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VIEWPOINT FEATURE |

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What does Brexit mean? There are risks and opportunities for Britain’s railways and rail users. What was membership of the EU really worth, asks Chris Page

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Passenger demand he 21st century has been a golden period for rail in Britain. Passenger numbers have grown each year, giving governments confidence to invest in rail to enable economic growth – but this virtuous circle is threatened. Global companies have been attracted to invest in Britain as a way into Europe, contributing greatly to UK economic growth. Britain outside the EU is a less attractive investment prospect, so they may plan future expansion in other European countries instead, affecting UK jobs. The drop in house builders’ share prices and closure of property funds reflect a market belief that lower investment and immigration will reduce economic and population growth. If jobs and population do not grow as predicted, then nor will travel demand or passenger revenue, thus reducing the value of franchises. The Greater Anglia franchise announcement has been delayed, not to choose the winner but to renegotiate the value of the franchise, whose services are heavily used by City commuters.

Existing franchises like Northern and TPE, awarded on the basis of a strong growth profile with commitments for new trains, may run into financial difficulty. Greater emphasis on cost reduction would impact customer service. For franchise bids less growth means lower risk appetite, fewer bidders and less investment, hence a lower premium to (or greater subsidy from) the taxpayer. Fares The sterling exchange rate has dropped, so imported goods will cost more. If the UK cannot negotiate equivalent trade deals with the EU and other countries, imports may attract a tariff, further increasing prices. Therefore annual fare increases linked to RPI may rise. The previous chancellor indicated that taxes will have to rise. Unlike many European countries VAT is not charged on fares; could this change? Investment The UK’s downgraded credit rating may make it difficult for it to borrow. Although lower interest rates are expected, a growing deficit and higher inflation would force up interest rates. Higher prices for imported rolling stock or components and higher finance charges would change the cost balance between buying new and refurbishing existing trains, so future franchises may have fewer new train commitments. Higher inflation would also increase Network Rail’s project costs. Higher interest rates and challenging borrowing conditions would make it harder for the government to fund infrastructure projects of all kinds. Reduced passenger demand might encourage the new cabinet to phase or cancel rail projects such as HS2, Crossrail 2, or Northern Powerhouse Rail. The National Audit Office has asked HS2 to delay phase one opening, while the Heathrow/Gatwick runway decision has been postponed.

EU funding EU funding already committed for rail projects will be secure. Similar UK funding is possible, but there may be a gap while a mechanism is defined. The criteria and schemes may be different as the EU has concentrated on social need, e.g. in South Wales, whereas the UK has focused on delivering economic growth. Industry skills The recent rapid increase in rail investment has increased costs, due to the limited pool of rail experience and skills, leading to the rail development programme reset in 2015. Immigration controls might make it harder for NR to address this shortfall by recruiting skilled foreign engineers, delaying new projects. Train operators employ many workers from outside the UK. While they may not be forced to leave, some may choose to, and may be difficult to replace, impacting customer service levels. Passenger Experience The EU has had little direct impact on passenger experience. The EU legislated for people of restricted mobility, but the UK chose the tight 2020 deadline. The December timetable change, harmonised with most EU countries for easier cross-border travel, is one of the few visible changes. The EU introduced Rail Passenger Rights in 2009. These are generally covered by the Railway Conditions of Carriage, which apply to all British operators, but need overhaul to reflect recent consumer legislation. Britain leads Europe with Delay Repay, but the varying terms between operators must be addressed. Scotland might leave the UK to stay within the EU, perhaps ending through fares between most UK and Scottish stations, with border controls affecting cross-border services. Belfast – Dublin services may be similarly affected.

RAIL PROFESSIONAL SEPTEMBER 2016 ISSUE  
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