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05 Apr 2018

Rail franchising: 10 key points from the top table dinner


Peter Wilkinson, the Department for Transport's Managing Director of Rail Passenger Services, kindly joined Stephenson Harwood and Atkins on Tuesday 13 March 2018 for a top table dinner. Peter spoke enthusiastically to a full room about the challenges facing the rail passenger industry, the need to innovate and embrace change and the importance of understanding passengers. A lively debate around the tables followed, with topics such as integration, devolution, technology, housing and finance on the agenda. If you attended the dinner, thank you for your contribution.

The following are our 10 key points from the evening reflecting views expressed by attendees, although with the wide-ranging discussion, we appreciate that plenty more could have been on the list.

  1. Defying gravity?: The industry has been used to year-on-year increases in passenger numbers, but this trend may be coming to an end, with reduced growth and, on some routes, declining passenger numbers. We do not yet know why this is happening but we need to be able to respond to it, making the railways more relevant, accessible and attractive in the world we now live in and the world which we will live in. The railway needs to work for every passenger and potential passenger – whether those travelling before 6.30 a.m. or during rush hour.
  2. Big spender: Passengers spend significant sums travelling by rail and they are entitled to expect a reasonable service and to be treated with respect when things go wrong. If you pay for a ticket for a football match and the game is cancelled, you would rightly expect a refund. The railway should not be an exception and consumer rights legislation will help to drive this focus. Schedule 8 payments between Network Rail and operators are designed, on average, to compensate the train operator for the future loss of revenue as a result of reduced passenger journeys arising from unplanned disruption. Schedule 8 payments may be in either direction – from Network Rail to train operators or vice versa. Whilst this payments have come in for some criticism in the past, the prime concern of ensuring the passenger gets treated fairly should not be forgotten. It was felt more could be done to do this, such as telling a passenger by text they are entitled to a refund, making it easy for them to claim that refund and perhaps offering them a free cup of coffee as an apology. These should not be seen as "unaffordable": it will drive trust in the industry. The forthcoming creation of the Rail Ombudsman will also help trust to be built in the industry.
  3. A whole new world?: Innovation and technology need to be at the heart of the industry. 90% of 16-25 year olds now own a smartphone and are agile users of the railway, planning their end-to-end journeys before leaving home. The industry needs to facilitate this, making information available in a form which is easy to access before passengers get to their local station to find there is disruption. More widely, the industry is already embracing new technology: the new Thameslink fleet will allow automatic train operation between St Albans and East Croydon, enabling more trains and more space for passengers. We need to continue looking for ways to innovate if we want to remain relevant.
  4. You're the one that I want: Connected with this is the need to understand passengers and their needs. Smart ticketing will be introduced to the railway this year – and the industry needs to take full advantage of the opportunities this will offer to better understand passengers and their journeys. Whilst perhaps slightly clunky to start with, smart ticketing will be the first step in a ticketing revolution which could ultimately see ticket barriers removed at stations as technology advances.
  5. Maybe this time: Of course, recent announcements on the future of the East Coast franchise could not be avoided as part of the discussion. Early termination of the franchise should not be seen as a failure – indeed, it could even be seen as a success of the franchising system. If the franchise were to be retendered today, revenue predictions and premium payments would not be nearly so high. The taxpayer has benefitted from significant investment, the service is more popular than ever and every penny of the parent company support will be taken, protecting the taxpayer. To date it seems the commercial model has not worked on the East Coast line and whilst some rethinking is needed, this does not mean that the franchising system is fundamentally flawed. No one in the room thought that a return to a nationalised train service delivery model would offer a better solution.
  6. Anything you can do…: Devolution has been a hot topic over recent years and the view seems to be that this is delivering benefits, with decisions being taken closer to users. For rail services, the DfT is doing better by involving local authorities in service specification, responding more directly to local needs and reconciling differences where they arise. In the longer term, fuller devolution may drive greater benefits, although this is also likely to need devolution of wider powers and funding responsibilities and the need for an ultimate arbiter will remain. In the shorter term a partnership model may help, although the partnership should be properly empowered, with partners willing to compromise, so that the partnership does not simply become another industry "talking shop".
  7. Let it go: To what extent should we be letting go of existing ways of working, in the interests of delivering better performance and a better experience for passengers? Alliancing, whilst perhaps previously seen as a panacea for the industry, has not delivered everything hoped for, often simply creating that industry talking shop. Part of the difficulty is the incentives and priorities of Network Rail are not the same as those of the train operators. Greater alignment of incentives between the two is needed, which can perhaps empower integrated ways of working. Route-based regulation in the next control period may also assist.
  8. Money makes the world go round: There was a lively debate around funding of the industry, drawing on some of the themes from our previous dinner with Mark Carne, Chief Executive Officer of Network Rail. One view taken was that there is no impediment to private investment in the industry: the "residual value mechanism" in the franchise agreement can facilitate it and investors need to step up and deliver on their warm words and promises of investment. On the other hand, the practical value of the "residual value mechanism" was questioned and the importance of ongoing revenue streams was highlighted. For example, investment could easily be made in removing a level crossing (and creating more capacity as a result) but there is no clear revenue stream arising. There were competing views about the level of return and associated level of risk which investors seek, which has perhaps raised barriers to date.
  9. Bare necessities: Signalling is a core component of the railway system and Network Rail has plans to implement a revolutionary signalling system. There was a feeling in the room that these aspirations have been cooling off, with a number of revised plans published, increasingly smaller in scope. There is currently little certainty in the supply chain about what Network Rail wants, where it wants it or when it wants it. That said, the underlying aims of the new system, in terms of increased capacity and greater reliability are needed and it was recognised that the franchising system could and should support the achievement of those aims.
  10. Be our guest: Housing developments are often sold on the basis of their transport links, which may include accessibility to the railway. This will often drive property prices up – and the general view of attendees was that developers should not themselves pocket those price increases if it is the public sector which funds the connectivity. Contributions from developers are therefore required and there are existing legal mechanisms which can deliver this. Associated with those contributions should be more influence in the specification and delivery of the railway scheme, which has interfaces with the franchising system in terms of service provision.


Darren Fodey

Darren Fodey

T:  +44 20 7809 2388 M:  +44 7920 201 290 Email Darren | Vcard Office:  London

Tammy Samuel

Tammy Samuel
Partner and co head of rail

T:  +44 20 7809 2227 M:  +44 7766 991 053 Email Tammy | Vcard Office:  London

Suzanne Tarplee

Suzanne Tarplee
Partner and co head of rail

T:  +44 20 7809 2389 M:  +44 7718 247 220 Email Suzanne | Vcard Office:  London

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