The Structure of the UK Rail Industry.
The structure of the UK rail network is very complex and involves the following key elements:
| Network Rail | Network Rail owns the infrastructure (the land, stations, track, and all the trackside equipment that allows a railway to operate). Network Rail operates no commercial trains itself. Network Rail’s main function is to sell timetable ‘slots’ to train operators, for which it levies access charges. The revenue is used to operate, maintain and renew the system. The company is limited by guarantee, has no shareholders and pays no dividend, surpluses (if any) being ploughed back into the network. Network Rail also operates directly the 18 UK Major Rail Stations run by Network Rail. |
| Franchised Train Operators | These operators are granted a ‘franchise’ by the government to operate trains in particular areas or along particular routes. They also operate the majority of stations under leases granted by Network Rail. Franchised operators run the vast majority of passenger trains in the UK, and there are currently 20 of them. Franchised operators own few assets, the trains being leased from Rolling Stock Leasing Companies and the stations and depots being leased from Network Rail. They also pay Network Rail significant fixed and variable access charges. These fixed charges typically account for between half and three quarters of all operating costs. Franchised train operators have to operate the train services set out in the franchise agreement, the specifications for which are now very tightly defined. There is only some scope at the margins for making service changes the operators themselves identify, rather different from the original privatization notion. Click here for inventory of franchised train operators. |
| Open Access Train Operators | These operators are under no commitment to the government and have the right to operate trains where they like providing timetable paths are available and subject to agreement of the Office of Rail Regulation. Most open access operators run freight services but a small (but growing) number operate passenger trains. Click here for inventory of open access train operators. |
The rail network in the UK is effectively run by a duopoly. The first of these is the Office of Rail Regulation (ORR) which has three main areas of responsibility.
| Supervision of Network Rail | Because Network Rail is a monopoly supplier (of transport infrastructure) the ORR has a huge role in ensuring that adequate provision is made for system maintenance and renewal. Network rail seeks to understand how future demand will develop and produces budgets in 5-year periods called control periods. These have to be agreed with the ORR before the ORR will agree what charges Network Rail may levy for access to its system (access charges being its main source of income). The ORR must seek to agree budgets that the government finds affordable yet meet the governments high level specification for future rail services. This is a very involved process. |
| Fairness to all rail operators | The ORR is required to ensure that Network Rail can accommodate services likely to be specified by the government through the franchising process as well as ensuring that Network Rail can accommodate within reason open access operators without discrimination. The ORR also defines standard forms of lease for train operators who lease stations and depots from Network Rail, and upholds the so-called Network Benefits and impartial trading standards that hark back to the old British Rail days and which are preserved or required by law. |
| Operation of the safety regime | The ORR is also the home of Her Majesty’s Railway Inspectorate who are responsible for ensuring that all railways have a satisfactory safety management regime in place and who can take enforcement action. |
The second in our duopoly is the Department for Transport. The department’s role is primarily to manage the whole process of rail franchising and to provide a coordinating hand across all franchises ensuring that together they meet anticipated demand. Specifically the roles of the DfT may be defined as:
| Letting new rail franchises | The Department is responsible for defining the shape of future franchises, establishing the stakeholder interests and defining the service levels required. It is then responsible for holding the necessary competition for bidders. |
| Managing rail franchises | Having let a franchise it is important that all franchise commitments are met and the companies operate within the expected financial regime and exhibit appropriate behaviours. |
| Withdrawing franchises | In certain circumstances it may be necessary to alter or amend franchise agreements, hold operators to account, or in extreme circumstances withdraw the franchise. In these circumstances it would be the intention to retender a franchise but in emergencies the DfT can step in overnight as ‘operator of last resort’ and special arrangements are in hand for this to be implemented with shadow companies already on the shelf and consultants First Class Partnerships available to populate one or more of them with senior management team. So far this has only been needed once. |
| Budgeting | The DfT manages the whole of the rail budget in England and has agreements with the Welsh assembly, Transport Scotland, the Greater London Authority and the regional Passenger Transport Executives to co-ordinate budgeting across the UK. Some UK franchisees require a subsidy while others pay a premium to government – in either case it leaves each franchisee with notionally adequate income to pay its large fixed charges. The DfT also makes substantial grants direct to Network Rail for general support and for specific projects. |
| Co-ordination | Theoretically unnecessary in a ‘privatized’ railway environment, it has become evident that a hugely fragmented industry relying on public support needs to have ‘someone’ in charge and the DfT have necessarily begun to fill this role. One obvious example of this is with the management of rolling stock. With 20 franchises some kind of co-ordination was vital in distributing stock around the country, while equally it was obvious that there needed to be a long term plan which owing to short franchise lengths no train operator was in a position to manage. The DfT has just agreed to fund a new fleet of inter city trains as nobody else was in a position to do so. The DfT have also run or sponsored other capital projects requiring coordination across several train operators and Network Rail. |
This is only a very brief summary of the industry. You may be interested in our Railway In A Day course which will brief you fully about all the issues that face us today.
