Rail franchises may not be value for money due to dwindling interest, say MPs
12 February 2016
There is "a real risk" that the Government will not get value for money from rail franchises because of "dwindling" interest from operators, an influential group of MPs has warned.
A report by the Commons Public Accounts Committee (PAC) urged the Department for Transport (DfT) to develop an alternative commercial strategy to be used if competition for franchises continues to fall.
It suggested looking at other markets which have a limited number of firms involved, such as the energy sector, to see if lessons can be learned.
The committee noted that the DfT – which is responsible for awarding rail franchises in England and Wales to private sector companies – requires at least three bids per franchise to “create competitive tension” and “increase the likelihood of receiving high-quality bids”.
But there are “signs that the level of interest from the market in rail franchising is dwindling”, the MPs said, adding: “There is a real risk to value for money if market interest … declines any further.”
The report said the first five franchises made available after the programme was restarted in 2013 attracted three bids each, compared with an average of four for the previous 10 competitions.
Last week it was announced that only two companies will compete to run the South Western franchise from June next year.
Committee chairwoman Meg Hillier said: “This hardly inspires confidence and highlights the urgent need for the department to develop new approaches it can draw on when there is a risk competition will not deliver the result rail users and the wider public deserve.”
Right-of-centre think tank the Institute of Economic Affairs published research earlier this week which showed that Government funding in the rail industry is almost £5 billion a year – equivalent to 0.3% of GDP and £180 per family in the UK.
In October 2012, Transport Secretary Patrick McLoughlin scrapped the competition for the West Coast franchise after serious errors were found to have been made during the bidding process. A PAC inquiry found that it would cost taxpayers at least £50 million. Three other franchise competitions were paused.
A revised franchising programme was launched in March 2013 with 15 competitions over an eight-year period.
The PAC acknowledged improvements since then in the DfT’s capability to let franchises, but said there were “still gaps in its ability to then manage the contracts effectively”.
It concluded that it is “not clear” when rail users will see higher quality services and urged the DfT to develop partnerships with operators that “facilitate innovation”.
The DfT issued a statement which read: “Since the launch of the franchising programme in March 2013, the department has introduced a series of measures which has brought new companies to the market.
“We have 11 owning groups already able to bid for franchises and we are working to actively seek further new entrants to the market.”
Mick Cash, general secretary of the Rail, Maritime and Transport (RMT) union, described the committee’s findings as “hopelessly inadequate” and claimed rail franchising is “actually far worse than it was in 2012”.
Paul Plummer, chief executive of the Rail Delivery Group, representing train operators and Network Rail, said: “We support the need for a clear vision for the whole of Britain’s railway network.”
Photo from Cheskin / PA Wire