Brown Review
The Brown Review : has it delivered?
Chris Nash
Professor Chris Nash of the Institute for Transport Studies, University of Leeds, says it provides a balanced review of the issues, but on many of them, in particular franchise length, the evidence to reach a final conclusion is still missing
S
ome people thought the Brown review would lead to a complete change in the way franchising is undertaken in Britain; others that it would simply give a clean bill of health to the current approach, blaming the West Coast Main Line fiasco entirely on issues with implementation of the policy by the Department for Transport (DfT) rather than on the policy itself.
In practice, the report is nearer the latter than the
former. Nevertheless, it does contain some very interesting recommendations for changes in how franchising should be undertaken in future. The report’s starting point is the argument that franchising has been instrumental in achieving a massive increase in rail passenger traffic and improvement in quality of service, so it cannot be fundamentally flawed. On this it might have looked more critically at the evidence on the degree to which franchising, as opposed to exogenous factors, led to the growth in traffic, but the broad conclusion that franchising can be made to work is surely right.
It advocates tackling the weaknesses within DfT that led to the current situation, restarting franchising as soon as possible, and proceeding at a manageable pace. Noting that franchising often takes the form of a mammoth procurement exercise (worth £20 billion in the case of the West Coast Main Line), it recommends that franchising should be undertaken by a distinct unit with dedicated staff of matching commercial skills to the bidding teams. It does not go as far as the Transport Select Committee in its Rail 2020 report in advocating that this should be a separate body from DfT, but leaves this as a possibility, along with an agency arrangement or a separate unit within the DfT.
Capital requirements should be determined by a transparent process and not so heavy as to preclude smaller groups from bidding or to mean that larger groups could not take on more than one or two franchises. All this may be seen as dealing with implementation issues rather than questioning the current policy.
Other recommendations do raise issues regarding the current policy. Brown recommends that quality of service and deliverability should be given specific weighting in the evaluation of bids of 20-40 per cent, with quality of service given a higher weight for regional services where the revenue incentive to improve quality is low, rather than simply being dealt with as hurdles to jump before bids are evaluated solely on financial grounds. Many will welcome this, although it is hardly likely to simplify the franchise evaluation process. On the fundamental issue of the length of franchises, Brown rejects the move to longer franchises and recommends initial franchise lengths of seven to 10 years, with the possibility of renewal subject to good performance for a period taking franchise life up to a maximum of 15 years in total, while
recognising that special factors might occasionally justify longer (or shorter) franchises.
He argues that there is no possibility of aligning franchise length with asset life, or of train operating companies making major investments in rail assets, whilst seven to 10 years is sufficient to give adequate incentives to reduce costs. Brown also suggests that the trend to larger franchises in terms of geographical area may not have been altogether helpful; smaller franchises would permit smaller groups to bid for franchises, and if carefully phased would give a steady turnover of franchise competitions and avoid ‘all or nothing’ situations where groups are desperate to win particular competitions as their only way to stay in the industry.
He advocates more devolution, and argues that this may in any case require breaking up Toc’s such as Northern Rail and London Midland to fit the geography of franchising authorities (presumably preferring this to the sort of wide-ranging franchising body covering several local authorities that has been proposed for Northern). Brown recognises that there may be some loss of economies of scale, but argues this is a trade-off that has to be made.
On the level of specification in franchises, he take a middle course, recognising that while more flexibility for train operating companies is desirable, there is also a real need to ensure that franchises meet social needs, even in the case of inter city services - although less prescription should be necessary for those than for regional and commuter services. At the same time, there should be means for franchising authorities to enforce changes necessary for the common good. Whilst Brown accepts that concessions where the franchising authorities completely specify fares and service levels and take revenue risk have worked well in the case of the London Overground and Merseyrail, he argues that these have relied on the authority having the ability to market the services, and that is not usually the case except for devolved regional or commuter services. Management contracts only make sense where there is a major upgrading underway, involving too much uncertainty for the Toc to take cost and revenue risk.
Elsewhere, Brown takes the established line that each party should bear the risks it is best able to control, which means that train operating companies should be protected from exogenous risks, of which the major one is the state of the economy. He argues that while the ‘cap and collar’ was an inefficient way of doing this, removing most of the incentive to grow revenue for Toc’s in receipt of the full level of compensation, the level of protection given in the West Coast Main Line competition, which only kicked in when GDP was 5 per cent below forecast, was inadequate. Toc’s should be fully compensated for shortfalls in national or regional GDP, or central London employment as appropriate. Nevertheless, Brown still argues that 15 year franchises without
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