The franchising system for the railways collapsed last summer following the West Coast debacle and huge resources are currently being thrown at it by the Department for Transport in an attempt to rescue the process. Consultants – effectively anyone who has been involved in a bid over the past 15 years – are being recruited from across the industry at £500 or more per day in order to try to get it back on track. There is much panic in the department about whether any franchises will be let before the general election.

But why bother? For the past decade, I have being asking ‘what is franchising for?’ and never received a satisfactory answer. Britain is the only country in the world to franchise out its entire rail network and, moreover, using a particularly radical form involving an attempt to transfer risk away from the government. While many countries like Germany and Holland franchise out part of their railway networks, they do so on a concession basis, with the state owned railway retaining all the fares income while the private company merely operates the services to the required timetable.

Here in Britain we have a more extreme version. The private operators take on the ‘revenue risk’ – in other words they form a judgement about the likely number of passengers and bid for the contracts on that basis. In fact, the risk is ameliorated somewhat by a cap and collar arrangements which means if their bid was far too low, then the state takes on some of the losses. Nevertheless, we have seen two franchisees throw the towel in on the East Coast and then last summer we had the West Coast fiasco.

That was caused by the coalition government trying to fulfil its commitment to have ‘longer franchises’. The hope was that these would stimulate investment by the operators, but this was always a forlorn hope since franchises are, virtually, an investment free business – the stations and the tracks are the responsibility of the quasi state-owned Network Rail and the trains by leasing companies, leaving nothing for the train operators to invest in apart from the odd catering trolley and a few antimacassars.

The idea of longer franchises was inherently flawed and that was exposed by the bidding process for the new deal that was supposed to stretch until the end of the next decade. FirstGroup put in a bid which initially won them the deal but, following a challenge by the incumbent, Virgin, the decision-making process by the department was found to be inherently flawed.

Cue two ‘independent’ reports – both by board members of the department. The first, by Sam Laidlaw, found huge inconsistencies in the way that the Virgin and First bids had been treated and the second, by long time railway manager Richard Brown, argued that while the bidding process had been flawed, there was nothing inherently wrong with the overall concept.

But there is. Trying to guess how much revenue a particular line will make in ten or so years’ time is a mug’s game that involves little more than holding a finger up to the wind. Train operators make around £250m profit per year for taking virtually no risk since, when they get into trouble they can simply quite cheaply give up the ghost, while making no significant investments. The rate of return, consequently, is calculated on turnover, a bizarre figure rarely used in conventional businesses.

The train operators argue that the railways have grown in an unprecedented way since privatisation and that changing the system would put that at risk. However, there is no link between anything they have done and the growth which, to borrow Gordon Brown’s word, is mostly ‘exogenous’, the result of a wide variety of factors ranging from high fuel prices and  cuts in company car tax allowances to high London employment and massive rise in young people studying at universities away from home.

Remarkably, the coalition government has not managed to let a single long-term franchise in its first three years and has only slated the East Coast, currently being run by a government owned subsidiary, for contracting out, a vindictive act born of the dislike of seeing a successful publicly owned enterprise. This means most franchises are currently being temporarily extended until the department has the resources to re-let them. This franchising failure makes it ripe for Labour to simply allow them to expire as they run out and create a publicly owned organisation to run them, as has happened with the highly successful East Coast franchise since 2009. Moreover, they could be coordinated by a new strategic body, perhaps melded in with Network Rail in order to create a much more integrated railway – by far the best and most efficient model.

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Christian Wolmar is a writer and broadcaster specialising in transport and is seeking the Labour nomination for the London mayoral election 2016. His latest book, a history of the Transsiberian railway, ‘To the Edge of the World’, is due to be published on 7 November this year. He tweets @ChristianWolmar

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Photo: Son of Groucho