Passenger Railway Services (Public Ownership) Bill
The RMT is Britain’s specialist transport union, with more than 80,000 members working in the transport and offshore energy industries. RMT is the largest union on the country’s railways
This briefing focuses on the Government’s Passenger Railway Services (Public Ownership) Bill, which passed its Second Reading on Monday 29th July and which returns to a Committee of the Whole House and Remaining Stages on Tuesday 3rd September.1
RMT welcomes the Bill as an essential first step toward the creation of an integrated publicly owned railway, run by a single arms-length body uniting rail infrastructure and services – ‘track and train’into ‘Great British Railways’.
Background and need for the Bill
The 1993 Railway Act, which privatised the railways, created a duty on the Secretary of the State, Welsh Ministers and Scottish Ministers to secure the provision of railway passenger services under franchise agreements. Under Section 25 of the 1993 Act, public sector operators are prohibited from running franchises. This has meant that the only circumstances under which a franchise could be run in the public sector was on a temporary basis under the DfT’s Operator of Last Resort (OLR).
As franchising has progressively failed, so the number of franchises being run by the OLR has expanded. Currently the OLR runs 4 English franchises with its equivalents in Scotland and Wales running 3 more.
The government has committed to bring passenger services back into public ownership as contracts expire, reach the end of their core terms or sooner if the terms of their contracts are broken by operators.
The legal presumption is that the Secretary of State and devolved Ministers will re-tender each franchise for a private sector operator. Indeed, the last Conservative government stated its intention to return successful public sector operators like LNER to the private sector.
1 Passenger Railway Services (Public Ownership) Bill Committee of the whole House - Parliamentary Bills - UK Parliament
Changes effected by the Bill
This Bill amends the existing Railways Act 1993 to remove the presumption that the Secretary of State or devolved Ministers will use franchise agreements to provide rail passenger services. Further, it changes the presumption on who can run passenger services so that the Secretary of State and her equivalents in the Scottish and Welsh governments must appoint a public sector operator. This means that the government can place passenger services into the public sector operator as the first option when a franchise expires or is ended early for under-performance.2 It also creates a legal framework within which the Scottish and Welsh Ministers can retain their services in the public sector.
The Bill does give the Secretary of State in England the power to award a new private sector franchise or extend a private sector franchise in exceptional circumstances, but this can only to be the existing operator. No new franchising competition or direct award can be made to a new private sector operator and any extension is limited to two years in duration.3
In the notes accompanying the Bill, it is explained that this exemption from the general duty to appoint a public sector operator is to give the Secretary of State the flexibility in cases where it is not practically possible to place the services in the public sector at this time.4 This is likely to reflect the need for the Operator of Last Resort to assume control of services in an orderly and phased manner that allows it to scale up its operations over time and ensure a good service while legislation to integrate it within GreatBritishRailwaysis progressed.
Timetable of contract expiry
3rd September
Franchises already in public ownership: LNER, Northern, SET, TPE, TfW, Scotrail, Caledonian Sleeper:
15th September 2024 Greater Anglia core term expires
1st April 2025
25th May 2025
22 June 2025
20th July 2025
20th September 2026
18th October 2026
1st October 2027
12th December 2027
Chiltern Railways and Govia Thameslink Railways core terms expire
South Western Railways' full term expires
Great Western's core term expires
c2c's full term expires
Greater Anglia and West Midlands' full terms expire
Avanti West Coast and East Midlands' core terms expire
Cross Country's core term expires
Chiltern Railways full term expires
2 See Sections 1 and 2 of the Bill. https://bills.parliament.uk/bills/3732
3 See the new Sections 30A, 30B, 30C of the amended legislation. The 2 year limit derives from the fact that this amendment places the Secretary of State’s power to award a franchise under Section 16 of the 2023 regulations on emergency rail contracts. https://www.legislation.gov.uk/uksi/2023/1369/regulation/9/made
4 https://publications.parliament.uk/pa/bills/cbill/59-01/0003/en/240003en.pdf
Effects of the Bill
This Bill turns a page in the history of UK railways by ending the presumption in favour of private sector passenger service delivery, put in place in the 1993 Act that privatised the railways.
The Bill provides the legal basis on which public sector passenger services can be rebuilt and constitutes an essential basis for the government’s wider reform agenda to deliver an integrated, publicly owned railway.
If passed, the bill will also deliver some early savings by cutting off dividend payments to private sector operators.
• On average, over the last 7 years, the remaining private Train Operating Companies have paid out £130 million a year in dividends to their shareholders. Any profits can be put back into the railways, as was the case when LNER paid a £40 million dividend to the DfT in 2022.
• This includes some of the worst performing operators like Avanti West Coast, which paid out £11.4 million last year and has paid out £36 million in the last three years.
• Avanti continues to pay out dividends while delivering a poor service for customers. In the last Quarter, Avanti still had the second worst record for cancelling trains in the UK, with a Moving Annual Average of 7%, more than twice the national average (3.3%). Only Cross Country had a worse score. A staggering 69% of these are attributable to the operator. Industrial relations at Avanti are as toxic as ever, with live disputes and industrial action ballots affecting catering staff and Train Managers.
• Figures published this week showed that Govia Thameslink Railways paid out an eyewatering £82.4 million in dividends to its shareholders, the owning groups Go-Ahead Group and Keolis. £62.3 million of this was dividend for the financial year 2023/24 and represented an increase in dividend payments of 268% on the previous year. Scandalously, during this time, as the Financial Times reported in February this year, Govia were consistently failing to hit two-thirds of their customer service quality targets.
• Under the previous government’s National Rail Contracts, hitting these performance targets helps the companies secure more dividend. Instead of tackling Govia’s performance failings, Tory Ministers in the previous government lowered Govia’s targets, effectively sacrificing the interests of passengers in a better customer experience in order to help the company appear to perform better and so secure more dividend.5
Stopping the wasteful flow of dividend payments is essential. Integration into the Public Sector Operator of Last Resort, prior to deeper integration into GBR, is likely to improve performance too In September 2023, even the last government was forced to admit that those franchises within the public sector were operating well.6
Once the government brings forward its Rail Reform Bill and integrates the OLR fully into a new arms length publicly owned integrated body, Great British Railways, with all staff employed by a single employer, it will be possible to deliver significant further savings from the eradication of wasteful interface costs in the fragmented railway.
5 https://www.ft.com/content/16011adf-94a6-415b-8d3a-78f4cbbddc58
6 https://www.rmt.org.uk/news/operator-of-last-resort/
For example, the complex Delay Attribution system, through which hundreds of people are employed in attributing blame for delays between Network Rail and the train operating companies, in order to compensate parties against commercial risks, will have no further purpose.
The wider record of the private sector
The private train operators – supported by successive Conservative governments, have liked to claim that they delivered a doubling of passenger numbers as a consequence of privatisation.
As we’ve shown in our recent reports, this is nonsense.
The reality is that passenger numbers are correlated closely to GDP growth, that numbers were already rising under British Rail and that the privatised railway simply got lucky. Their tenure coincided with a long period of economic growth. The private operators know this themselves and admit as much outside their lobbying documents.7
The business model of the private train operators has been intensely parasitic since 1993.
• The only way that passenger services could ever be made to turn a profit was by removing most of the costs of the railway from their cost base. Train operators made a small contribution toward the infrastructure costs in the form of Track Access Charges paid to Network Rail. However, these were held at an artificially low level by government subsidies to Network Rail. Had the train operating companies had to pay the real costs of their reliance on infrastructure they would all have gone out of business overnight.
• Private operators risk almost no capital. Just 1% of money invested in the railway since 2006 was advanced by the Train Operating Companies. 90% of all spending has been from the government.
• The private operators stress their small profit margins, but as a percentage of the capital they risk they are making good returns. Profits represent more than 120% of the capital invested by the train operating companies.
• On average in excess of 65% of all the profits before tax made by the TOCs disappears out of the industry into the pockets of the owning groups and from there being siphoned off by City investors or foreign state-owned companies to subsidise their own passenger fares.
In summary, these companies put almost nothing into the railways in terms of investment, typically make returns far above their investment and then funnel most of that money out of the railway industry.8 Any advances and improvements made in rail since privatisation have been paid for by the taxpayer while the private sector has skimmed them for wholly unjustifiable profits.
In return for this, the travelling public have endured a fragmented, incoherent, unreliable and increasingly costly rail system.
Rail will form a crucial part of Britain’s critical national infrastructure, vital for supporting the
7 See ‘RailPartnersTracktoGrowth-ReanimatingtheCorpseofPrivatisation’-rmthttps://www.rmt.org.uk/news/publications/rail-partners-track-to-growth-reanimating-the-corpse-of/
8 This analysis is based on ‘Parasitic Bodies: The business model of the private train companies who are wrecking our railways’, RMT, July 2023 (https://www.rmt.org.uk/news/publications/parasiticbodies/parasitic-bodies-the-business-model-of-the-private-train-companies-who-are-wrecking-our-railways0723.pdf)
decarbonisation of transport and capable of playing a leading role in economic renewal by supporting more high skilled, high productivity jobs.
Britain can no longer afford to have its railways degraded by the private train operators. RMT sees this Bill, and the wider reform agenda as major steps forward in rebuilding an integrated, publicly owned railway for Britain.
For more information, contact:
Jonathan White National Policy Officer, RMT j.white@rmt.org.uk