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More cash for shareholders as franchises extended

29 April 2013

The costs and chaos from the franchising debacle continues to grow, with ministersÂ’ deciding to extend existing franchises by as much as four years.

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TOCs will be able to request highly favourable terms, with no alternative bids taking place. The previous franchising timetable has been all but ripped-up. For example, the Great Western route – for which bid were being taken last year when the scandal broke – will now not see any new company take over until 2016, despite FirstGroup previously having declined to take such an extension within the terms of their original franchise.

Virgin will now run the West Coast service until at least early 2017 – effectively winning a third of the 13 year franchise they’d originally been bidding for without
going through any competitive process.

In further evidence of the total failure of the ‘market forces’ meant to force companies to perform or lose their contracts, London Midland, who had to delay or cancel almost 1,000 services in the final three months of last year due to driver shortages have been rewarded with a one year, nine month extension.

When asked about the London Midland disruption, attributed to the unattractive wages at the firm, the Prime Minister had specifically warned that ‘under the franchising system if there’s unacceptable service then action can be taken’ – in the event, their failure has been rewarded.

Greedy TOCs have been keen to use the ‘free’ extensions to win further concessions from the government. Knowing that if their demands aren’t met, the only other option for ministers will be to hand the franchise over to the publicly-owned Directly Operated Railways, many finance directors are said to feel they have the government over
a barrel.

The seeming aversion to surpluses being reinvested in the railways rather than given to private shareholders is clear in the rush to re- privatise East Coast. Only three routes – Essex Thameside (c2c), Thameslink/Southern and East Coast are to be agreed before the next election, suggesting ministers want to end the existence of a commercially successful public-sector TOC as soon as possible. Labour, who had committed to keeping East Coast in public hands as a comparator, condemned the move. Maria Eagle, Labour’s Shadow Transport Secretary said ‘It is completely the wrong decision to focus obsessively on an unnecessary privatisation of InterCity services on the East Coast.’

The perverse priority on selling off the East Coast was underlined yet further in a new report by the Office of Rail Regulation. The ‘GB rail industry financial information’ document reveals that East Coast was the TOC least reliant on public funding – receiving just 0.2 per cent of the total. The TOC which has received the longest extension – South Eastern – receives 48 times as much.

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