HomeRail NewsGovernment suspends rail franchise agreements

Government suspends rail franchise agreements

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As train operators face significant drops in their income due to the Coronavirus (COVID-19) pandemic, the Government has taken emergency measures to support and sustain necessary rail services.

The Department for Transport (DfT) has temporarily suspended the operators’ normal franchise agreements and transferred all revenue and cost risk to the government for a limited period, initially six months. The current operators will continue to run services day-to-day for a predetermined management fee.

This move is designed to ensure that trains necessary for key workers and essential travel continue to operate. Other passengers are urged not to travel and the number of services has been reduced. Passengers who have bought Advance tickets may apply for a refund, as may season-ticket holders.

The railways have already seen up to a 70 per cent drop in passenger numbers. Rail fares revenue has also reduced as people increasingly work from home and adopt social distancing, with total ticket sales down by two-thirds from the equivalent date in 2019.

The Government said that it has taken this step to minimise disruption to the rail sector, vital to the wider UK economy, through these difficult times. It feels that allowing operators to enter insolvency would cause significantly more disruption to passengers and higher costs to the taxpayer. The management fee will allow operators to act in the national interest in tackling Covid-19.

Fees will be set at a maximum of two per cent of the cost base of the franchise before the Covid-19 pandemic began, intended to incentivise operators to meet reliability, punctuality and other targets. The maximum fee attainable will be far less than recent profits earned by train operators. In the event that an operator does not wish to accept an Emergency Measures Agreement, the Government’s Operator of Last Resort stands ready to step in.

The direct contractual relationship that the DfT has with rail operators, which includes operational and financial requirements and incentives that the DfT control, are clearly incompatible with the Covid-19 situation or conducive to the flexibility that the Government will need in coming months. These agreements will freeze all existing responsibilities and liabilities during this period, and the situation will be reviewed in six months’ time – or sooner, if required.

Secretary of State for Transport Grant Shapps said: “People deserve certainty that the services they need will run or that their job is not at risk in these unprecedented times. These offers will give operators the confidence and certainty so they can play their part in the national interest.”


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