British rail reorganization plans moving forward

Despite a few public setbacks, including the short-notice replacement of the previous Transport Secretary, the British government’s plans to restructure the passenger rail industry are moving ahead. Plans are to create a new national rail holding company, bringing together the railway network infrastructure and the operation of most passenger trains for the first time since rail privatization in the late 1990s.

The plans to create the new Great British Railways holding company, including current rail infrastructure management company Network Rail, were originally proposed by the previous administration. It was replaced following Britain’s 2024 election. The new government is continuing with the overall plan, although important differences are emerging. New Transport Secretary Heidi Alexander has potentially useful previous experience as London’s deputy mayor responsible for transportation. Her predecessor, Louise Haigh, left the role in November 2024 following publicity over a minor criminal offense about a decade earlier.

As reported previously, the new government has legislated to remove the need for private operation of passenger rail services it contracts [see “Changes ahead for Britain’s railways …,” Trains News Wire, July 9, 2024]. This became law in late 2024, and over the next three years the remaining privately owned train operator contracting companies will be replaced by government-owned ones as the contracts come up for renewal.

The equipment for the services is largely owned by private leasing companies and this will not change. Nor will maintenance by train manufacturers if this was part of the original purchase.

The key part of the overall restructuring that remains to be done is creation of the new Great British Railways; this will require more legislation and will involve restructuring existing laws relating to rail infrastructure capacity allocation and revenue/funding systems. In the interim, a “shadow” Great British Railways transition organization is in place, created by the previous administration and given more prominence by the new one. The key objective of the transition team is to get the industry “to work together as ‘one railway,’” according to the team’s website.

One of the first major achievements of the Shadow GBR team is production of industry-wide profit and loss estimates — the first since the 1990s when the industry [then effectively one company called British Rail] was split between an independent infrastructure company and multiple operating companies. The financial systems and government policy for the future will be key to the success of GBR. Currently, all revenue from government-contracted passenger train operators goes directly to the Treasury, while costs for investment, subsidies, and anything else comes from the Transport Department budgets. There are probably no managers in the rail industry who think this is a sensible approach, and some have gone on record pointing out the negative impact this has on a daily basis.

Overall, passenger numbers on Britain’s railways are back to the numbers before the COVID pandemic. On some routes they are at record levels — although the overall totals include around 20 million mostly short-distance journeys on the new Elizabeth Line across London that opened in 2022. However, the ridership numbers mask the fact that on average, passengers are paying lower fares. The number of people buying season tickets for weekly or monthly commuter journeys has fallen by about two-thirds compared to 2019, and the number of business journeys — often previously at full fare — has fallen thanks to a mixture of telework for meetings, and businesses becoming smarter at buying cheaper advanced-purchase tickets.

Open access – bright future or destined for decline?

There are several “open-access” private competitors to the future government-owned Great British Railways. These companies typically offer services on specific routes, often where direct trains to London are no longer offered by the main train operators. They have historically benefited from lower costs for using the rail network, on the basis they are only adding marginal additional cost, and use similar equipment to the main operators, either bought new or leased secondhand.

Two major transport groups are behind all the active open-access companies. All are on the East Coast Main Line route between London’s Kings Cross station and northern England/Scotland, apart from the niche Heathrow Express service linking Heathrow Airport with London Paddington.

German state railway Deutsche Bahn was the backer for Grand Union Trains via its Arriva subsidiary, but it sold Arriva in mid-2024 to Miami-based investment I Squared Capital. Scottish-based transport firm First Group has emerged as the biggest open-access operator, with Hull Trains, which has been in business for 25 years, and newer start-up Lumo.

Lumo operates new Hitachi-built, 125-mph trains on express schedules between London and Edinburgh, competing with short-haul flights. It claims it has grown rail’s share of the rail and air market on that route from 35% to 50%. The operator offers relatively fast but no-frills service, and fares that compete both with low-cost airlines and government-run train operator LNER.

First Group has announced plans to expand its open-access business to new routes, and in 2024 bought a startup open-access company that had acquired the all-important, long-term train path contracts for new services between London Paddington and western Wales. First Group has since announced it will operate these services from 2027 under the Lumo brand, using a new train fleet it has ordered from Hitachi.

While these plans are covered by existing contracts to use the national network, a debate is underway around how open access fits into a largely state-owned and controlled railway.

From the point of view of the open-access operators and many passengers, they are offering services the main operators chose not to; in some cases, they are now seen as a key part of the regional economy in cities they serve. First Group is also an operator for several government-contracted operations, but this will end within the next three years as these contracts are taken over by government-owned companies.

Other potential new entrants include the Virgin Group  — from 1997 to 2019, one of the largest contracted franchise train operators — and rolling stock manufacturer Alstom, which is planning a service between London and Wrexham in Wales.

In the view of some policymakers, the open-access companies are getting a significant discount on operating costs, as most of them pay less to use the network than the government operated/contracted trains. At the same time, when passengers choose the private operator, they potentially remove revenue from the government trains. Similar arguments have been made in other European countries where open-access private operators compete with those owned by the government. In Italy, Spain, and the Czech Republic, where this approach now represents a significant share of overall passenger journeys, the evidence suggests open-access operators grow the overall market for travel and rails’ share of it.

Plans for many of the new open-access services appear to be in doubt in early February, as advice from the Transport ministry to the UK’s railway regulator — which actually grants the contracts for train paths — suggested that most proposed services should not be supported because they would take away revenue from trains being operated under contract to the government. The major exception was the Alstom-led plan for Wrexham-London services, which was not singled out for criticism.

The final decision rests with the regulator, and the impact of the planned services – especially where they add to overall passenger rail service — will be a factor, along with the impact on revenues for other operators.

GBR problems for freight?

In December 2023, the previous administration announced a long-term rail freight growth target of at least 75% by 2050. The industry, which has multiple, mostly private operators, welcomed the target. But it also raised concerns with both the previous and current governments about the new GBR structure and what it means for their established business. Of particular concern is access to train paths on lines where passenger services massively outnumber freight

The fact that no government — of either of the two main British political parties — has increased the diesel fuel tax paid by road transport operators in the last 15 years, while the rail freight companies’ cost of using the rail network has increased, does not currently encourage freight to switch from rail to road.