The future of rail operations

Top ten takeaways from our top table dinner

Wednesday 11 December saw a room of enthusiastic representatives from across the railway industry gather for the latest in our series of top table dinners, co-hosted by Stephenson Harwood LLP and AtkinsRéalis. Attendees were in festive spirits, the room was decorated for the occasion, but this wasn't a "Silent Night", with plenty of enthusiastic discussion and strong views.

We were joined by Alex Hynes, Director General, Rail Services for the Department for Transport. Alex is playing a crucial role as the government drives forward with its plans to reform the railways so they deliver better outcomes for passengers by uniting the oversight of track and train – and that was a key theme for discussions. We set out below our top ten takeaways from the evening.

To those who joined us, thank you for doing so and we hope you enjoyed the evening. To those who weren't able to join, we hope you find the takeaways helpful and hope you'll be able to join us at a future dinner.

Change: The Labour government was elected on the basis of a programme of change, and economic growth is a key driver. Reliable transport is an enabler of economic progress and the government is committed to improving performance on the railway. Its renationalisation programme, and ultimately the creation of Great British Railways (GBR), is considered to be a key driver of improvements and a reduction of cancellations which is at a ten-year high. Customers need a consistent and reliable service, and one which is value for money for the taxpayer as well (with the taxpayer contributing two and half times as much to the railway as it did pre-pandemic).
How?: Following the royal assent of the new Railway Passenger Services (Public Ownership) Act 2024, three passenger operators will revert to public ownership in 2025 to join the four operators already in the public sector, and the remaining operators joining them within the term of the government. Bringing together the operators in this way and adding that to a more integrated approach between track and train, is expected to drive efficiencies and cost savings. However, following nationalisation of the passenger operators, there will still be around 25% of train miles outside of GBR – whether that is open access, local services or freight so there will still be a need for GBR to interface with others in the industry. The supply chain will also remain largely private sector, including rolling stock and infrastructure, but better and more joined up planning in the public sector should allow for better planning and ultimately delivery.
Role for open access: The room recognised that there remains a key role for private expertise, agility and innovation within the railway industry and open access operators were an excellent example of this. Open access operators spot opportunities and fill gaps unserved by public service operators and the recent announcement of Lumo's investment in new Hitachi trains showed an appetite for expansion. As the success of the business is dependent on attracting customers, open access operators were considered to be more customer-focussed, attuned to risk/reward and were often more flexible – and it was thought that the nationalised industry could learn from this more entrepreneurial approach. Ensuring there was appropriate incentive for the nationalised railway was considered essential: having an effective alternative to the profit incentive to drive the right accountabilities and behaviours will be important. Alternatives might include net overall subsidy and social value, but ensuring the person on the frontline is appropriately incentivised to deliver for the railway forms a core part of what needs to be done. It was also recognised that the railway would need to make difficult decisions about effective use of available capacity and therefore having an independent regulator remains key to protect the interests of operators not within GBR.
Industry leadership: Any future model was thought to need those involved to have a stake in delivery, and ensuring there is collective responsibility rather than a blame culture. The establishment of Shadow GBR can help achieve this – and establishing the right culture from its inception. Pan-industry unity of purpose was thought to be helpful – for example ensuring aligned performance metrics, with defined persons or teams being accountable for delivery – Joint objectives when if successful everyone benefits The use of data in holding leaders accountable – and making that data available to the public so they can hold those leaders to account – was an opportunity to explore. The data needs to be sufficiently granular so that averages over a four-week period don't disguise the day-to-day picture and opportunities to learn lessons to better deliver for the passenger.
Sustainability of future operations: There was disagreement in the room as to whether the railways would be expected to expand, stay the same or contract under the new regime however what was clear is that whatever the approach that was taken, the final position needs to be sustainable and reliable, providing better outcomes for passengers. If public operators are not incentivised to create profit for shareholders, then new incentives need to be developed to drive change – perhaps linked to increases in social value or economic growth across the wider economy.
Talent retention: Attendees identified a real danger of good existing talent leaving the industry whilst nationalisation and then reform takes place. Good people will find roles elsewhere, and a wealth of talent and knowledge risks being lost. Money talks and to retain the right talent requires payment at appropriate levels. Nationalisation means the purse strings will be political and with competing demands from across government for funding, the railway mustn't lose out. Consideration also needs to be given to the railway employee proposition and what can be offered for those who want to be in the industry. Travel benefits and pension arrangements help here, but raising the profile and image of the industry so that it isn't just about money needs to be carefully considered as part of the reform agenda, e.g. in terms of showing the possibility of a long-term career and as part of efforts to decarbonise the economy.
Money and funding constraints: The industry should consider whether mechanisms that have been in place for the last 30 years during privatisation still need to be in place in a nationalised industry and financing is one area that could be looked at in this context. The industry does not need to be funded on a seven-ten year time horizon any more and with longer term visibility, there could be more opportunity. Part of a change may be to consider how business cases are supported and can be justified outside of London, and support wider government objectives. We need to get away from the premise that the industry is "special" when in fact we are part of the wider economy and what we do should support other priorities for the country as a whole, both within transport and also other industries such as energy as part of a holistic approach.
A role for the private sector?: The private sector still has a vital role to play in the next stage of the industry's development. We have already mentioned the role of Open Access operators and the fact that 25% of train miles will be outside of GBR (whether this is Open Access, freight or separately concessioned operations such as TfL and Merseyrail). The role of the ORR will be key to ensuring the future of the private sector.
Supply chain: the supply chain will continue to play a pivotal role in the industry and this could include services provided by the current owning groups. Many owning groups have significant expertise both in terms of the industry and the businesses being transferred back into public ownership and, as such, could play a crucial role in ensuring successful operations during the early stages of change while the future industry structure is evolving.
2024 – 2025: So what do the next twelve months have in store? Consultations on the future of the railway, and long term plans for the railway (including plans for rolling stock supply), are to be expected and attendees were encouraged to contribute their thoughts to those consultations to ensure decisions are taken based on all relevant information. Further devolution is also likely to be on the agenda, and giving local authorities control over how they run transport was thought to be a better driver of quality in how it is delivered (provided that authority is appropriately funded to deliver). The TfL concessions model was championed as being successful, and whilst the government generally is going in a different direction, effective delivery at the local level could draw on that experience to deliver better and more innovative outcomes.

This was the first in a series of two events specifically considering the future of rail operations following renationalisation. Our next dinner – on Wednesday 15 January – has Robin Gisby as our guest speaker. Robin leads DfT Operators, formerly known as the DfT Operator of Last Resort, which is expected to take over rail operations as they expire. We are looking forward to hearing Robin's perspective on what the future holds. You can sign up to join us at this link.

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