State may take over failing rail firms

THE GOVERNMENT will today warn rail companies that unless they improve it will strip them of their franchises and hand over their trains to the British Railway Board - effectively renationalising parts of the network.

John Prescott will use a summit meeting with the train companies and Railtrack to hammer home his message that companies continuing to provide an appalling service will have no future in the industry.

But the Deputy Prime Minister will also hold to a promise of extending the franchises for the firms with "constructive" proposals. He is determined to see a tangible improvement in performance after his loss of face this week when the Bill to enact the Strategic Rail Authority (SRA) was not given legislative time in this session. He will instead set up a shadow SRA and produce a draft Bill.

Mr Prescott, who is also Secretary of State for Environment, Transport and the Regions, will warn the 25 train companies that he can use powers to change the Government's guidance to the Office of Passenger Rail Franchising (Opraf). The franchising director has powers to declare operators in breach of their franchise, but until now has preferred to negotiate a package of benefits for passengers.

Mr Prescott will tell operators that he is prepared to use powers under the British Railways Board to run trains. BRB is still in public hands and carries out residual duties, such as running the British Transport Police, but has never had its statutory powers revoked.

A source close to Mr Prescott said: "Opraf has been shown to want to negotiate packages of benefits rather than apply the letter of the law. But forcing the operator to cough up one or two platitudes is sending the wrong message."

South West Trains, North West Trains, Chiltern Railways and LTS Rail have all produced a package of benefits for passengers, such as new investment or refunds to season ticket holders, rather than face fines or tougher penalties.

Mr Prescott will make clear he is prepared to extend franchises for good performers but will not be blackmailed. "It would be very foolish of anybody to hold a gun to Mr Prescott's head because the guy with the biggest gun is John Prescott who can kick people out of the industry," said the source.

GNER has lodged a bid for extending its seven-year franchise in exchange for 12 new tilting trains - even though those are needed to cope with growing demand.

The same message will be given to Railtrack. It will be told that the Government wants more "direct leverage" over the company, which currently receives pounds 1.6bn of taxpayers' money via access charge paid by the train companies. This could involve paying subsidy direct to Railtrack in exchange for specific targets.

Gerald Corbett, Railtrack's chief executive, has warned that its co-operation on schemes such as the Channel tunnel rail link could be jeopardised by any "direct interventionist controls". He has said the company would lose the support of the financial markets and would find it harder to raise the kind of money needed to sort the railways out.

A government source said Railtrack's reputation in the City was based on its good relationship with government, which would be jeopardised if it tried to blackmail ministers.

Mr Prescott called today's meeting last month after official figures showed a marked fall in performance. Railtrack and the train companies have publicly blamed each other although it is understood they have called a truce for the meeting.

The train companies, which will be represented by two executives of each parent company, said they would take a "constructive approach". They believe they have delivered on promises of attracting more passengers, putting on more trains and cutting fares but have failed on performance.

Mr Prescott may also reveal the main planks of the draft Bill to enact the SRA. The advance look at the legislation is likely to come in the form of a consultation paper. A government source dismissed claims that the industry would be shown a draft of the Bill.

Mr Prescott has advertised for a chairman for the SRA, who will also head the BR board; a chief executive, who will run the franchising side; and a new rail regulator.

The travelling public is also likely to be given a greater say in whether trains are performing to standard. The customer satisfaction surveys, which the companies are required to commission twice a year, will be used alongside reliability and punctuality figures to judge whether companies are meeting standards. These are taken from surveys of about 2,500 travellers and include issues such as fares, ease of buying a ticket, cleanliness of trains and personal security.

The Government believes using the satisfaction surveys as part of the tests for whether train companies are performing well will encourage to think about the passengers.

The next step will be a public summit over the future of the railway industry, which is likely to take place in February. A government source said this would take place "in full public glare" on similar lines to the summit over the water industry.