The Head of UK Transport at KPMG, Ed Thomas has this week released his comments on the Government’s new strategy for the railways. In his comments, Ed has said that the Government’s new strategy for rail in the UK is a bold solution that will go towards overcoming some of the main challenges faced on the railways today.
There has been a doubling in the demand put on the rail network since it was privatised. This increase in demand has not only put pressure on the capacity of the rail system buy also stretched the commercial models that are being used. These models were first developed in the 1990s and is an industry that appears to be at best continuing at a steady pace, and in decline in other areas.
The move towards creating smaller franchises is a solution that could be warmly welcomed by train operators. However, it is thought that even though some of the initial rail franchises were of a scale to be seen as suitable for management buyouts, the combination of a consideration of the franchise map alongside the massive growth that has been seen in passenger revenues means that a number of these so called smaller franchises have now developed into major companies in their own right with annual revenues exceeding £1 billion. Because of this, trying to transfer the risks that are inherent in the businesses of this scale through the very specific franchise contracts has become more and more difficult. With the announcement of the Government’s strategy, Ed Thomas feels that in order to support the announcement that has been made by the Government will mean that the Department for Transport will have to continue to look into further changes that can be made to this franchise model that will then allow it to continue to secure the benefits of innovation from the market while also being able to set out terms that are commercially viable and can be sustained.