Yes we can! Railfuture Chair Chris Page agrees with Rail Review Chair Keith Williams that franchising cannot continue in the way it is now, but must change to achieve customer focus and efficiency.
In his Bradshaw Address on 29th February 2019, Keith Williams, the independent Chair of the Williams Rail Review, said: ‘Put bluntly franchising cannot continue in the way that it is today. It is no longer delivering clear benefits for either taxpayers or farepayers.’
Railfuture has produced a detailed response to the Williams Review. We don’t think that there is a magic bullet, but a combination of changes could make a big difference to how effective the railways are.
Why is franchising broken?
Franchising has evolved considerably since privatisation. Franchise bidders are encouraged to provide benefits to passengers, but the competition is judged on franchise value, i.e. minimising the cost to the taxpayer or maximising premium paid to the taxpayer. This approach subordinates passenger priorities and incentivises bidders to overbid on revenue, as well as bidding service improvements that the industry cannot deliver in a timely way.
The key challenge is to retain the benefits of competition whilst avoiding unbridled optimism, increase overall output efficiently, and focus on what is important to the passenger or freight customer.
In parallel the political direction has been to increase fares so that more funding comes from the farepayer and less from the taxpayer, leading to passengers rightly demanding more for their money in return.
One size doesn’t fit all in the rail industry, so we need a set of different models that work for different rail environments – for example franchises for intercity operations and devolved concessions for urban operations. The industry hasn’t been agile enough to deliver on its promises so far, and it needs to rise to the challenge of both meeting growth and improving passenger service.
Increased accountability for franchise holders
The Department for Transport (DfT) should be an informed buyer in respect of franchise bid evaluation, not rely heavily on consultants who will tell them what they want to hear, and the appraisal should take a strategic view on what is actually being procured rather than be process driven.
By being more specific about the outcomes that the Government wants from a franchise rather than seeking detailed compliance, the cost of the bidding process can be reduced and the chances of achieving the desired outcome increased. Franchisees would be more committed if they had more skin in the game in terms of capital invested in the franchise, and it is only in these circumstances that long franchises are warranted.
Far more weight should be added to current performance and customer perception during the franchise bidding process, assessing the incumbent operator, other franchises that their parent operates, and also bidders who have other franchises or relevant experience elsewhere. There should be a two-stage process with a pre-shortlist evaluation based on past performance and how the operator is seen in terms of the stakeholder interface, i.e. not just on initial compliance to the ITT. Track record should count far more than grand or indeed peripheral ideas.
Devolution and concessions for urban operations
Devolution of responsibility for urban operations puts decision making and risk management where the issues are best understood. Devolution allows provision of rail services to be seen as directly part of an economic or transport plan for a city or region. This provides the accountability required when choices have to be made on local services which require a subsidy, as the choice can be based on their contribution to the regional economy.
This fits well with the concession model, where the devolved authority (e.g. Transport for London) sets the service level, performance targets and fares and takes the revenue risk, whilst the operator (e.g. Arriva Rail London for London Overground) focuses on meeting the targets at maximum cost efficiency. This does require the authority to have the necessary expertise to act as an ‘intelligent client’.
Worldwide benchmarking suggests that concessions are lower cost and more customer focussed than direct public sector control, showing that this model gives a better outcome for both the passenger and the taxpayer.
Many current problems can be attributed to the loss of career development over the long term for management. For all its faults, BR had a good management development process and proper succession planning. That has all gone. Nationalisation is not proposed as the solution, but a way has to be found to nurture talent and develop it.
The DfT has a similar problem – the system incentivises civil servants to change roles frequently to achieve career progression, so they do not have enough time in their role to build the experience and expertise necessary to become effective as an intelligent client.
The John Lewis Partnership has a reputation for good customer service because its employees are actually partners in the business – they own it and have an interest in its success. Many customer service problems could be resolved if employees of the rail operators had a minority share interest and were seen as the company by their customers. As shareholders or partners employees could have a say in how the business is run, and a provision would be needed for this interest to transition at franchise change in parallel to a TUPE transfer.
Shared objectives and incentives
Effective joint working between operators and Network Rail needs the right incentives as well as the experience of an established management structure. This is difficult when senior management changes upon franchise change, just at the point when it is most needed. A standard model of joint working that can transition seamlessly across franchise changes is required, based on shared objectives of increased performance and cost efficiency with less focus on internal processes such as delay attribution. It is the delay that matters to the customer, not who caused it.
Currently Schedule 4 and 8 compensation payments from Network Rail are keeping many train operators afloat where fare revenue is below budget because of over-optimistic franchise bids and economic uncertainty.
A detailed analysis of the cost of this ‘trading’ between rail companies might reveal that it is a significant driver of rail industry costs and management focus. In some cases it may also encourage perverse behaviour which is not in the customer’s interests, for example by acceding to engineering possessions which result in unnecessary bus substitution. This suggests that compensation arrangements should be changed so that decisions are based on the service delivered to the customer rather than the financial benefit from compensation payments, and wasteful activity by train operating companies on attributing delay payments and detailed reporting to DfT is reduced.
None of this suggests combining operations and infrastructure into a regional structure helps, where new complexity replaces the current interfaces. The key here is simplifying the interfaces, increasing the customer focus, and allowing the operators to be responsive to devolved government.
Rebuild trust with passengers
The Autumn 2018 Transport Focus survey showed that passenger satisfaction with the railway has dropped to 79 per cent, the lowest level since 2008. 21 per cent of passengers are dissatisfied with their journey because of poor performance, strikes and the timetable fiasco. Railfuture has set a challenge to the rail industry – companies, Government and staff – to rebuild trust with passengers by fulfilling the ten key customer demands set out in our Rail Challenge 2019:
Customer service – put rail users first, be proactive and responsive, keep promises and show you care.
Industrial relations – find solutions and sort it!
Punctuality – focus on operation. Seven day railway with no cancellations – reform rostering.
Fares and ticketing – a commitment by Government to move from RPI to CPI on regulated fares in January 2020, having retreated from this in January 2019. Information – provide help to passengers related to the train, service and stations that they are using.
Resilience – focus Network Rail investment on maximising resilience.
Projects – every programme must have an intelligent client and the necessary calibre of leadership with the authority and information to manage risk effectively.
Government working with devolved government – accelerate the
transfer of powers to devolved bodies such as Transport for the North and Transport for the southeast.
The Williams Rail Review – make tactical improvements in 2019 and sharpen performance incentives to focus all parties on performance delivery.
The railways have scored a lot of own goals in the past few years, for which Secretary of State Chris Grayling has taken a lot of stick. However, he has learnt from the experience and now deserves credit for realising, and convincing his civil servants, that Government should be clear about what it wants from the railways and how much money is available, but no more. The Department for Transport should not be micromanaging the railway.
The Williams Review has a very open remit to recommend how delivery and accountability should be implemented. In addition the Rail Delivery Group has recommended a sweeping reorganisation of the fares system, and the Office of Rail and Road has recommended that Network Rail should have a system integrator role on cross-industry programmes such as major timetable changes.
This system integrator role must have the necessary information and authority to ensure that systemic risks are identified and managed so that the scenario of ‘no-one was willing to give bad news upwards’ does not happen again. The direction of travel has changed.
Railfuture is Britain’s leading independent voluntary organisation campaigning for better rail services for passengers and freight on behalf of rail users