The Department for Transport is getting rid of an incentive scheme that allows non-publicly owned rail companies to make additional profits
According to the Financial Times, this will involve scrapping the ‘revenue outturn mechanism’ that was introduced into national rail contracts (NRCs) by the former Tory government less than a year ago.
These contracts were intended to encourage UK rail operators to grow revenue take and passenger numbers.
There is little data regarding the success of the revenue outturn mechanism.
FirstGroup PLC (LSE:FGP), which as a listed entity is one of the few rail operators with available financial data, said in its latest earnings statement: “During FY 2024 the DfT introduced some revenue upside potential for operators, with a Revenue Outturn Mechanism (ROM) within the quantitative variable fee metrics.
“The ROM represents an incremental fee opportunity for the group if we are able to grow the revenues of the NRC contracts within certain thresholds.
The insignificant upside potential suggested by FirstGroup was echoed in the DfT’s statement published in the FT: “This mechanism wasn’t having the desired effect, and is no longer relevant given the major reforms we are making to the system.
“Going forward we will look to grow revenue in a way that delivers better value for taxpayers’ money.”
Existing rail contracts are being phased out under the government’s plans to renationalise the rail network after 30 years of privatisation.
The public register of rail contracts cites 10 private rail operators, including East Anglia Railway, South Western Railway, West Midlands Railway and Chiltern Railway.
Four prior franchisees have already been brought back under public ownership: London North Eastern Railway, Northern Railway, South Eastern Railway and TransPennine Railway.