In 2005, the Department for Transport (the Department) took over responsibility for passenger rail franchising from the Strategic Rail Authority. By the time of our hearing it had re-let eight franchises, half of the 16 franchises currently in operation across the country. All eight franchises were re-let within the planned timescales after a good level of competition. The Department changed the train operator on six out of the eight franchises.
The Department specifies the minimum levels and quality of passenger services and agrees annual levels of subsidy or premium which it will pay to, or receive from, each train operator for franchise terms of typically 7-10 years. The Department invites views on the service specifications from relevant local bodies. These local bodies may elect to pay for options that need additional subsidy.
Increasing demand, high existing utilisation of the network and a shortage of rolling stock meant it was not possible for the Department to incorporate sufficient additional capacity to deal with crowding when re-letting the franchises. It has since announced plans to add a total of 1,300 additional rail carriages to operator fleets across all 16 franchises. This will stabilise, but not significantly reduce, the crowding that many rail passengers currently experience. Train operators have made commitments to improve service quality, but may be able to withdraw passenger benefits that had originally been offered alongside franchise agreements, such as we have seen with the removal of a full restaurant car service on one service. In January 2008, average unregulated fare increases ranged from 4.3% to 7%. In January 2009, the average of unregulated fares was 7%, with some as high as 20%. Special low fare offers are available, often through the internet, but those without access to a computer may need help to identify and book these fares.
Following the competitions, the Department projected that taxpayer support for the eight franchises would reduce and, in five cases, turn into payments from the train operators. If the projections are realised, a direct subsidy of £811 million to train operators in 2006-07 would be replaced by a £326 million receipt from train operators in 2011-12. The Department also provides support in the form of grants to Network Rail. If these grants were to stay at the 2005-06 level, these passenger services would receive about £926 million of support from the taxpayer in 2011-12, reduced from about £2,063 million in 2005-06. This reflects a Government policy of rebalancing service costs, with a higher proportion for the passenger and an overall reduction in subsidy. This outcome depends more on continued rail passenger growth than on fare increases, although the latter will generally exceed the rate of inflation.
On the basis of a report by the Comptroller and Auditor General,1 the Committee examined the Department on its performance since taking over from the Strategic Rail Authority, the service to rail passengers, and how the taxpayers' interests are protected.
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1 C&AG's Report, The Department for Transport: Letting Rail Franchises 2005-2007 HC (2007-08)1047