Caledonian MacTrain – The nationalisation of ScotRail

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Michael Matheson MSP, Cabinet Secretary for Transport, Infrastructure and Connectivity announced on 17 March 2021 that, from March 2022, ScotRail services will be operated by an arms-length company owned by Scottish Ministers.  This company will provide ScotRail services under “operator of last resort” powers. 

Railways in Scotland

The current privatised railway system operates under the provisions of the Railways Act 1993, as amended. The vast majority of passenger rail services in Great Britain are provided by Train Operating Companies (TOCs) that have been awarded a ‘franchise’ to provide passenger rail services on specific routes.

While the Scotland Act 1998 defines the provision of rail services as a reserved matter, the Scottish Government is responsible for the letting and management of Scottish passenger rail franchises – currently ScotRail and Caledonian Sleeper.

It is worth noting that Network Rail, which owns the majority of rail infrastructure in England, Scotland and Wales, is already in public ownership, being an arms-length body of the UK Department for Transport.  Scottish Ministers are responsible for setting the high-level strategy and providing funding for the maintenance and enhancement of Network Rail infrastructure in Scotland. 

The ScotRail franchise

The ScotRail franchise was the last of British Rail’s passenger TOCs to be privatised, on 1 April 1997.  ScotRail is currently the largest franchise in terms of route-kilometres, number of services and stations operated.  The franchise has been held by three private sector operators:

  • National Express: April 1997 to October 2004
  • First Group: October 2004 to April 2015
  • Abellio: April 2015 and due to end March 2022.

The ScotRail franchise is the largest commercial contract let by Scottish Ministers, with an estimated value of £7 billion over the ten years from April 2015.

Abellio ScotRail

Abellio ScotRail, a subsidiary of Dutch national rail operator Nederlandse Spoorwegen, was awarded the ScotRail franchise in October 2014.  The franchise commenced on 1 April 2015 and was due to run until 31 March 2022, with the option of an extension until 31 March 2025.  Scottish Ministers announced on 18 December 2019 that the franchise would end on the first expiry date as:

…the significant increase in Government subsidy proposed would not secure delivery of commensurate benefits to passengers, communities and the economy.

The Williams Review

In September 2018, the UK Government appointed Keith Williams, former chief executive of British Airways, to lead an independent review of the passenger rail industry with the aim “…to recommend the most appropriate organisational and commercial frameworks to deliver the government’s vision.”  The review was required to support the delivery of:

  • commercial models for the provision of rail services that prioritise the interests of passengers and taxpayers
  • rail industry structures that promote clear accountability and effective joint-working for both passengers and the freight sector
  • a system that is financially sustainable and able to address long-term cost pressures
  • a railway that is able to offer good value fares for passengers, while keeping costs down for taxpayers
  • improved industrial relations, to reduce disruption and improve reliability for passengers
  • a rail sector with the agility to respond to future challenges and opportunities.

The UK Government has announced the end of the franchising system and intends to publish a White Paper, based on the findings of the Williams Review, “when the course of the pandemic becomes clearer”.

Researchers at the House of Commons Library report that:

Throughout 2019 Keith Williams spoke publicly about his emerging findings and the options the Review was considering. These included: the creation of a new National Rail Body or ‘guiding mind’ with overall responsibility and accountability for track and train; removing the Department for Transport from the day-to-day running of the railway; ending franchising in its current form; more devolution; and greater standardisation across the industry.

ScotRail refranchising

Awarding a new rail franchise is a complex process and can take up to two years to complete.  With this timescale in mind, Transport Scotland published a draft Franchising Statement in December 2020.  This effectively started the refranchising process. A potential new franchise would provide a contingency should the replacement for the franchising system not be in place before the end of the current ScotRail franchise in March 2022.  The final Franchising Policy Statement was published on 4 March 2021.  This made it clear that:

…it is likely that the Scottish Ministers will not issue an invitation to tender (and will make a direct award) where, in their reasonable opinion, disruption to rail passenger services or the immediate risk of such disruption means that it would not be practicable to issue an invitation to tender.

Scottish Ministers’ thinking on this issue had moved on by 17 March 2021, when Michael Matheson MSP stated:

Following a detailed assessment process and given the uncertainty caused by Covid 19, alongside the continuing delays to the UK Government White Paper on rail reform, I have decided that it would not be appropriate to award a franchise agreement to any party at this time, either through a competition or a direct award.

That is why I have confirmed that, from the expiry of the current franchise, ScotRail services will be provided in public hands through a company wholly owned and controlled by the Scottish Government.  This is in line with our Operator of Last Resort duty.

Operator of last resort

Many Scottish rail passengers are already familiar with services provided under the operator of last resort powers.  LNER, which has provided Anglo-Scottish services on the East Coast Mainline since June 2018, is an operator of last resort – owned by the UK Department for Transport.

Section 25 of the Railways Act 1993 requires Scottish Ministers to hold an open competition “from time to time” for the award of a franchise to provide designated Scottish passenger rail services. Section 30 makes provision for Scottish Ministers to provide (or secure the provision of) such services when:

a franchise agreement in respect of the services is terminated or otherwise comes to an end but no further franchise agreement has been entered into in respect of the services.

This is the operator of last resort power.  This is not to be confused with the ability of a public sector operator to bid for a Scottish passenger rail franchise.  This was prohibited by the Railways Act 1993, until it was amended by the Scotland Act 2016 to permit such bids.   

The future

As outlined above, the replacement for the franchising system will be set out in a UK Government White Paper due to be published when the course of the pandemic becomes clearer.  It is likely that the provision of ScotRail services by a public sector organisation, operating under operator of last resort powers, will be a relatively short-term stop gap measure.  What that will be replaced with, and the role of the public sector in future rail service provision, will only become clear once the White Paper is published.

Alan Rehfisch, Senior Researcher (Transport and Planning), SPICe

Blog image: “43148 43033 ScotRail Edinburgh Haymarket 15.04.18” by Paul David Smith – Epping is licensed under CC BY-NC-SA 2.0