Prescott urged to tear up rail map

News Analysis: A crisis summit may offer new passenger franchises as part of the Government's bid to get better value for taxpayers

THERE IS a joke doing the rounds of the railway industry. Why is John Prescott holding a railway summit? Answer: because he wants summat' for nothing. It's not that funny, and the listed companies that now make up the industry probably aren't laughing.

The summit on 25 February will be a crucial step in the Deputy Prime Minister's bid to get a grip on an industry that is failing the travelling public and the taxpayer.

The new railway bosses - Railtrack, National Express, Stagecoach, FirstGroup, Go-Ahead, Connex, Prism and Virgin - will be hanging on Mr Prescott's every word for clues on how to proceed.

He has given some signposts. The Conservative ideology of best value for money will be replaced with a new formula that includes passenger benefits. The regulators will be replaced by a Strategic Rail Authority (SRA). Its chairman and chief executive - the new Fat Controllers, if you like - will be announced soon. Ministers will then outline how the complex system of passenger rail franchises - some up for renewal in 2003 - will be reformed.

Mr Prescott has a strong political imperative - official figures show a marked slump in punctuality and reliability and the latest figures, published next week, are likely to show performance has not improved.

The industry faces a test as subsidy is set to fall from pounds 1.79bn in the first full year of privatisation to pounds 655m in 2003/04.

Stephen Joseph of Transport 2000, the environmental pressure group, says one of the greatest concerns is the state of rural railways. There have been rumours about the financial state of franchises such as Wales & West, North West Trains and Northern Spirit.

Mr Joseph said there was a growing realisation these franchises had not be given enough subsidy to run rural networks with less growth potential than commuter operations. NWT's subsidy falls from pounds 100.4m in 1997/98 to pounds 69m in 2003/04, Wales & West from pounds 73.5m to pounds 40.5m and Northern Spirit from pounds 141.7m to pounds 93.7m.

Other franchises still receiving public money have managed to achieve substantial growth in passenger numbers. LTS Rail carries 11.3 per cent more than a year ago and received pounds 27.7m in subsidy. Chiltern Railways grew by 8.7 per cent with a pounds 14.4m subsidy and GNER, which received pounds 55.1m, has grown 18 per cent since privatisation.

Mr Joseph said options include:

t Reletting some franchises with less subsidy from, or greater payments to, the Treasury in exchange for a redistribution to weaker networks;

t As above, but the benefits boosted by creating super-franchises that would provide massive cost-cutting opportunities and therefore greater profit;

t Amalgamating overlapping commercial and social rail franchises.

Mr Joseph said: "It will vary from area to area. Wales & West could be amalgamated with Great Western, because it already acts as a feeder, but I don't think Virgin would want to take North West Trains into the West Coast main line."

The Government is ready to think the unthinkable. In a remarkably honest statement in December but reported by Rail magazine last month, Glenda Jackson, the junior transport minister, said she could not rule out replacing trains with an "infinitely better, faster, more modern, more accessible coach service".

So far only one rail group, Prism, has taken the bait. It runs two franchises that have surpassed expectations, LTS and WAGN, and two rural networks, Wales & West and Cardiff Valleys, which must cope with declining subsidies.

Chief executive Giles Fearnley said: "The SRA has some big issues to address in terms of how it wants to achieve value for money for the taxpayer. When it comes to franchise renewal in five or six years' time, all the subsidy will go to six rural businesses.

"It is a fact that the subsidy for a passenger on some rural branch lines is very significant indeed for what is, in effect, a service that could be provided with a more frequent and reliable bus service at a fraction of the cost."

He said the SRA needed to decide whether it was sensible to have two franchises operating on the same territory, as Great Western and Wales & West do. "When the rail franchises were set up it was drawn in 25 bits. Are these the right 25 or could they be drawn in a more effective way?"

Another senior industry figure agreed, saying Wales & West - minus its north-west routes - could be merged with Great Western and Cardiff Valleys. The same exercise could be done with Great Eastern, West Anglia, Great Northern and Anglian. A merger of South West Trains, SouthCentral and SouthEastern would create a powerhouse of a railway.

Further north things are less clear. The sprawling empires of Central Trains, North Western Trains, Scotrail and Northern Spirit could be broken up to create commuter hubs around Birmingham, Manchester, Glasgow/Edinburgh and Leeds/ Bradford. The longer services could be handed to other franchises or set up as heavily subsidised public service railways.

A spokeswoman for National Express, which runs Scotrail, Central, Midland Mainline, Silverlink and Gatwick Express, said there were dangers in recreating the old BR regional structure. "Making franchises work has to be the remit now. It's all about performance, performance, performance."

First Group said the industry was keeping an open mind. "I think John Prescott is looking for ideas as to how franchises could be restructured."

For successful franchises the question is how to resolve under-investment. Both GNER, which runs the East Coast main line between London and Edinburgh, and Thameslink from Bedford to Brighton, have increased passengers. But both are restricted by a lack of train paths and rolling stock shortage.

GNER wants to convert its seven-year contract to a 15-year franchise in exchange for buying up to 10 new tilting trains and building three new stations. Go-Ahead, owner of Thameslink, wants a new deal to take account of the work to create the expanded Thameslink 2000 network by2006.

Commercial director Chris Moyes said: "We hope the Government will recognise there's a hell of a lot of work being done that would result in a much better railway. But Rome was not built in a day."