First among equals, but the East Coast disputes continue

ORR’s decision to grant rights to run more open access trains on the East Coast Main Line will be causing angst in York and London.

York because it’s the home of Alliance Rail which has been campaigning for many years for more open access having launched Grand Central a decade ago. It’s made much of the running over the last few years only to see First win with its year-old bid. And angst in London because the Department for Transport has continually argued against open access while also claiming that it supports competition.

The DfT spends a great deal of time creating franchise specifications and then poring over bids to select the best one (usually the one that gives it most money). So it was that Stagecoach and Virgin bid £3.3bn to run the East Coast franchise from 2015 to 2023. Both companies knew that open access was likely to increase on the route when they bid.

We’ve been here before. National Express bid high to secure the East Coast in the face of open access operators. It walked away in 2009 when it couldn’t afford to keep the route. GNER had already walked away, although this was as much to do with its parent company’s problems as the ECML itself. (It’s worth noting that today’s GNER, an Alliance Rail company, is different to the GNER of yesteryear.)

ORR had to decide between different bids for space on a crowded route. There were more bids than space so it was inevitable that someone would lose. VTEC wanted more paths so that it could finally deliver Harrogate more than a once-a-day service, increase Lincoln’s provision to something approaching what the city has been promised for years and return Middlesbrough to the inter-city network. VTEC also proposed an increase in London-Edinburgh trains.

Alliance’s plans would increase the number of trains it already runs between London and West Yorkshire and give Cleethorpes a direct link to London. First proposed a simple London-Edinburgh service, calling at Stevenage, Newcastle and Morpeth with low fares and akin to budget airlines in offering a single class of service.

All sides have traded blows. They’ve accused each other of providing no evidence to back claims. It’s been a messy battle. The transport secretary weighed in with a threat to cancel ECML upgrades if ORR permitted more open access. This led to an accusation of blackmail from Alliance.

Compare Patrick McLoughlin saying in a letter in April to ORR: “My officials have raised serious concerns about the approach taken by the ORR’s consultants to assess these applications” with the ORR in its decision letter: “DfT did not provide evidence that allowed us to understand the strength of the current business case for the [ECML upgrade] fund or details about how that case could be affected by our decisions.”

The DfT has changed its position several times. At first it argued that it was worried it would not receive VTEC’s payments, then it said it was concerned about future franchise bids. Next came the increase in costs of Great Western electrification as an argument against ECML open access. HS2 also appeared with DfT officials saying: “The impacts on HS2 from greater open access will be significant and could make it significantly more difficult to run an appropriate service pattern…As well as generally negatively impacting HS2 business case by abstracting revenue, any decision to allow open access services to run to Edinburgh via Newcastle will undoubtedly complicate the provision of high speed services to Newcastle, and may prevent them from being offered.”

It seems to me that HS2 itself will have a greater impact on future East Coast franchise revenue than anything proposed by open access operators. London-Leeds via HS2 is not due until 2033. That’s at least the EC franchise following the one that follows VTEC.

This level of argument makes the DfT sound increasingly desperate. Better that it had used the railway’s tools and processes to properly make the case for reserving capacity created by improvements it’s funded. DfT can’t claim it didn’t know about them because it used them with Crossrail in London. Here DfT is partially funding the east-west rail route and the improvements on the surface sections on either side of London. Applications for the capacity this creates used the ‘track access option’ routine which allocate access on the basis of investment. As Alliance said in an ECML access meeting on March 3: “It [DfT] could have looked at using the rebate mechanism. It could have looked at agreements with operators upfront. It could have looked at access options, could have looked at protecting loss. It could have looked at the levy. All these things we’ve raised with the DfT, and I’d like to know from the DfT, instead of it whinging about impact on Secretary of State’s funds, what it’s actually done to try and avoid putting taxpayers’ funds at risk.”

The penny has dropped at DfT. McLoughlin said in his April letter: “My officials are actively exploring potential options including legislation if needed to introduce a levy on open access operators to support the delivery of public service obligations. This will be taken forward as soon as possible.”

In deciding to accept First’s bid, ORR has demonstrated its committed to open access but has not opened the door to raids on the DfT’s income. First plans to run five trains each way every day (35 trains per week), using five-car trains. At a minimum that’s 25 coaches heading from London to Edinburgh at off-peak times every day. Meanwhile, VTEC’s May 2016 timetable has just added an extra 42 trains per week between the Scottish and English capitals, using nine-car trains.

First’s rights to run only start in 2021 so will only affect VTEC in the final two years of its franchise. By the time First starts, VTEC will be running trains every half-hour to and from Edinburgh.

Which consultant has the correct crystal ball remains to be seen but one thing that’s very likely to change is the way in which operators pay to run trains on Network Rail tracks. Currently all operators pay NR variable track access charges. These charges depends on the type of train run and the distance it goes. If you invest in modern trains that don’t damage the track you pay less than others using older trains that cause more wear and tear.

ORR tries to calibrate these variable charges to the actual costs each of these trains causes. If no trains ran, then NR would still have bills to pay. Hence there’s another part of track access charges. These are the ‘fixed’ charges that only franchised operators pay. They close the gap between the money NR receives as a result of wear and tear and the cost of keeping the network fit for trains in the theoretical scenario of no trains running. (There are many other factors such that ORR’s documents on the subject are hefty tomes.)

The fixed charge is split between franchise operators and can change depending on how much direct funding government gives NR. McLoughlin has already said that he intends to feed NR’s money through operators which will have the effect of increasing fixed charges. It will not mean that NR’s receiving more or that an franchised operator can claim more rights than an open access (or freight) operator because it appears to be paying more.

There’s a review coming to look at access charges with changes likely to take effect in 2019. I expect it will result in higher charges. However, there’s a limit to the extent that variable charges should change. If we moved to just having variable charges then the operator that introduces a service over an otherwise unused stretch of line would pay for that line’s entire costs. That doesn’t seem fair but, more practically, it would deter operators from running new services. (In reality, there are few stretches of line without trains today.)

Wherever the access charge argument ends, it’s clear that passengers like open access services. Their operators regularly come top of satisfaction league tables. Compare Grand Central’s latest chart-topping 76% score for value for money with VTEC’s 59%. There’s also evidence that fares rise more slowly on journeys where there is competition.

Let open access flourish!

This article first appeared in RAIL 801, published on May 25 2016. For more, see railmagazine.com

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Philip Haigh

Freelance railway writer, former deputy editor at RAIL magazine - news, views and analysis of today's railway.

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