TOCs History 1996-1997: Genesis to Sale

Passenger Rail Franchising Companies in Great Britain (TOCs)

TOCs History 1996 - 1997: Genesis to Sale

The franchising system was created by the Railways Act 1993 as part of the privatisation of British Rail by the Government of John Major, and the first franchises came into effect in 1996. Prior to this, the railway system had been owned and operated by the government-owned corporation British Rail (BR), which has since been wound up.

Prime Minister John Major envisaged splitting up the railways and returning ownership to an equivalent of the Big Four railway companies that had existed before the creation of British Rail. The Treasury advocated an alternative plan put forward by the Adam Smith Institute which separated railway infrastructure from train service operation and contracted out passenger services to seven-year franchises. This scheme formed the basis of the system which was implemented, which saw the creation of 25 shadow franchises, to be sold off in a process managed by the Director of Passenger Rail Franchising, which specified service levels and public subsidies that were to be paid to operators. The legislation allowed BR to bid for franchises, if the DPRF agreed, but in practice he never did.

Under the original 1993 legislation, the Franchise Director set out the minimum service levels of a franchise in a Passenger Service Requirement (PSR), being the current BR timetable in the case of the first sell-offs, and put this out to competitive tender. Winning bidders were decided on a pure cost basis – those who offered to pay the highest premium, or receive lowest subsidy, would run the franchise. Once signed, franchise agreements could only be terminated under certain conditions, namely not meeting the PSR, although fines were available as an intermediate step.

The Treasury had initially envisaged franchises to be around 3 years long, to promote sustained competition, however as it became clear that potential buyers were not interested in such short terms, it was announced in 1995 that franchises would be around 5 to 7 years long, or longer if major investment was required. The first franchise agreements to be signed were for the South West and Great Western franchises, on 19 and 20 December 1995 respectively. The first passenger train service operated by a privatised franchise was the South West Trains 05:10 Twickenham to Waterloo on 4 February 1996, although this came after the first privately run service, which ironically was a rail replacement bus service covering the early morning Fishguard to Cardiff journey in South Wales, due to engineering works.

As the program progressed, all franchises had been awarded and commenced by 1 April 1997, the last being ScotRail. OPRAF was initially criticised for taking too long, but answered that most of the delays were outside of their control, and were indeed caused by the government itself. The first four franchise competitions only attracted four bidders each, well below government expectations, although competition increased as the program went on and investors gained more surety over the way the system was to operate as a whole. Ultimately, although there were 25 franchises, the eventual buyers came from only 13 different companies. Many were bus companies, with the hoped-for interest from airlines and shipping groups failing to be converted into solid bids. In addition, despite several bids, due to difficulties in raising finance, only three bids from management buyout groups had been successful.

National Express was the winner of the most franchises, with five (Gatwick Express, Midland Mainline, North London, Central Trains and ScotRail). Prism Rail came next, with four (LTS, Wales & West, Valley Lines and WAGN). Connex, Virgin Rail Group and MTL all captured two each, with the franchises they won being closely related (South Central and South Eastern for Connex, CrossCountry and West Coast for Virgin, and Mersey Electrics and North East for MTL). Stagecoach also won two, although the second was the tiny Island Line, which would eventually be merged with their main win, South West Trains. Great Western Holdings also won two, on opposite sides of the country – Great Western and North Western, FirstGroup, who had won a single franchise in Great Eastern, were a minority partner in GWH. Their March 1998 buyout of the other GWH partners increased their total to three.

In the end, most of the franchises were awarded for lengths from 7 to 7 and a half years. Only seven franchises were longer and two for 10 years (Great Western and Midland Mainline), and five for 15 years (LTS, Gatwick Express, South Eastern, Cross Country and West Coast). Only one was shorter, the 5 year award for Island Line.