1. Since taking over from the Strategic Rail Authority, the Department has shown itself capable of letting rail franchises to the planned timescales and protecting the taxpayers' interests. The Department has procured passenger rail services that live within the public funding available and improve railway performance, although passenger satisfaction continues to pose problems. The Department cannot be complacent and should provide regular analysis and assurance to demonstrate that rail franchising developments are consistent with the Government's wider objectives.
2. The Department does not consider damaging side effects for passengers from its rail franchising approach. The Department sets requirements for service frequency and punctuality but does not, for example, measure the impact of rising car parking charges, complex fares and crowding on travellers, including on vulnerable members of society.
3. Although the Department consults widely, regional transport bodies are not involved in selecting the bidder who will operate services in their area. The Government plans an increased emphasis on a local approach to transport decisions, with Integrated Transport Authorities providing oversight to a number of Passenger Transport Executives in the regions. The Department should invite local and regional bodies to second suitably qualified staff to join the Department's bid evaluation teams so that details of the services, as bid, are checked against local needs.
4. The present economic crisis may well put additional pressure on the commercial skills of the Department's staff. The Department's franchise management and monitoring will only be effective if there are enough staff in post with the necessary skills to interpret and question financial and commercial information. The Department should be flexible in its recruitment, remuneration and use of staff with commercial experience. Pressure to reduce administrative budgets should not undermine its ability to negotiate effectively with train operators.
5. The Department promises of bringing 1,300 new rail carriages into service by 2014 look over-optimistic. There are only 423 on order so far, and another 150 carriages are the subject of negotiations. It takes 30 to 36 months to mobilise the supply chain, suggesting deliveries running into 2011-2012 for the current work in progress.
6. It is unacceptable that low cost fares, which should be available to all rail passengers, are most readily found by those with access to the Internet. This approach undermines the whole basis of the railways as a public service available to all. It excludes those people without access to the Internet, without the time to search or who decide to travel at short notice. There is no reason why the Department should favour a system which supports such perverse and unwarranted exclusion.
7. The Department must do much more to simplify fares. The Department has made a start in simplifying fares, but some complex fares still exist and the best fares are hard to find without access to the Internet. Fare structures should be simple, fares should be accurately named, and the lowest priced fare for a journey should be publicised and readily available at station ticket offices, as well as on the internet.
8. In the economic downturn, the Department intends to hold train operating companies to their financial commitments. The Department hopes that, by 2010-2011, direct subsidies to train operators will be eliminated as companies increase their revenues. But the recession may trigger a reduction in rail travel and fare revenues, and some train operating companies may ask the Department to relax their contractual obligations. The Department should hold train operators to their contract terms although, in some cases, including National Express's bid for the East Coast franchise, the original bid might have included over-optimistic revenue assumptions.
9. In the short term, there is an increased risk of train operator financial failure. Although the Department has effective arrangements for monitoring the operational and financial viability of train operating companies, there is a risk that some companies could fail as their revenues fall. In some cases problems that are temporary in nature will be managed through parent company support for additional bank finance. The Department should explore all options and develop robust contingency plans to keep train services running in the event of multiple failure.
10. In the short term, there is also an increased risk of financial failure by banks that have issued performance bonds. The Department requires train operating companies to issue performance bonds, backed by banks, which the Department can call in the event of the failure of a company. The bonds cover about 5% of the annual cost base of each franchise holding company and have been issued by a selection of banks. The Department should review the ability of the issuers of performance bonds to respond to a call as often as necessary, potentially even on a daily basis.