Profit motive to return to British rail network as part of long-awaited shake-up

Transport secretary Mark Harper has said train operators will be incentivised to make greater profits under long-awaited government reforms of Britain’s railways, as he criticised the “financially unsustainable” and “broken” network.

Harper said he was committed to a major shake-up of the industry, which he admitted has been left in “no man’s land” following the unravelling of the privatised provision of passenger services, based on a franchise system, when the coronavirus pandemic struck.

Ministers first unveiled plans for reform nearly two years ago, including the creation of a new public body called Great British Railways to run the network, but have yet to give any further details or bring forward legislation.

The uncertainty has come with the industry facing a £2bn annual budget shortfall following the collapse in passenger numbers during the pandemic, and the biggest set of strikes in a generation.

“We have a broken model, unable to adapt to customers needs and financially unsustainable,” Harper said in a speech to the railway industry on Tuesday evening.

“Left untreated we will drive passengers away with poor performance, which leads to fewer services . . . only major reform can break that cycle of decline,” he said.

The government scrapped all franchises during the early days of the pandemic and assumed all financial risk by putting train companies on fixed management fees to run services.

While this saved the industry from collapse, many executives in the private sector have pushed for these contracts to be replaced by a more market-oriented model which incentivises the industry to grow passenger numbers again.

Harper said the government’s reforms would “enhance the role of the private sector” with train operators switching on to a new set of contracts which will give some more “financial risk”, effectively allowing them to make greater profits if passenger numbers rise.

But the plans do not propose a complete return to the old model of companies bidding for franchises, after the old system led to several operators collapse before the pandemic.

“In the past some operators took on more financial risk than they could handle. So now that risk will sit where it is best managed. That includes with operators, but only where it drives the best outcomes,” Harper said.

The rail industry has suggested different contract models for different routes, with the biggest commercial freedoms on major inter-city routes that compete with road and air travel.

The state would maintain more control over commuter lines or lines where there are major upgrades planned, under industry proposals reported by the FT last month.

Harper also promised to simplify the railway’s ticketing system, including the extension of a trial that replaces return tickets with single leg pricing, and airline style ‘dynamic pricing’ with fares changing in line with demand.

The private sector welcomed the proposals, and called on ministers to move ahead with legislation. “We now need a clear timetable for legislation as well as pushing ahead with those reforms that don’t need to wait for parliamentary time,” said Andy Bagnall, chief executive of Rail Partners, which represents train companies.

But the moves will probably raise further tensions with unions, which have long called for full nationalisation and criticised the role of the private sector in the rail industry.