Rail franchise chaos

RMT demands inquiry into sustainability of rail franchising

RMT has called for an immediate forensic inquiry into the sustainability of the government’s rail franchising programme after it announced the early termination of the East Coast franchise.

rail franchise

The East Coast rail franchise, run by an alliance of Stagecoach and Virgin, will be terminated three years early, forfeiting hundreds of millions in premiums due to be paid to the Treasury.

Under a rail strategy announced by the transport secretary Chris Grayling, a new partnership model will replace the franchise contract of Virgin Trains East Coast.

Stagecoach and Virgin had pledged to pay £3.3 billion to run the service until 2023 when it was re-privatised in 2015 after six years in public hands.

Instead, VTEC will only pay a fraction of that sum, with the bulk of payments due in the final three years of the franchise.

Stagecoach has admitted it overpaid for the franchise and has been seeking a bailout from the government for some time and shares in Stagecoach jumped 12 per cent on the news.

Stagecoach also announced an eight per cent increase in profits while RMT was balloting members for industrial action as the company attempts to hammer staff with an imposed pay increase and associated attacks on working conditions.
The scandal was compounded by evidence of a rodent infestation after pictures emerged clearly showing droppings in the food preparation and kitchen area on a VTEC unit.

The Virgin East Coast franchise has also received an astonishing £48.49 per train mile just from passengers’ fares in 2015/16 amounting to a total of £708 million revenue in a year whilst Virgin’s West Coast franchise was slightly behind with £46.33 per train mile but earning overall more passenger revenue with £1.017 billion a year.

These huge sums levered out of Britain’s beleaguered fare payers even outstripped those received by the lucrative London and South East commuter franchises including GTR Southern although passenger revenue here was still a very healthy £34.81 per train mile for a franchise that has been widely criticised for poor performance.

The full list in Chart 1 (opposite) has been complied by Cambridge Economic Policy Associates (CEPA) in association with SYSTRA but buried away on the rail regulators website.

RMT general secretary Mick Cash said that the whole shoddy deal stank and the franchise was in crisis once more.

“It looks like the government rigging the market again in favour of the private sector. This is basically Chris Grayling manning the lifeboats and bailing out Virgin and Stagecoach once again,” he said.

Labour shadow transport secretary Andy MacDonald told the Commons that the strategy announcement was “a total smokescreen”.

“The real issue is that the East Coast franchise has failed again and the taxpayer will bail it out.

“Markets don’t lie and the secretary of state has let Stagecoach off the hook for hundreds of millions of pounds. He’s tough on everyone except the private sector,” he said.

Former Transport Minister Lord Adonis nationalised East Coast in 2009 when the previous private operator National Express also said that it could not meet its promised payments to the Treasury.

Following the latest East Coast shambles, Mr Adonis also warned that First group was losing “big money” on the Transpennine Express franchise and was consulting its lawyers.

The Transpennine Express franchise requires it to increase its premium payments from £6.8 million in 2017/18 to a massive £178.9 million by 2024/25.

RMT also believes that other franchises will be at risk due to over optimistic projection of passenger growth. For example, as well as the Transpennine franchise the Northern franchise assumes a 25 per cent increase in passenger demand over the duration of the franchise.

On this basis there will be a staggering 85 per cent cut in public funding from £275 million to £39 million by 2025/26.

Chart 2 shows that both the Transpennine Express and the Northern franchise are on course for huge cuts in public funding which, combined with slower than expected passenger growth, suggest the rail funding crisis in the north can only get worse.

Mick Cash said that far from a Northern Powerhouse there was now a real danger of a full blown Northern rail crisis.

“First we have the East Coast franchise being terminated early and now it emerges that the Transpennine Express could follow suit and the sustainability of the Northern franchise is built on sand,” he said.

First Group has also been handed another contract to run Great Western Railway (GWR) up to 2024 after it was controversially allowed to continue running the service after dodging £800 million due to the government in an original contract.

The Department of Transport will extend First’s current GWR franchise contract by another year, to April 2020, and then give a direct award for two more years, with an option to double the tenure.

The biggest commuter franchise, Govia, which operates the Thameslink, Great Northern and troubled Southern services, will be broken up.

“The government is engaged in fantasy franchising where over ambitious projections of passenger growth, combined with the reality of falling passenger numbers, is a toxic combination that is likely to torpedo the government’s whole franchising programme leaving passenger services vulnerable to cuts and the taxpayer left to pick up the bill.

“Instead of swallowing its ideological pride and taking services into the public sector the government is lurching from crisis to crisis.
“RMT is calling for a full inquiry into the sustainability of rail franchisingwhich is clearly not fit for purpose,” he said.

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RMT analysis of the projected subsidy profile for Northern and TPE franchises:
Transpennine Express subsidy:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/505096/f0013278-reply-premium-payments-ntpe.pdf
Northern subsidy: http://www.parliament.uk/business/publications/written-questions-answers-statements/written-question/Commons/2016-01-05/21124/

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