TOCs Controversies Public/Private Ownership

Passenger Rail Franchising Companies in Great Britain (TOCs)

According to the Railways Act 1993, the public sector cannot bid for rail franchises in Great Britain, although some rail franchises in the past have been taken on temporarily by a state-owned operation following an unsuccessful private franchise.

Some critics of the franchising system have suggested that state-owned organisations, such as the Government-owned holding company set up to take temporary ownership of franchises. Directly Operated Railways should be allowed to tender for rail franchises on a permanent basis. They highlight the fact that many of the current rail franchise holders are actually joint ventures involving subsidiary companies of the state-owned railways of other countries, such as SNCF of France or the German Deutsche Bahn.

Some commentators have criticised the re-franchising deals by comparing the performance of the private-sector franchisees unfavourably with the public-sector operators. Advocates of the franchising system contrast public-sector operations with commercial operators, citing their ability to invest private capital into the franchises, financial returns to the Treasury and customer incentives such as free on-board Wi-Fi and loyalty card schemes.

In the wider context of the controversy over Railtrack's failure to upgrade the West Coast Main Line, there was criticism of the SRA for failing to ensure the Cross Country and West Coast franchises transitioned from subsidised to premium-paying franchises. This had been anticipated in the initial 15-year franchise agreement that ran from 1997 to 2012, but depended on Railtrack delivering the upgrade on time. Instead, the delays meant the contracts had to be renegotiated early as management contracts, and continued to be subsidised for several years until they could be re-let, which was seen as a cost to the public purse, adding millions to the billions run up in over-spend on the upgrade itself.

The initial management contracts came into effect on 22 July 2002, and were to see the West Coast franchise supported by the SRA until March 2003, and if agreement on a new franchise terms was not reached by then, the management contract would continue, in return for a fee of 2% of revenue. Similarly, Cross Country would be supported until March 2004, and then by a 1% fee if not renegotiated, but with the option of the SRA putting it out to tender. Unhappy with Virgin's proposal for terms of the remainder of the original 15-year Cross Country franchise, the SRA terminated negotiations on 6 August 2004 and the temporary arrangements continued until the franchise was re-let in a revised form, announced in October 2005. Although Virgin was shortlisted as a bidder for this revised franchise, it lost out to Arriva, who took over as the new franchisee from 11 November 2007.

In 2012 the franchising system ran into some difficulty, the Department for Transport awarded the InterCity West Coast franchise to FirstGroup, but in October the Secretary of State for Transport reversed this decision after significant technical flaws had been revealed in the way the franchise process was conducted. Virgin Trains was given a temporary management contract to run the franchise until a fresh competition could be run.