old franchise system, with greater sharing of financial risk and reward between rail companies and the government.

The plans do not propose a complete return to the old model of companies bidding for franchises.

GBR was drawn up to reflect the view in government that franchising was already on its knees before the pandemic, with several franchises taken back into state control in the preceding years.

The position of former prime minister Boris Johnson’s government was that competition had largely been a failure and that the concession model, followed by GBR, had worked in other countries and on the London Overground.

With revenues still depressed as a result of changing traveller habits, there is scepticism in parts of Westminster about the idea of edging back towards the old system.

“Bringing back financial risk is not viable for most of the franchises at the moment, if it ever was,” said one senior Tory figure. “Lots of franchises were failing even before the pandemic.”

But the GBR document said the railways could only prosper as a “business enterprise” as opposed to a fully state-directed operation.

The railway is facing an annual budget shortfall of around £2bn following a sharp drop in commuter numbers. This has contributed to the industrial action that is sweeping the network, with ministers and railway leaders arguing that pay rises can only be afforded if unions agree to reform their working practices.

Unions have called for the railways to be completely nationalised and run by the governments, and have long criticised the involvement of private train operating companies.

“There is no risk, it is all reward for train companies,” said Mick Whelan, general secretary of the Aslef drivers’ union.

Rail Partners and the GBRTT said in statements that ministers had asked the industry for its views.

“Any future model needs to bring in private sector expertise, be attractive to the market and make sure that competition really delivers for customers and taxpayers,” said GBRTT.

The Department for Transport declined to comment.