All change: Britain's railways on the verge of a shake-up

All change: Britain's railways on the verge of a shake-up image

On a mild autumnal morning on the outskirts of Oxford last Monday, Chiltern Railways put its name in the history books.

The company, which is part of Deutsche Bahn-owned Arriva, launched its service between Oxford and London Marylebone, the first new rail link between the capital and a British city for more than a century.

Not since 1899, when the Great Central line between Marylebone and Sheffield was opened, had there been a new route into the capital. Now, however, more than a decade after the Chiltern project was first conceived, 22 miles of new track have been laid, a new station called Oxford Parkway built, the station at Bicester shopping village revamped, and a new link into London has been born.

Chiltern and Network Rail, which faces mounting criticism for the mishandling of its £38.5bn modernisation plan, spent a combined £320m on the project. Its success provides a fillip for Mark Carne, the boss of Network Rail, who believes the line provides an innovative joint financing template for other initiatives in the future.

But while the new service is undoubtedly a landmark achievement for Chiltern and a boost for beleaguered Network Rail, it will soon be overshadowed by what many believe could be a far more dramatic overhaul of the entire rail system.

Both Network Rail and the Government-managed franchising model are being reviewed and the outcomes may have far-reaching consequences. There are currently three reviews into Network Rail, which the industry is expecting to hear from in a matter of weeks, that could lead to a privatisation of the infrastructure group following the calamitous management of its upgrade programme.

The Competition and Markets Authority (CMA) is also considering reform of the franchise system, which allocates contracts for passenger services to train operating companies, in a bid to drive down fares particularly on the East Coast, West Coast and Great Western lines.

The CMA is assessing options to bolster competition and, should it press ahead with its more radical measures, it would result in a significant shake-up for companies such as Stagecoach and Virgin. “It’s the first major opportunity since railway privatisation,” says Tony Lodge, of the Centre for Policy Studies. He believes that there are “there’s a huge problem” with a lack of competition on long-distance high-speed routes. Consortiums of Virgin and Stagecoach run the East Coast and West Coast franchises. The CMA has floated four possible reforms: boosting the number of so-called “open access” operators, which are allowed to compete on routes with franchise holders if they can show they will expand the market; allowing two operators to run each franchise; increasing the number of overlapping franchises; and licensing multiple operators.

A consultation on the CMA’s proposals closed two weeks ago, and has already stirred passions among the big names in rail. Virgin and Stagecoachmade a joint submission to the watchdog urging it to scrap the existing model that allows open access operators to compete with franchisees, which they branded “confused and damaging”. However, critics immediately accused the pair of attempting to quash potential competition on the East Coast.

Both FirstGroup and open access operator Alliance Rail, owned by Arriva, are vying to offer rival services to Virgin-Stagecoach on the Edinburgh to London route, with the regulator, Office of Rail and Road, due to make a decision by the end of the year.

Alliance’s managing director Ian Yeowart, who set up open access firm Grand Central, believes that challenging the franchise operators improves, not damages, the railways.

“There are a lot of innovations that open access has brought,” he says, adding that Grand Central was the first to offer free Wi-Fi and carnet tickets, which are both now widespread. Lodge agrees competition has been a force for good, and wants more open access.

A worker crosses train tracks at Clapham Junction in London.The CMA is examining reforms to boost competition  Photo: Reuters

“If you do allow competition against franchises, it actually helps the franchise, it grows its premium [to the Government], the passengers are more satisfied because they have more choice, they have fair competition, there are more routes,” he says.

But revamping franchises will be challenging for the CMA. The system was established with the Railways Act in 1993 and has developed significantly over the past two decades. “It would be like a supertanker trying to change course,” says Terry van Poortvliet, a partner at law firm Ashurst who specialises in rail.

State-owned Network Rail, which manages 20,000 miles of track and other rail infrastructure, is also under the microscope. The company was embarassed in June when Patrick McLoughlin, the transport secretary, temporarily froze its five-year modernisation plan amid mounting costs, affecting plans to electrify the Transpennine route and Midland mainline.

Then less than a week before the Chiltern line opened, Carne admitted to MPs that electrifying the Great Western Railway could cost as much as £2.8bn, more than triple the £874m estimate he gave in January 2013. A review by Dame Colette Bowe into how Network Rail can improve its budget planning is due this autumn, as is an assessment of its £38.5bn upgrade plan by Sir Peter Hendy, its new chairman.

However, perhaps the most far-reaching examination of Network Rail is being carried out by Nicola Shaw, the respected boss of the high-speed rail link between London and the Channel Tunnel, who has been tasked with assessing the future shape and financing of the company.

Shaw conceded in September that she may recommend privatisation, and she will publish a “scoping study” soon. Network Rail has been hindered by its reclassification last year as public sector body, meaning it cannot raise funds from the bond markets. Industry figures believe it suffers from a lack of commerciality and one way to improve its performance is a break-up.

“Splitting it into four or five to look after the major routes might make sense,” says Yeowart. “You’d get more focus, and also it then gives you an opportunity to benchmark how one [part] is doing against another.”

It will take three decades for Network Rail to recover the capital that it provided for the new Chiltern line, through track access charges on the franchise. However, with the current flurry of reviews, it is possible that both Network Rail and the franchise model will be transformed long before the investment is recouped.

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