Department for Transport (DfT) “effectively enabled” Southern owner to avoid breach of contract, says Transport Select Committee
The government's handling of the Southern rail crisis has "effectively enabled" Southern's parent firm Govia Thameslink Railway (GTR) to avoid breach of contract, says a damning new report on rail franchising.
The report, by the Transport Select Committee, said that given the exposure of the taxpayer to the failings of the franchise, it was "unacceptable for the Department to maintain its current 'arms-length' approach".
Ongoing industrial action over a long-running dispute regarding the role of the guard has caused severe disruption on Southern, but the Committee said the DfT still needed to address issues such as "inadequate planning, inaccurate assumptions and weak performance incentives" on the franchise.
The report said GTR had essentially been given "a penalty holiday" due to the strike action.
Read more: Southern rail commuters launch legal claim as DfT faces watchdog scrutiny
By allowing GTR to change its performance benchmarks and timetable, the DfT "effectively enabled them to avoid breach of contract". The Committee said the DfT hadn't stepped in effectively to deal with the scale of the problems on the Thameslink, Southern and Great Northern (TSGN) franchise.
Part of the controversy surrounding Southern has been the use of a management contract for the franchise, which differs from the typical types of franchise provision. The DfT receives revenue from ticket sales and takes on the revenue risk, with the company – GTR – operating the service in exchange for a management fee, in the region of £1bn.
The Committee pointed out that this exposes the DfT financially. In the case of GTR, the net revenue losses for the year amount to at least £38m – "revenue, which could have been re-invested in rail services, lost to the public purse".
Read more: Southern rail hit by £38m bill from industrial action so far this year
The Department took on the risk because the risks from infrastructure changes relating to the £6.5bn Thameslink modernisation programme were seen as too high for the private sector to take on. But, the Committee has pointed out, the drawn out troubles on the franchise have meant "the ultimate financial risk remains with the taxpayer".
Despite the severe operational failings of GTR, it paid just £2m in penalties for its first year of operation – only 0.2 per cent of its £1bn management fee.
The Committee wants action taken from the DfT to ensure all possible steps are being taken to "stop the haemorrhaging of income" and advises the Department to publish updates on the financial losses to the taxpayer from the franchise and set out options to recoup the losses.
The DfT has changed its policy on performance reporting, which the Committee noted was a step in the right direction to holding "serially underperforming operators" like GTR to proper public account.
Read more: Southern rail's "full service" pledge hasn't quite gone to plan
However, the Committee said there were serious shortcomings in the DfT's capability and capacity to manage rail franchising and it should consider transferring enforcement powers to the Office of Rail and Road (ORR).
While there has been much discussion of whether to strip the operator of the franchise, the Committee said it didn't think the DfT had "sufficient capacity" to revoke a franchise, particularly of the size and complexity of TSGN.
Louise Ellman, chair of the Committee, said: "If GTR is officially found to be in breach of contract – and the Committee is still pushing ministers for an answer on this – the Department for Transport should consider restructuring the franchise to realign the incentives and focus of the operator back to the passenger.”
The DfT has been approached for comment.