10. The Thameslink, Southern and Great Northern (TSGN) franchise operates train services in south-east England and is the largest of the Department's rail franchises. The franchise is operated by Govia Thameslink Railway (GTR), who began running services in September 2014. The Department set this franchise up on a unique financial basis to its other franchises. It retains fare revenue and pays GTR a fee to operate services, which depends on performance. This approach aims to incentivise GTR to focus on delivering the Thameslink upgrade programme, rather than on maximising fare revenues.17
11. In January 2018 the National Audit Office (NAO) reported that high levels of disruption for passengers meant that the Department had not yet achieved value for money from the TSGN franchise. The NAO found that while the franchise had delivered some improvements for passengers, between September 2014 and September 2017, passengers experienced the worst overall service performance on the national rail network in terms of trains arriving on time. The NAO also found that, although industrial action was a major contributor to disruption, the Department had made decisions when designing and letting the franchise and the cumulative impact of these decisions had negatively impacted on passengers.18 When we examined the TSGN franchise in early 2018 we found that the unique financial basis of the franchise meant that GTR did not have the usual incentives to maintain performance levels for passengers as it did not benefit from rising passenger revenue, and that this played a part in dismal service for passengers. We were also concerned that the Department disregarded the terms of its contract and settled the level of fines that GTR will pay for future poor performance before knowing whether GTR was performing well or not. In July 2017, the Department agreed a settlement worth £12.4 million with GTR for the period between September 2015 to September 2018 to compensate for actual and expected poor performance. Overall, we concluded that the franchising model is broken and that the Department's management of the TSGN franchise was completely inadequate.19
12. The Department asserted that it had taken significant steps to challenge and deal with poor performance by GTR. Rather than GTR paying the £12.4 million performance settlement to the Department, it required GTR to invest in improvements for passengers, such as more on-board supervisors to help passengers and smart ticketing. Also, following the May timetable disruption, the Department required GTR to create a passenger improvement fund worth a further £15 million, in addition to the £15 million compensation paid to passengers. The Department told us that it would, working with passenger groups, decide how the improvement fund would be spent. It added that these amounts were significant to GTR, given that the franchise had not yet made a profit, and up to September 2017, had made a loss of more than £5 million.20 The Department told us that it had capped the profit that GTR can make, but asserted that "standard confidentiality provisions" in the franchise contract prevented it from sharing further details of the profit cap. In written correspondence following our evidence session, the Department told us that Go-Ahead, the company which owns GTR, expected the profit margin over the full franchise term to be between 0.75% and 1%, which was down from previous expectations of 0.75% to 1.5%.21
13. The Department told us that the new management team in GTR had secured improvements to services and that services to passengers were now much more stable. The public performance measure (PPM) is the current industry performance standard and measures the percentage of trains which ran their entire planned journey calling at all scheduled stations and arriving at their terminating station within 5 minutes (10 minutes for long distance services). The Department told us that, at the time of giving evidence, GTR's PPM was over 80% each reporting period from 22 July 2018, which it stated was significantly better than in the last four years.22 This number is still below the average for Great Britain.23
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17 Report by the Comptroller and Auditor General, The Thameslink, Southern and Great Northern rail franchise, Session 2017-2019, HC 528, 10 January 2018
18 Report by the Comptroller and Auditor General, The Thameslink, Southern and Great Northern rail franchise, Session 2017-2019, HC 528, 10 January 2018
19 Committee of Public Accounts, Rail franchising in the UK, Thirty-Fifth Report of Session 2017-2019, HC 689, 27 April 2018
20 Qq 60, 65, 69; Report by the Comptroller and Auditor General, The Thameslink, Southern and Great Northern rail franchise, Session 2017-2019, HC 528, 10 January 2018
21 Qq 66, 67, 78, 79; Letter from Bernadette Kelly to Meg Hillier MP - Follow-up from evidence session, 19 December
22 Qq 60, 65; Office of Rail and Road, Passenger and freight rail performance, table 3.57; Each reporting period is 28 days long. Period 5 2018-19 began on 22 July 2018. At 10 December 2018, data had been published for periods 5 to 8. GTR's PPM was: period 5 - 82.3%; period 6 - 87.3%; period 7 - 84.0%; and period 8 - 81.1%.
23 Office of Rail and Road, Passenger and freight rail performance, table 3.56