Train operators make call for franchising shake up

19 Oct 15

A leading rail operator has called for the current franchise system to be scrapped on some lines and replaced with licensing regime that could raise money for taxpayers.

In a submission to a market review being undertaken by the Competition and Markets Authority, Stagecoach and Virgin – the joint venture partners who run both West Coast and East Coast main line services between London and Scotland – said the current system was “confused and damaging” and may cost taxpayers money.

The existing arrangements, where the government lets franchises covering route networks, are open to “cherry-picking” as other operators can then seek approval to run so-called open access services outwith the franchise agreements, the firms said.

Such services, which currently include trains from London to Hull and from Sunderland to the capital, do not make premium payments to the government in the same way franchises do, Stagecoach/Virgin stated. This “singularly fails to maximise the benefits of competition for rail passengers and taxpayers”, the joint venture stated.

A licensing system that broke up the three existing intercity franchises (West Coast, East Coast and Great Western) into smaller bundles could raise more money for the Treasury through tendering, its submission concluded.

Under the proposal, these bundles would be auctioned, which could allow for multiple operators to compete on inter-city routes while making most efficient use of scarce network capacity.

However, routes that do not have open access competitors should remain as franchises as capacity constraints mean that they are unlikely to be approved by regulators.

“There is strong evidence that competition can deliver benefits to passengers through lower fares, better service quality and innovation,” Stagecoach/Virgin stated.

“It can increase rail’s modal share from the private car, its biggest competitor. Taxpayers benefit too through improved efficiency and reduced costs of delivering the country's national rail network.”

The CMA is considering four models for future rail deals. As well as a possible move to licensing, these include retaining the current market structure, mandating two franchisees for each franchise, or introducing more overlapping franchises to boost competition.

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