The Draft Rail Reform Bill: The importance of smart reporting on private sector involvement

Railway tracks

Five years after the Williams Rail Review was established, government has rewarded the patience of many in the industry by publishing its long-awaited Draft Rail Reform Bill.

It’s probably fair to say that the Bill has had a muted reception, as detail is digested, and practical implications considered. The Bill, though, undoubtedly paves the way for major structural change in the industry and, through a new Integrated Rail Body (Great British Railways), will bring track and train closer together.

Through this slow process, a lot has been written about reform with more to come. Indeed, there is much to say – from the make-up of GBR, whether we will get Network Rail 2.0 and the likelihood of progress given the potential for a change of Government.

Both at internationally and at home, we have worked with companies to understand rail reform and opportunities from liberalising markets. As such we have a particular interest in the role of the private sector in rail and what it can do to benefit passengers and freight end users – if managed correctly. This is why Section 4C of the draft Bill piqued our interest:

“The IRB must prepare a report setting out what it has done during teach financial year to increase the involvement of businesses in the private sector in the provision of railway services.”

Both the draft Bill and the explanatory notes are careful not to place a policy value judgement on this. A Secretary of State to the left may be very happy with a report that said nothing had been done to increase private sector involvement, and there are no provisions to incentivise it. But why could – or indeed should – increasing private sector involvement in rail be a good thing?

The rail freight market it an example of functioning private involvement that fosters competition for the benefit of its customers and leverages investment in facilities, training and capacity enhancements. Between privatisation in 1997 and 2018, rail freight operators made £2.8 billion of investment – reducing the burden on the taxpayer whilst delivering economic, environmental and social benefits.

The passenger market has been more complicated and fraught with poor contract management and contentious debates around fares and subsidy burden. Nevertheless, private involvement has undoubtedly brought benefits. From competitive open access services reducing ticket prices to driving customer service innovation. Since 2015, more than £6 billion has been privately invested in new trains to improve customer experience: most of which would not have occurred if direct government funding was required, and remains off the public sector balance sheet.

The rail supply chain depends on private companies thriving and we know that passengers appreciate businesses like trainline who have innovated to provide customers with a clear ticketing platform.

And whilst we cannot cover all the pros and cons of private involvement, one this is for certain; with all the current pressures on the public purse, it would not be possible to backfill the more than £757 million privately invested in the railways each year. So, what does this mean for the report on private sector involvement?

This has to be an intelligent report.

To be an intelligent report we need to know what we want from private sector involvement and investment. Do we currently know what we want or need? Is current thinking confused?
The report must be based on a clear understanding of the policy position of the role of the private sector. In our experience working across many European countries the role of private sector involvement is more clearly defined and the parameters for investment are understood.

Italy has seen open access operator Italo establish a national high-speed network, investing in rolling stock and services, growing the overall market and modal shift away from airlines. Spain has opened its high-speed to open access competition with the primary purpose of growing rails market share. In contrast, the Swedish concession model sees the private sectors role as primarily as a delivery agent for public service contracts, with Passenger Transport Authorities leading on strategy and investment.

While preparing the report, GBR must make a qualitative and quantitative assessment of private involvement in the provision of railway services. Involvement is not just about the money that can be brought in. It is also about how competition can drive improved passenger and freight customer service, how companies innovate to increase productivity and investment in long-term capital assets.

The report is also about leverage. It should look at how public investment can attract and multiply private financing. For example, public grants such as the Freight Facilities Grant can unlock private investment, enhancing infrastructure, shifting more goods from road to rail with the associated climate and congestion benefits.

Blockers to private involvement should be explored. For example, these must include reviewing how poor long-term strategic planning and uncertainty can put off private investment and leave a bill to be picked up by the taxpayer regardless of whether they use the service. The report should review passenger service contracts, their complexity and management and whether this is incentivising or otherwise private involvement and willingness to shoulder risk.

Finally, a report is nothing without a plan. How can blockers be overcome? How much more can taxpayer money be multiplied? The Secretary of State should be more interested in this than the review of the year gone.

Whatever the shade of the next Government, the public’s priorities for investment is not going to be rail. Health, education, housing, crime and social care are top of the list for voters. However, involving the private sector wisely, leveraging their financial backing and not having to backfill the £757 million annual investment should be a high priority for our industry.

About the authors

Vectura Advisory provides strategic, commercially-focussed and operationally robust transport advice. It has clients in the UK and overseas, supporting businesses in new markets, advising on policy, procurement and tendering and offering practical and deliverable solutions.

Laura Wright is passionate about helping those in the transport and logistics sector have clear strategy and policy, that anticipates and responds to an ever changing legal and political context. She has experience working on domestic and international rail regulatory matters and has experience in infrastructure management, passenger and rail freight policy.

Richard Stuart has over 30 years’ experience working across the transport sector and is currently advising an EU Ministry of Transport on aspects of rail reform. Prior to establishing Vectura Advisory, he established new business operations in Germany and the Nordic region and overseeing contract wins. He has an in-depth knowledge of UK tendering, leading successful bids as well as managing train operator contracts and being responsible for the specification and procurement of rail franchises.

The Draft Rail Reform Bill: The importance of smart reporting on private sector involvement
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The Draft Rail Reform Bill: The importance of smart reporting on private sector involvement
Five years after the Williams Rail Review was established, government has rewarded the patience of many in the industry by publishing its long-awaited Draft Rail Reform Bill.
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Vectura Advisory
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