Labour's public option for railways 'will cost £85m to establish'


Labour’s plans to allow a public sector train operator to challenge rail companies in franchise bids could cost the taxpayer more than £85m to put into effect according to Treasury officials.

The analysis released today from Whitehall does not look at whether a public or private sector train operation will generate a better return to government, but at the costs of putting the policy in place – estimated to be £85.45m.

Potential Labour candidate for the London mayoral election and rail expert, Christian Wolmar, described the figures as 'nonsense' and accused the Conservatives of overstepping the line and wasting public money by asking the Treasury to work on the analysis.

'This is just playing with numbers, the parameters can vary so much it all becomes nonsense. The Conservatives set the questions to Whitehall and are trying to put a precise figure on something that has not happened. This looks like a misuse of public money,' he told Transport Network.

'Also if the public option does win even one contract it will save a lot more than these costs,' Mr Wolmar said. 

The costs of establishing the Labour policy could be off-set by any surplus generated from operating the railway services. The publicly-owned East Coast Main Line operator has returned more than £1bn to the Treasury over the past five years although the franchise will return to private sector hands this March.

The largest initial expense of Labour's policy would be the actual bidding process for rail franchises –the costs of preparing bids for both the pre-qualification and invitation to tender (ITT) stages.

'Based on recent competitions, and the scale of bid costs incurred for the West Coast franchise, the pre-qualification stage is expected to cost £1m per bid and the ITT stage around £10m per bid,’ the analysis states.

This means that if a public body bids for all six franchises let over the next five years and is successful in pre-qualifying for all, the costs would be more than £66m.

Treasury officials suggest the costs of maintaining a public sector holding company to bid for franchises would reach about £2m a year over five years - based on the current annual cost of Directly Operated Railways which is the public holding company for the East Coast franchise and costs around £1m a year.

A body bidding for many different contracts across the full five years could incur additional costs of another £1m a year Treasury officials suggest.

With the Northern and TransPennine Express Franchises due to be awarded over the summer of 2015 these would likely have to be cancelled, meaning the procurements for these franchises would have to begin again to enable a public sector body to bid.

A cost of £8m is assumed for each competition to conduct that procurement development work again.

Around £1.3m is assumed for the extra work needed to ensure a fair and transparent evaluation process under the circumstances and finally £150,000 would be needed in legal and policy resources to make the necessary legislative changes.

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