First will not take over West Coast from December

[northwichcat]

According to Railway Eye Virgin West Coast are currently receiving revenue support from DfT i.e. paying less premium/receiving more subsidy then the terms the franchise were let on. Although, 6 other franchises are in the same situation and only London Midland and Northern are in a revenue share (reverse of revenue support.)

They say this highlights the government getting sums wrong.

http://railwayeye.blogspot.co.uk/2012/10/cap-and-collar-costs-revealed.html

 

[Whistler40145]

Sounds like there is more to this than we know & I think this is only the beginning of any problems.

 

[Realfish]

I gather that KM is not very popular at DfT...

From the Railway eye: The statement has been issued by The PR Office on behalf of Kate Mingay and her lawyers Mishcon de Reya.

Crikey! Kate has a PR Company working for her and an 'A List' legal team.

 

[EM2]

Virgin West Coast entered revenue support pretty much as soon as they were allowed to.

 

[HH]

According to Railway Eye Virgin West Coast are currently receiving revenue support from DfT i.e. paying less premium/receiving more subsidy then the terms the franchise were let on. Although, 6 other franchises are in the same situation and only London Midland and Northern are in a revenue share (reverse of revenue support.)

They say this highlights the government getting sums wrong.

Not at all. This is simply the result of the recession*.

IOW it's all the bankers fault. Or Gordon Brown's. Delete as per your political persuasion.

* And of course the cap and collar mechanism, but without it either the bids would be lower or more franchises would be handed back with premiums unpaid. I know it's hard to accept if it doesn't suit your particular beliefs, but the end result hasn't been that bad for government, given that it severely restricts TOC's ability to both reduce cost and increase revenue. OFC I have pointed out the weaknesses in cap and collar on these forums before, but where the government wants to specify services, regulate fares, but still encourage big premium payments, then it has to do something to share the risk of economic downturn with the bidder.

 

[87015]

Although, 6 other franchises are in the same situation and only London Midland and Northern are in a revenue share (reverse of revenue support.)

c2c have been in 50% profit share with the DfT for the entirety of their franchise extension since May 2011.

 

[HH]

From the Railway eye: The statement has been issued by The PR Office on behalf of Kate Mingay and her lawyers Mishcon de Reya.

Crikey! Kate has a PR Company working for her and an 'A List' legal team.

Yes, well she was at Goldman Sachs previously. I gather that she and her husband are seriously wealthy. Probably does not need to work.

I see that I am 1 Link away from her on LinkedIn; I wonder if I should ask for a connection?

BTW love the "Who should carry the can for the ICWC debacle?" Vote on the Railway Eye Blog.


--- old post above --- --- new post below ---

c2c have been in 50% profit share with the DfT for the entirety of their franchise extension since May 2011.

Here's where your ire should be directed. They must be making really serious profit margins to have triggered this.

 

[John55]

Approach, yes. I've been trying to explain why that doesn't help. Read this BBC article as well: http://www.bbc.co.uk/news/business-19810845


It's not a well understood model, it's a well understood approach. As it says on the BBC site: "A consultant who has worked with the Department for Transport on franchise bids in the past explains that there are three main areas where mistakes could have been made. When evaluating bids, the government will look at various individual forecasts, such as passenger numbers, and decide whether they are realistic. If not, it will make an adjustment and feed the revised figure into its own computer model."
Knowing the approach is not enough, by a long means, to allow you to replicate their calculation.


We do not get to study one another's bids in Rail. Far more details have emerged about ICWC than any previous franchise, and yet, what do we know about the bids of SNCF and Abellio?

I think you are rather naive if you really believe the above.

How many models are their for this kind of activity and how many people actually construct them? I would not mind betting that the model can be largely reconstructed just from knowing who made it in the first place. Its easy to calibrate against your own numbers and what the DfT tells you.

And haven't First said they managed to replicate the DfTs (wrong) numbers from their reverse engineered model before the TSC?

 

[jon0844]

What's the harm if the profits are split 50:50?

 

[HH]

What's the harm if the profits are split 50:50?

I was only kidding about the ire. But the point is that you are really making a lot of profit if this kicks in, and shouldn't that be your measure of whether the taxpayer was being diddled? Think about it.

--- old post above --- --- new post below ---

I think you are rather naive if you really believe the above.

I think that would amuse anyone who knows me.

How many models are their for this kind of activity and how many people actually construct them? I would not mind betting that the model can be largely reconstructed just from knowing who made it in the first place. Its easy to calibrate against your own numbers and what the DfT tells you.

We start to get quite complex here. For the specific mentioned in that piece, passenger numbers, I presume that they are talking about absolute numbers. There is no standard model. There are a number of people, largely consultants, who could build such a model. But as it would be very franchise specific. It's an economic model and would depend very much on your view on the local and national economic factors, such as fuel prices, car ownership, house building, relative speed of journey, employment, etc. etc. Most of these are not absolutes, which is why it is impossible to replicate another's numbers; no two people would make the same assumptions. I cannot make it any clearer; either you understand the nature of such projections or you don't.

And OFC passenger numbers are just one variable. What's more, with passenger numbers, you also have to look at the crowding model. I don't know what industry you work in, but rail is really complex. People new to the industry are always surprised by this, so it's understandable that you don't get it.

And haven't First said they managed to replicate the DfTs (wrong) numbers from their reverse engineered model before the TSC?

As I've said already, I don't believe that for one instant. Virgin said the same, but their legal deposition said quite different - they didn't have a clue.

 

[tbtc]

I was only kidding about the ire. But the point is that you are really making a lot of profit if this kicks in, and shouldn't that be your measure of whether the taxpayer was being diddled? Think about it

What's the alternative?

No "cap", in which case the private TOC would keep *all* of the profit?

 

[HH]

What's the alternative?

No "cap", in which case the private TOC would keep *all* of the profit?

I'm not saying that at all. What I am saying is that the TOC in profit share is making a lot more (relative) money than the TOC receiving revenue support.

And why is C2C in profit share? Simply because when it bid the economic forecasts were lower than what actually happened for the first 10+ years of its franchise. Why are the others in revenue support?

But let's keep such musings out of this thread. They raise their ugly heads more than often enough. And nobody who raises them understands the economics, or they'd raise different questions.

 

[brianthegiant]

http://newsthump.com/2012/10/03/isn...-for-gets-cancelled-commuters-ask-firstgroup/

 

[HH]

Nice one. On a more serious note: http://www.railpro.co.uk/magazine/?idArticles=710

 

[jon0844]

I was only kidding about the ire. But the point is that you are really making a lot of profit if this kicks in, and shouldn't that be your measure of whether the taxpayer was being diddled? Think about it.

I did start to think about it and then realised that there are so many variables that you're asking for a TOC to make a bid that is exactly perfect, so it neither makes a loss or any excess profit.

That would be impossible even for a short franchise, let alone a 15 year one. It would mean knowing how many people would travel every year, how much they'd pay, the exact money you'll need to spend on rolling stock/station upgrades, pay rises and any other incidentals.

And the DfT would have to know this to make sure it picked the right bid, which it clearly cannot whether it gets its sums right or not!

In other words, you can't make the perfect bid and if there's a rule that says excess profit is shared then I see no harm - nor the taxpayer being diddled. I guess you could cap profits and take it all, but then you may no longer see many companies bidding.

 

[Woody]

Almost half of UK rail franchises now receiving taxpayer bail-outs due to Department of Transport failures.Evidence unearthed by rail union RMT has revealed that all of the rail franchises currently eligible for receiving taxpayer financial support under loaded contract rules are now claiming it with the exception of Northern Rail and London Midland who could move onto the same special measures shortly.

http://www.rmt.org.uk/Templates/Internal.asp?NodeID=164320

 

[jon0844]

Wow, how did they manage to unearth this information? The Government must be livid that this information has been obtained.

“The case for renationalisation of the railways to end this state sponsored rip-off is now overwhelming.”

Really? And it wasn't in the last 500 press releases, or the next million?

 

[YorkshireRider]

Nice one. On a more serious note: http://www.railpro.co.uk/magazine/?idArticles=710

A intresting, well written article. Reminds me of the idiots Garnett and Bowker after both GNER and NX ran into trouble, who after the govenement wouldnt budge and offer any re-negonitiation, both said 'gone are the days of billion pound franchise deals' (or words to that effect), yet here we are again, looking at the fallout of another billion pound deal. Will the gov review make any difference this time? Time will tell.

 

[HH]

I did start to think about it and then realised that there are so many variables that you're asking for a TOC to make a bid that is exactly perfect, so it neither makes a loss or any excess profit.

That would be impossible even for a short franchise, let alone a 15 year one. It would mean knowing how many people would travel every year, how much they'd pay, the exact money you'll need to spend on rolling stock/station upgrades, pay rises and any other incidentals.

And the DfT would have to know this to make sure it picked the right bid, which it clearly cannot whether it gets its sums right or not!

In other words, you can't make the perfect bid and if there's a rule that says excess profit is shared then I see no harm - nor the taxpayer being diddled. I guess you could cap profits and take it all, but then you may no longer see many companies bidding.

Yes; all true. My point was that it's no different when the TOCs are in Revenue Support. In general the DfT aren't getting any less than they should (the only exception I'd make to that is maybe Virgin!), given the state of the current economy.

--- old post above --- --- new post below ---

Almost half of UK rail franchises now receiving taxpayer bail-outs due to Department of Transport failures.Evidence unearthed by rail union RMT has revealed that all of the rail franchises currently eligible for receiving taxpayer financial support under loaded contract rules are now claiming it with the exception of Northern Rail and London Midland who could move onto the same special measures shortly.

Who didn't realise this already? Anyway, completely off topic for this thread. It's absolutely nothing to do with DfT incompetence, and everything to do with the recession, brought about through the last Labour Government incompetence.

 

[Whistler40145]

Oh, so the Conservative/Liberal Democrat government is better, I think not.

 

[HH]

Oh, so the Conservative/Liberal Democrat government is better, I think not.

Did I suggest it was better? I think not. It's not about parties (which let's face it aren't all that different from one another), but people. Gordon Brown messed up. The right policies could have softened the hit on the UK. History will not be kind to him.

 

[Whistler40145]

Trouble is that it doesn't matter which government is in power, each department still has the same civil servants.

 

[HH]

Trouble is that it doesn't matter which government is in power, each department still has the same civil servants.

Some get shuffled around, but as a group they don't change much. The problem is not, as has been suggested here, that they don't pay as much - from the DfT's charts, the third level down gets paid around the same as a TOC MD, and there are more highly paid people than you can shake a stick at. Nor is it that they have inferior consultants - Atkins, PWC, Eversheds are all right in the most expensive bracket.

It's more a culture thing in my opinion. TOCs are commercial organisations; success and failure are rewarded appropriately; middle/senior people move around in order to advance. The Civil Service is all about keeping your nose clean (which is why WC is a disaster for them) so that you advance up the ladder and collect your nice pension (and knighthood if you get to the top). It doesn't attract people who want to get things done, and to have responsibility early (every decision gets referred upwards).

And let's debunk this "brain drain" claim from Sir Humphrey. All the people I know who were let go by DfT were some way down the food chain. Many were coming up to retirement; many are now being covered by temporary staff. There have been plenty of people in meetings I've been to - no less than in the past. Sir Humphrey has outmanoeuvred Hacker yet again...

 

[northwichcat]

Almost half of UK rail franchises now receiving taxpayer bail-outs due to Department of Transport failures.Evidence unearthed by rail union RMT has revealed that all of the rail franchises currently eligible for receiving taxpayer financial support under loaded contract rules are now claiming it with the exception of Northern Rail and London Midland who could move onto the same special measures shortly.

http://www.rmt.org.uk/Templates/Internal.asp?NodeID=164320

Same story is being discussed on the previous page of this thread.

The claim about Northern and LM is misleading. Both are on "revenue share" i.e. the subsidy they receive is LESS than what the terms that the franchise was let on due increased ticket sales. This means even if they were to get a 'bail out' it could be paid for using the money saved from reducing the subsidy over previous years.

 

[Woody]

Same story is being discussed on the previous page of this thread.

The claim about Northern and LM is misleading. Both are on "revenue share" i.e. the subsidy they receive is LESS than what the terms that the franchise was let on due increased ticket sales. This means even if they were to get a 'bail out' it could be paid for using the money saved from reducing the subsidy over previous years.

While it my be unpalatable to some the cat is well and truly out of the bag thanks to Richard Bransons West Coast challenge.
The railway franchise system is “broken” according to one of the architects of the privatisation of the industry in the 1990s.

http://www.telegraph.co.uk/news/ukn...s-broken-says-architect-of-privatisation.html

Even the right wing Adam Smith institute is asking the question "Are the railway franchises on the right track?"

http://www.adamsmith.org/blog/planning-transport/are-the-railway-franchises-on-the-right-track

While Shadow Transport Secretary Maria Eagle pointed to FirstGroup's decision to end its contract for the Great Western line three years early. One of her criticisms was the so-called 'gaming' of the system by operators, without being penalised.

http://www.thisisexeter.co.uk/story-17042162-detail/story.html

No wonder their are calls now for renationalization of the railways.

http://www.guardian.co.uk/commentisfree/2012/oct/04/public-want-railways-renationalised

 

[northwichcat]

It's absolutely nothing to do with DfT incompetence, and everything to do with the recession, brought about through the last Labour Government incompetence.

The recession has actually seen more local train journeys in a lot of areas as people either give up on their car or get jobs further away from their home. Intercity train travel has suffered because of the dirt cheap Advance fares needed to entice leisure travellers being subsided by the expensive peak time First Class fares, which less businesses/business people are still able to buy.

While the Labour government may have been able to do more they would have needed to be exceptional to prevent a recession, given numerous countries have gone in to recession including the United States, France, Spain, Italy, Ireland and Greece. The coalition government shouldn't have put a junior in as chancellor in such challenging times if they wanted a quick recovery - Vince Cable would have been the obvious choice but the Conservatives wouldn't have allowed that as it would have meant two of the most senior positions going to the Lib Dems.
--- old post above --- --- new post below ---

While Shadow Transport Secretary Maria Eagle pointed to FirstGroup's decision to end its contract for the Great Western line three years early. One of her criticisms was the so-called 'gaming' of the system by operators, without being penalised.

As has already been mentioned numerous times, the franchise is not being ended early - First Group were offered a franchise extension and rejected it.

 

[Ivo]

Shadow Transport Secretary Maria Eagle pointed to FirstGroup's decision to end its contract for the Great Western line three years early. One of her criticisms was the so-called 'gaming' of the system by operators, without being penalised.

http://www.thisisexeter.co.uk/story-17042162-detail/story.html

...and this matters because?

Everyone knows that she does not understand the system she is supposed to be the Opposition representative for. Even the staunchest of Labourites would have to accept that. And it isn't just her "understanding" of this either.

Remember this comment from early last year, in relation to the GWML electrification?

He [Philip Hammond] has broken his manifesto commitment to 'support the electrification of the Great Western line to South Wales.

...in response to electrification being confirmed to Cardiff.

As far as I am concerned, anything she says is almsot certainly misguided (at best). In this instance, First were entirely within their rights to decline the contract extension, as it was written in the contract that either party (First or the DfT) could exercise this option.

Enough anti-Eagle (sorry to Eagle on here ) commentary now; back to the matter at hand. Any new developments at all?

 

[Masboroughlad]

What do people think the short, medium and longer term outcomes FOR THE WEST COAST a) will be and b) should be?

For me a)

- DOR run West Coast
- Ineffective inquiries happen
- We get more of the same but with less adventurous bids

and b)

- DOR or Virgin run West Coast until end of reviews
- Inquiry reviews show that a nationalised railway would be best and cheaper for the country
- We get a real, pro-rail Government in power who invest in and develop 'British Rail' as an asset to the UK and hence, the West Coast

If only......

 

[HH]

The recession has actually seen more local train journeys in a lot of areas as people either give up on their car or get jobs further away from their home.

This is true, but the killer year, 2009, saw a huge drop in demand, which has simply not been recovered. Now, the factors you state have replaced economic growth, so that currently things don't look so bad for trains, but no commuter or long-distance TOC is going to recover from 2009.

While the Labour government may have been able to do more they would have needed to be exceptional to prevent a recession, given numerous countries have gone in to recession including the United States, France, Spain, Italy, Ireland and Greece.

I agree that only exceptionally have countries managed to escape the full effects of the recession. We could have been one of them, if Brown hadn't thought he was a lot cleverer than he actually was, and if he hadn't been seduced by "the city".

--- old post above --- --- new post below ---

What do people think the short, medium and longer term outcomes a) will be and b) should be?

This isn't the right thread for that discussion, which will rapidly head the way of all other "renationalise the railways" threads.

 

[Masboroughlad]

This is true, but the killer year, 2009, saw a huge drop in demand, which has simply not been recovered. Now, the factors you state have replaced economic growth, so that currently things don't look so bad for trains, but no commuter or long-distance TOC is going to recover from 2009.


I agree that only exceptionally have countries managed to escape the full effects of the recession. We could have been one of them, if Brown hadn't thought he was a lot cleverer than he actually was, and if he hadn't been seduced by "the city".

--- old post above --- --- new post below ---

This isn't the right thread for that discussion, which will rapidly head the way of all other "renationalise the railways" threads.

Sorry - I should have made it clearer - it wasn't meant to be that type of argument, I meant the future of West Coast itself. Have amended thread accordingly.