Some people thought the Brown review would lead to a complete change in the way franchising is undertaken in Britain; others that it would simply give a clean bill of health to the current approach, blaming the West Coast Main Line fiasco entirely on issues with implementation of the policy by the Department for Transport (DfT) rather than on the policy itself.

In practice, the report is nearer the latter than the former. Nevertheless, it does contain some very interesting recommendations for changes in how franchising should be undertaken in future.

The report’s starting point is the argument that franchising has been instrumental in achieving a massive increase in rail passenger traffic and improvement in quality of service, so it cannot be fundamentally flawed. On this it might have looked more critically at the evidence on the degree to which franchising, as opposed to exogenous factors, led to the growth in traffic, but the broad conclusion that franchising can be made to work is surely right.

It advocates tackling the weaknesses within DfT that led to the current situation, restarting franchising as soon as possible, and proceeding at a manageable pace. Noting that franchising often takes the form of a mammoth procurement exercise (worth £20 billion in the case of the West Coast Main Line), it recommends that franchising should be undertaken by a distinct unit with dedicated staff of matching commercial skills to the bidding teams. It does not go as far as the Transport Select Committee in its Rail 2020 report in advocating that this should be a separate body from DfT, but leaves this as a possibility, along with an agency arrangement or a separate unit within the DfT.

Capital requirements should be determined by a transparent process and not so heavy as to preclude smaller groups from bidding or to mean that larger groups could not take on more than one or two franchises. All this may be seen as dealing with implementation issues rather than questioning the current policy.

Other recommendations do raise issues regarding the current policy. Brown recommends that quality of service and deliverability should be given specific weighting in the evaluation of bids of 20-40 per cent, with quality of service given a higher weight for regional services where the revenue incentive to improve quality is low, rather than simply being dealt with as hurdles to jump before bids are evaluated solely on financial grounds. Many will welcome this, although it is hardly likely to simplify the franchise evaluation process.

On the fundamental issue of the length of franchises, Brown rejects the move to longer franchises and recommends initial franchise lengths of seven to 10 years, with the possibility of renewal subject to good performance for a period taking franchise life up to a maximum of 15 years in total, while recognising that special factors might occasionally justify longer (or shorter) franchises.

He argues that there is no possibility of aligning franchise length with asset life, or of train operating companies making major investments in rail assets, whilst seven to 10 years is sufficient to give adequate incentives to reduce costs.

Brown also suggests that the trend to larger franchises in terms of geographical area may not have been altogether helpful; smaller franchises would permit smaller groups to bid for franchises, and if carefully phased would give a steady turnover of franchise competitions and avoid ‘all or nothing’ situations where groups are desperate to win particular competitions as their only way to stay in the industry.

He advocates more devolution, and argues that this may in any case require breaking up Toc’s such as Northern Rail and London Midland to fit the geography of franchising authorities (presumably preferring this to the sort of wide-ranging franchising body covering several local authorities that has been proposed for Northern). Brown recognises that there may be some loss of economies of scale, but argues this is a trade-off that has to be made.

On the level of specification in franchises, he take a middle course, recognising that while more flexibility for train operating companies is desirable, there is also a real need to ensure that franchises meet social needs, even in the case of inter city services – although less prescription should be necessary for those than for regional and commuter services. At the same time, there should be means for franchising authorities to enforce changes necessary for the common good.

Whilst Brown accepts that concessions where the franchising authorities completely specify fares and service levels and take revenue risk have worked well in the case of the London Overground and Merseyrail, he argues that these have relied on the authority having the ability to market the services, and that is not usually the case except for devolved regional or commuter services. Management contracts only make sense where there is a major upgrading underway, involving too much uncertainty for the Toc to take cost and revenue risk.

Elsewhere, Brown takes the established line that each party should bear the risks it is best able to control, which means that train operating companies should be protected from exogenous risks, of which the major one is the state of the economy. He argues that while the ‘cap and collar’ was an inefficient way of doing this, removing most of the incentive to grow revenue for Toc’s in receipt of the full level of compensation, the level of protection given in the West Coast Main Line competition, which only kicked in when GDP was 5 per cent below forecast, was inadequate.

Toc’s should be fully compensated for shortfalls in national or regional GDP, or central London employment as appropriate. Nevertheless, Brown still argues that 15 year franchises without an intermediate break point involve too much risk to be sensible.

There are two issues that get too little coverage. The first is how, in an era of less tight specification and possibly smaller franchises, to ensure that timetables are achieved which collectively provide an attractive network of services and efficient use of capacity where services of different franchises connect or overlap. Dealing with the inefficiencies of the then timetable was one reason why franchises became more highly specified in the first place, although one may question how effectively the DfT has dealt with the problem. This would appear to be an area in which Network Rail – supervised by ORR – needs to play a more positive part in future.

Secondly, far from achieving a reduction in costs, according to McNulty, in the period since franchising started, train operating costs have increased by £1.7 billion in 2009/10 prices.

The Select Committee Rail 2020 report stresses that, while this is broadly in line with traffic growth, since railways generally expect economies of density, a less than proportionate growth in costs would be expected even in the absence of pressure from tendering leading to greater efficiency.

Brown does certainly recognise that cost efficiency is an important aim of franchising post McNulty, and endorses the encouragement of alliances, the charging to franchisees of a greater share of infrastructure costs and the removal of protection for franchisees against changes in infrastructure costs as ways of achieving this.

The major increase in train operating costs occurred in the years immediately following Hatfield, when many franchises were placed on management contracts and tightening specifications arguably also drove up costs. But whether seven to 10 year franchises will enable train operators to play a major role in procurement of rolling stock, without underwriting from DfT, is doubtful, as is whether they give adequate incentive to tackle staff costs, in particular where these may involve confrontation with trade unions.

For the franchising authority to take revenue risk so that bidders were essentially competing on cost may also focus train operators’ attention more on cost reduction, although it is accepted that for inter city services this would require establishment of a new body to plan and market them (it is hard to see the DfT playing this role) and the effectiveness of such a solution is open to doubt.

In short, then, with few exceptions the report provides a comprehensive and balanced review of the issues, but on many of them, including in particular franchise length, the evidence to reach a final conclusion is still missing.