Operator of last resort holds key to Labour’s rail renationalisation aspiration

Senior leaders across the rail industry have started to digest the impact of the policy proposals set out by the Labour Party as outlined by Shadow Transport Secretary Louise Haigh on April 25.

Haigh’s proposals made headlines across the mainstream press as she confirmed that following a general election victory Labour would seek to take into public sector operation the remaining agreements handled by contract operators over the five year term.

Entitled ‘Getting Britain Moving’, the Labour Party policy committed to introducing new legislation to establish Great British Railways early in the next parliamentary session. It promised a long-term strategy outlining the role of rail in supporting economic growth, delivering an integrated transport network and improving value for money for taxpayers.

Two-step process

In her speech on April 25, Haigh said that if Labour came to power, it would adopt a two-step process to implement reforms. Step one, she said, would see the government immediately ‘instruct the Department for Transport, Network Rail, the Rail Delivery Group, and the operator of last resort to work together from day one to create a “shadow” Great British Railways’. The second stage ‘will see us pass the primary legislation needed to formally establish Great British Railways as an arm’s length body, ensuring that it is structured around the needs of passengers and freight’.

Speaking to industry leaders in response to Haigh’s announcement, Rail Business UK has found that most expect that DOHL, DfT’s Operator of Last Resort which already manages four train operators, would be given a much expanded role.

The consensus is that the remaining private operators would be brought in-house as each core period of the relevant National Rail Contract expires; a Labour administration is not expected to take up any of the optional extensions available to the Secretary of State under these agreements. The only caveat is that temporary extensions of a few weeks could be issued to avoid issues caused by administrative ‘bunching’ were any NRCs due to end at roughly the same time, but this is seen as a last resort scenario.

Rail Business UK understands that the organisation’s title of ‘Operator of Last Resort’ could change, as it would effectively be a misnomer. Its legal status could also be reviewed, as its stated remit today is to fulfil ‘the Secretary of State for Transport’s requirements under Section 30 of the Railways Act by maintaining the continuity of passenger rail services if a passenger rail franchise terminates and there is no replacement’, according to its website.

DOHL’s function following the transfer of the business has technically been to prepare an operator for a return to the private sector. But Labour’s policy document makes clear that this requirement would be removed under its proposed Railways Act for England, Scotland & Wales.

Industry sources suggest that there could eventually be a return to InterCity, Network South East and Regional Railways style sectors in time, although those terms are not being used. There are challenges include deciding where some services fall, especially between the regional and inter-city service groups, given changes and rolling stock acquisitions during the privatisation era.

Handing back the keys

Assuming Labour is in power by early 2025, the first two operating contracts to be transferred would be South Western Railway (FirstGroup and MTR Corp), where the NRC has an expiry date of May 25 2025, and Great Western Railway (FirstGroup), where the end date is June 21. The Essex Thameside contract held by Trenitalia’s c2c business has an expiry date of July 20.

Industry insiders are already asking whether owning groups with contracts that run for longer will be content to carry on working with a Labour government. Sources close to the operating community believe there is a possibility some owning groups could take legal advice over agreeing an early termination. One senior insider has told Rail Business UK that ‘I would not be surprised if they looked at handing back the keys once the transition away from the private sector was underway’.

Fall in fares unrealistic

While much of the coverage of Labour’s plans focused on the ‘renationalisation’ aspect, Haigh and her colleagues have been keen to avoid the suggestion that fares will fall under Labour’s plans. Indeed, industry leaders do not expect any more taxpayer funding to be made available to operators, while the Labour policy document also makes clear that the freight operators, rolling stock leasing companies and open access players will not be taken into the public sector. That Haigh’s speech was delivered at the headquarters of Trainline was also seen as a signal that there will still be support for independent ticket retailers.

Industry sources are emphasising that the elimination of the relatively small payments being made to owning groups will have little impact on industry finances, with one senior consultant suggesting that the ‘profit margin’ per passenger today is on average around 12 pence.

Pressed on fares in response to the policy announcement, Haigh insisted that ’I can’t today set out that we will lower fares, not least because they are incredibly complex and regulation needs reform as well. But we have said that we will simplify them, that we will make them more accessible, more transparent and more trustworthy for passengers’.

Industry insiders have told Rail Business UK that DOHL will be able to bring in a significant level of simplification through the removal of many operator-specific fares. But recent changes to the ticketing policy at LNER, notably the trial which has seen some flexible fares withdrawn from the market on routes like London King’s Cross to Edinburgh, have not proved universally popular, with feedback suggesting passengers on the routes affected have seen steep price rises as a result of the changes.

Terms and conditions

Meanwhile, industry leaders are also starting to ask how far Labour would be able to harmonise working practices across the sector under its model. At what point the separate businesses might be combined into larger groupings under GBR remains unclear, while efforts to harmonise pay and terms for railway staff are likely to be fraught.

Industry insiders note that several operators already have staff on ‘three or more different agreements’ following remapping as franchises have been re-let; over the past 15 years or so, retaining the status quo has been easier than finding a way to bring staff onto a common footing.

In her speech, Haigh noted only that ‘Labour will take a consciously different approach: we will see our workforce as an asset rather than a liability. We will work with them. And where there are disagreements, we will get around the table and work them out.’

Yet sources have made clear that addressing pay and conditions sector-wide is something nobody is relishing, and a significant level of compromise and co-operation will be required from the rail trade unions if their desire to see a return to a single nationalised railway that is affordable is to be realised.