Is this the end of the line for rail franchises?

Yesterday the Department for Transport (DfT) brought in new measures which have been designed to begin the replacement of franchising and extend the emergency funding support for the UK’s rail industry for the next six to 18 months.

The new Emergency Recovery Measures Agreements (ERMAs) have been brought into force for a number of operators including TransPennine Express. The new agreements will see the DfT continue to waive the revenue, cost and contingent capital risk of the train operating companies and will pay them a fixed management fee. Alongside this the DfT has also stated it plans to begin discussion with the operators to move to directly awarded contracts for the longer term and would come into effect from the end of the ERMAs. In the case of TransPennine Express there this could be as early as March 2021, although there is potential that the existing agreement could be extended until September 2021.

The new ERMAs appear to be part of the Government’s approach to tackling issues with the rail industry, with the new agreements focused on performance and including additional performance-based fees linked to measures including punctuality, passenger satisfaction and financial performance, with this fee capped at “1.5% of the cost base of each franchise prior to the pandemic”.

Grant Shapps, Tansport Secretary said: “The model of privatisation adopted 25 years ago has seen significant rises in passenger numbers, but this pandemic has proven that it is no longer working.

“Our new deal for rail demands more for passengers. It will keep the best elements of the private sector, including competition and investment, that have helped to drive growth – but deliver strategic direction, leadership and accountability.

“Passengers will have reliable, safe services on a network totally built around them.”

Matthew Gregory, chief executive of First Group which is the parent company of TransPennine Express said: “The Government has extended its funding of the rail industry whilst demand for services remains heavily affected by coronavirus, and we are pleased that the vital nature of rail services to communities and local economies is being recognised.

“These agreements reinforce our balance sheet position and provide a potential path for our rail business to move onto a new contractual footing over time, with a more appropriate balance of risk and reward for all parties. We have long advocated for a more sustainable long-term approach to the railway, with passengers at its centre, and we look forward to working constructively with the DfT to make this a reality.”