The pandemic has shown that rail franchising is no longer working, declared the transport secretary, Grant Shapps, on Monday, killing the model of privatisation of the past 25 years. His analysis is not quite right. The proof of franchising’s failures arrived long before Covid-19, which has merely provided more evidence. Reform should have happened years ago.
The franchising mess can be summarised as follows: baffling fare structures; prioritisation of revenues over investment; constant squabbles over infrastructure delays between the operators and Network Rail, which is charge of the tracks; and general dysfunction to the point where even an unremarkable timetable change caused chaos in 2018.
In the end, the train operators concluded the system didn’t even work for them. Bidders dried up as overly aggressive past bids came back to bite. Ministers were reduced to making “direct awards” on some routes, undermining even the appearance of competitive bidding. Almost nobody will mourn the end of franchising.
Only the interim stage of Shapps’s planned reform is clear, however. The emergency measures agreements that have been in place since March will be extended, a decision forced by events. The only tweak is that Shapps is being a bit meaner to the operators on terms – quite right, too.
But then comes the hard bit: permanent change. Detail is still thin but, as expected, it looks as if the railway will be switched to a contracts system whereby operators are paid a fixed fee to deliver a service to a required standard.
That’s not unlike the current emergency setup and should be an improvement. For starters, it should allow more flexibility to connect with infrastructure upgrades. Fare simplification should also be easier if operators aren’t fighting for their own narrow interests. The model also commands broad support, having been backed by Keith Williams, the former British Airways boss, in his review for government that predates the pandemic.
But Williams was concerned with other features – modernisation of ticketing, regional devolution, and the concept of a “fat controller”, or guiding mind, to inject accountability. It is not clear where Shapps will land on any of those issues in his white paper.
Do simpler fares mean lower fares, for example? That’s the hint, but the Treasury may still take the view that passengers should contribute more to the funding of the railways. Does Boris Johnson’s pre-pandemic pledge to “give the railways of the north [of England] back to the people” still hold in a more uncertain world for revenues? And the question of who – ultimately – is in charge is crucial. An arm’s-length body sounds the safest design, but not if ministers insist on rights to fiddle from day to day.
On the plus side, we are now closer to answers. Shapps wants to terminate franchises formally by the end of the year, making sure loss-making operators have to pay to escape financial obligations (again, quite right). But it’s only in 2022 that the new show will take to the rails. By rights, we should have arrived at that point 10 years ago. Franchising has been failing for at least that long.
Why isn’t the government helping out Rolls-Royce?
Rolls-Royce’s management, pondering whether to raise equity soon or wait until the Covid clouds clear, has had the decision taken out of its hands. The board will have to move quickly to avoid more days like Monday – an 11% share price fall as second wave worries mounted, along with the risk that recovery in the civil aviation market will be further delayed.
At 161p, Rolls’ shares have almost halved even from their first wave low. Yes, the engine maker has £8bn of liquidity, as it mentions loudly and often, but net debt is £4.4bn and the market values the equity at only £3.1bn. When you are publicly contemplating raising £2.5bn via new shares, you will be thumped on every bad day in the markets.
The new twist to the tale, however, is that Rolls may look to foreign sovereign wealth funds, including Singapore’s GIC, for part of the sum. That’s probably sensible from the company’s point of view, but ought to cause some squirming at HM Treasury.
How is that the UK can find £400m to invest in a rescue of OneWeb, a bankrupt satellite broadband operator, but not even contemplate equity support for Rolls, a company where the state has a limited golden share to protect the nuclear submarine assets? If the answer is merely that the PM’s chief adviser, Dominic Cummings, pushed for the OneWeb deal, that’s not a real explanation.
