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Government suspends rail franchise agreements

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

The Department for Transport (DfT) has announced that it will temporarily suspend the operators’ normal franchise agreements and transfer 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 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: “We are taking this action to protect the key workers who depend on our railways to carry on their vital roles, the hardworking commuters who have radically altered their lives to combat the spread of coronavirus, and the frontline rail staff who are keeping the country moving.

“People deserve certainty that the services they need will run or that their job is not at risk in these unprecedented times. We are also helping passengers get refunds on Advance tickets to ensure no-one is unfairly out of pocket for doing the right thing.

“These offers will give operators the confidence and certainty so they can play their part in the national interest.” 

Paul Plummer, chief executive of the Rail Delivery Group, which represents train operators and Network Rail, added:

“The rail industry is working together so that people and goods can keep making essential journeys during this unprecedented national challenge, getting key workers to hospitals, food to shops and fuel to power stations.

“The industry strongly welcomes the Department for Transport’s offer of temporary support and while we need to finalise the details, this will ensure that train companies can focus all their efforts on delivering a vital service at a time of national need.

“We would like to thank our people, who continue to do an incredible job in difficult circumstances.”