Here’s what we know for sure. Southeastern, the train operating company (TOC) owned mostly by the UK’s Go-Ahead Group and partly by the French/Canadian Keolis, has been running routes in south-east London, Kent and Sussex since 2006.
Its passenger satisfaction ratings placed it pretty much in the middle of the pack – not great, not terrible – and there were no signs of imminent financial crisis, so none of the usual reasons that TOCs flunk out applied. As recently as Monday there was no reason to think it was in trouble.
It was in big trouble. On Tuesday morning, the Department for Transport announced that the company had breached its franchise agreement, by hanging on to more than £25m in taxpayer funding it should, by all rights, have paid back. As a result, the operator was to be ejected from the franchise, and management transferred to the operator of last resort – in normal human language, the state – on 17 October. The change should be invisible to passengers, but, not for the first time, the Conservative government has effectively nationalised a train operating company.
By my count, it’s the third. Virgin East Coast gave up the LNER franchise in 2018, citing financial difficulties (in short: not making enough money). Arriva’s Northern followed in January 2020 after years of poor performance, partly the result of government infrastructure investment that had been pledged but never appeared. Outside England, the Labour government in Cardiff did the same with the Welsh network, after operator Keolis Amey struggled with the collapse in passenger numbers brought on by the pandemic. All these were precipitated by big, and visible crises. Southeastern was not.
This is where it gets complicated because as things stand the DfT and the TOC have different versions of events. According to Southeastern, all this has been a misunderstanding. A technical note buried deep in last year’s accounts acknowledged the problem, and warned shareholders that “outflow of resources could be in the region of £8m” – a big underestimate – in such dry language as to suggest management had little idea where they would soon find themselves without a paddle.
The company has since admitted its error, apologised, repaid the money and accepted the resignation of its finance director. “We recognise that mistakes have been made and we sincerely apologise to the DfT,” Go-Ahead’s chairwoman Clare Hollingsworth said, making exemplary use of the passive voice. “We are working constructively with the DfT towards a settlement of this matter.”
The DfT, though, seems not to be buying it. In its statement, it said it considers the underpayment to be “a significant breach of the good faith obligation within the franchise agreement”: you hardly need the Enigma machine to decode that. For good measure, the government said it would consider “further options for enforcement action”, including fines. Whether the government is really as angry as it claims, or whether it’s meant as a warning to others, is not exactly clear.
Something else that’s not clear is which of these two competing versions of events is correct, in large part because the rail franchising system implemented by the Conservative government of the mid-1990s is so horrendously complicated. Contracts formalise the relationship not just between government and operator, but the infrastructure agency Network Rail and often suppliers, too. As a result, they can run to hundreds of pages, and it can cost £10m just to bid. All of this is brilliant if you’re, say, a specialist lawyer or consultant. How the rest of us benefit is rather less clear.
In this specific case, the issue seems to have been the complicated track access fee Southeastern had to pay to run trains on HS1, the line constructed for Eurostar, which doubles as a fast route to eastern Kent. Unusually, that line isn’t managed by Network Rail, but by the private HS1 Ltd, and so required special arrangements in which the government pays the variable access fee up front but expects any unspent money back. It’s the difference between the money the taxpayer provided to fund that access and the money it cost that’s lain unnoticed by the government for seven years. It’s a mark of how complicated the system is that it is even plausible it was genuinely unnoticed by the team at Southeastern, too.
Many problems with current rail contracts will be cleared away with the demise of the franchise system, trailed in the Williams-Shapps plan published last May. In future, rather than all this mucking about with contracts, everything will be run through a new state agency, Great British Railways, which will simply tell operators how many trains to run and pay them a fee for running them. There’ll be no more pretence at transferring financial risk from public to private sectors, as if the government could ever really allow a network to just stop, and rather than sharing in profit or loss operators will simply take a fee to deliver a service.
If that had been the system for the past few years, HS1’s weird relationship to the rest of the network means that the track access payments would still be necessary. The TOC might even have failed to pay money back. But it seems extremely unlikely that, in a simpler system, it would have gone unnoticed for seven years. Simpler rail contracts would have meant less trouble all round.
Jonn Elledge is a former assistant editor of the New Statesman and the author of The Compendium of (Not Quite) Everything: All the Facts You Didn’t Know You Wanted to Know
