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Consultation on the passenger rail public service obligation levy

  • United Kingdom
  • Transport - Rail

04-05-2018

Background

Following the recommendations of the Competition and Markets Authority (“CMA”), the Department for Transport (“DfT”) ran a consultation seeking views on the introduction of a “public service obligation levy” for “open access” non franchised passenger rail passenger which would be a means by which they would contribute towards the provision of public service obligations.

The consultation sought views on 3 points:

- the principle of the levy;

- the proposed scope and design of the levy; and

- high level options for its implementation.

The levy is intended to allow open access operators to contribute where they are able to, towards the provision of socially and economically important, but ultimately unprofitable, public service obligation services.

This consultation followed the recommendations of the CMA, that such a levy, coupled with reforms to track access charges, could facilitate the increased provision of open access passenger services providing potential benefits to passengers. It could also ensure that competition between open access and franchise operators would take place on a more level playing field.

This outcome of the consultation was published in April 2018.

What were the responses to the consultation?

Five questions were posed in the consultation document, below is a brief summary of the response of the majority of consultees.

1. Do you agree with the objective for introducing a levy and the underlying principle?

The majority of respondents gave their support, in principle, to the introduction of a public service obligation levy.

2. Do you agree that only services where tickets are available between stations in Great Britain should be in the scope of the levy?

The vast majority of responses agreed that any levy should only apply to services where tickets are available between two stations in Great Britain.

3. Do you agree that the Office of Rail and Road (“ORR”) should play a role in administering the setting of the levy?

There was near unanimous support among consultees for the view that the ORR should play some role in administering and setting a levy.

4. Do you consider that any of the proposed options for charging the levy are not suitable? Do you favour any option?

Responses to this question generally assessed the advantages and disadvantages of each individual option before coming to any final conclusion.

5. Are there other options that we should consider?

The majority of respondents did not offer further options.

What was the outcome?

After taking account of the responses, the DfT has decided that the most appropriate option for the levy is under option 1 of the consultation document. The levy would be based on a metric such as distance or passenger numbers, or a combination of the two. This is because of the significant compatibility with the existing industry and regulatory processes.

The levy will not apply to the current set of international passenger services. This is because passengers cannot purchase tickets on these services to travel between two stations on the Great Britain rail network and therefore these operators do not compete with franchised operators.

Due to the ORR’s role in setting the charging framework for the rail network, the ORR is considered to be best placed to administer the levy, but would not collect the levy as this would be better achieved through existing industry mechanisms. It is intended for this role to form part of the legislation.

Introducing such a levy requires primary legislation, however this is likely to be challenging over the next few years due to limited parliamentary time. Nevertheless, the government is taking action to try and ensure a more level playing field and the government’s policy position is set out in the Secretary of State guidance to the ORR and in the government published document: A strategic vision for rail.

What are the next steps?

The ORR working together with the DfT and the CMA, will take forward detailed design of the levy to fit with their approach to the Periodic Review 2018 process. As legislative time is constrained over the next few years, DfT will consider the ORR’s progress and look for an appropriate parliamentary opportunity to introduce the levy.

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