The rail franchise model has high fixed costs and low profit margins. As set out in the NAO’s Department for Transport Departmental Overview 2019-20, the Department for Transport’s (the Department) net income from letting franchises fell significantly from 2016-17, becoming a net government subsidy in 2019-20.
As a result of the COVID-19 pandemic, rail industry income fell dramatically as passenger numbers declined. It is unclear how far or when it will recover. In March 2020 the Department announced emergency support arrangements for train operating companies, which transferred all income and cost risks to the Department in return for operators continuing to run passenger services.
Government is now paying operators a fixed fee for operating services, with potential performance payments. From April 2021, the Department plans to transition rail operators to new arrangements, replacing franchising. The delayed Williams Rail Review will also recommend new ways of organising the rail system, and wider reforms to prioritise passengers’ and taxpayers’ interests.
This report will provide transparency over the costs of the English rail system by setting out:
- the roles and responsibilities for delivering the rail system in England, and the costs to the taxpayer;
- the breakdown of costs and sources of income, and how government policy choices affect them; and
- what to look out for as government moves towards a new model of delivery.