UK rail system has 'serious problems' and needs to be fixed

More rail companies will be allowed to walk away from their obligations and leave taxpayers with the bill for running their unprofitable rail services unless the Government makes radical changes to its "muddled" franchising system, MPs have warned.

In a devastating assessment of Britain's rail network, a report by the Commons transport committee said the second collapse of the East Coast mainline franchise in three years was "indicative of the underlying problems in the current franchising model,"that allowed companies to privatise profits and abandon obligations in hard times.

The Government was forced to take over the running of the East Coast mainline after National Express said it could no longer afford to run it this month. But the MPs warned that other transport projects, such as Crossrail, road upgrades and a new high-speed rail line, could all be at risk if the taxpayer is forced to pick up the bill for the failure of other franchises. The committee has demanded a drastic rethink of the way rail franchises are decided and called on the Transport Secretary, Lord Adonis, to nationalise the East Coast mainline permanently to measure the performance of private franchise holders. They also suggest the Government should rethink its "cap and collar" finance agreements with rail firms, to share the burden of losses.

Louise Ellman, the Labour chairman of the committee, said the current agreements signed with rail firms were "storing up problems for the future" and needed to be reformed. "There is no point involving the private sector if companies can cream off the profits in good times, but leave passengers and tax payers to pick up the bill when hard times hit," she said. "The failure of two major contracts in three years is evidence of serious underlying problems with the current franchising model. We need to get these problems sorted out as a matter of urgency."

Passenger groups are also keen to see a change to the system, which they blame for fuelling major price rises designed to recoup losses. Ticket prices rose well above the rate of inflation in January, despite the recession. "It is difficult to see how the system of awarding franchising based on high bids, high fares, high passenger growth and high premiums paid to Government can continue," said Anthony Smith, chief executive of Passenger Focus.

But rail companies backed the current system, which they said had delivered record levels of punctuality.