The Department for Transport (DfT) is undertaking an important consultation on amending the Railways (Access, Management and Licensing of Railway Undertakings) Regulations 2016 to implement part of the Market Pillar of the Fourth Railway Package into UK law (Northern Ireland will decide separately as transport law there is devolved).

It is also looking to amend various pieces of EU rail markets legislation to take account of the UK's exit from the EU next year and so it is a material change to a well-thumbed piece of legislation.

Legislative Background

Notwithstanding the body of EU derived liberalisation legislation, the UK, along with Sweden, remains one of the only rail markets in the EU that is fully open to competition. The EU remains of the view that competition in rail markets and a degree of separation is a good thing, and so has been painstakingly negotiating the Fourth Railway Package over the last few years, to continue the drive to open up the mainly vertically-integrated and State-owned rail markets within EU Member States to competition. Much of the Fourth Railway Package is based on the way the UK rail market works (not least because the UK were good at negotiating the text so that it reflected existing UK policy).

Part of the Market Pillar of the Fourth Railway Package is the snappily-titled Directive 2016/2370 amending Directive 2012/34/EU as regards the opening of the market for domestic passenger transport services by rail and the governance of the railway infrastructure, which was passed in December 2016 and must be implemented into UK law by 25 December 2018. Directive 2016/2370 amended a previous 2012 Directive. That previous Directive had been enacted into UK law by the Railways (Access, Management and Licensing of Railway Undertakings) Regulations 2016, which had revoked and re-enacted the Railways Infrastructure (Access and Management) Regulations 2005 and the Railway (Licensing of Railway Undertakings) Regulations 2005. Unusually, the UK did not adopt the normal "copy out" approach (using the text of the Directive where possible) when drafting the 2016 Regulations. These now need amending to take account of the 2016 Directive, and the DfT is proposing to adapt the wording of the 2016 Regulations rather than redraft them from scratch – so again, not using the "copy out" approach – because, they explain, the rail industry is now very familiar with the wording in the 2016 Regulations and changing it would create unnecessary burdens.

Implementing the Directive

The Directive's main aims are to extend open access rights into domestic passenger services and protect the independence and impartiality of infrastructure managers. The consultation divides the Directive's provisions into seven themes. Themes 1 to 5 are the mandatory provisions that the UK must enact; themes 6 and 7 are optional. The DfT believes that the UK already carries out the mandatory provisions, so putting them into UK law will have little practical impact but will save the UK from EU infraction proceedings. The DfT also proposes to introduce the optional provisions in theme 6, but not those in theme 7.

The themes are:

Theme 1: new independence and impartiality requirements for infrastructure managers

The UK's existing legislation already reflects this. There are extra requirements for infrastructure managers within vertically integrated undertakings. None of the UK infrastructure managers, which include Network Rail, TfL, HS1, Crossrail and Heathrow Airports Ltd, are vertically integrated, so the new requirements do not affect them.

Theme 2: financial transparency

UK policy is already aligned with these requirements. Again there are additional safeguards for vertically integrated undertakings, but these will not affect UK infrastructure managers, as they are not vertically integrated.

Theme 3: co-ordination and co-operation

This requires that processes are put in place to ensure infrastructure managers and railway undertakings can co-operate on issues such as interoperability and access conditions. Again, the UK already does this so there should be no impact.

Theme 4: additional powers for the ORR

The Directive extends the areas in which applicants can appeal to the ORR, adding traffic management, renewal planning and scheduled or unscheduled maintenance, and compliance with independence, impartiality and financial transparency requirements. The ORR has already said that these extra powers will have little practical impact.

Theme 5: extending the requirements to limit the right of access to railway infrastructure

This extends open access rights to all passenger services (not just international), including high speed, unless the "economic equilibrium" of a franchised operator would be compromised by the proposed service. The new requirements are slightly different to the existing UK regime in two ways:

  • The UK already has open access operators who have to pass a "not primarily abstractive" test before they can operate. The new "economic equilibrium" test will be set out in an EU Implementing Regulation but we do not know what it will be (the DfT are assuming it will be similar to the existing test for international services).
  • Where the ORR decide that the economic equilibrium of a franchised service will be compromised, they will have to suggest possible changes to the open access service to allow it to run. At the moment, if a proposed open access service does not pass the not primarily abstractive test, the ORR can simply reject it. Now it will have to agree changes with the open access operator.

Theme 6: optional and deregulatory exemptions

The UK is minded to take up the option to exclude the following from the new independence, impartiality, financial transparency and outsourcing requirements:

  • local and regional standalone networks for passenger services;
  • networks intended for the operation of urban or suburban passenger services;
  • regional networks used for regional freight services;
  • privately owned infrastructure that exists only for use by the infrastructure owner for its own freight operations;
  • local low traffic lines not exceeding 100km that are used for freight by a single freight operator, that are not managed by an infrastructure manager and where the essential functions in relation to the line is carried out by a body not controlled by a railway undertaking. This exemption can be applied equally to lines for local passenger services;
  • regional low traffic networks managed by an entity other than the main infrastructure manager and used for the operation of regional passenger services provided by a single railway undertaking other than the incumbent railway undertaking of the Member State. This exemption can be applied equally to regional lines used for freight services.

The DfT are interested to know, as part of the consultation, which stakeholders would be likely to take advantage of these exemptions.

Theme 7: optional requirement to operate common information and through ticketing schemes

The UK has the option to introduce common information and integrated ticketing schemes. The Directive does not specify what a common scheme might look like, but it does allow the Commission to make legislative proposals should a Member State introduce common schemes. There is therefore a risk that the EU's proposals might not fit with what the UK wants to see in such a scheme, so the DfT are minded not to implement this requirement.

Existing franchisees already have to take part, as a requirement of the franchise agreement, in a common information and ticketing scheme in the UK, but the consultation is asking if this goes far enough, or whether the UK should implement theme 7.

Legislating for Brexit

Interestingly, part 2 of the consultation briefly sets out how the DfT is planning to amend domestic and EU rail legislation so that it continues to apply after the UK leaves the EU. The assumption is that the EU Withdrawal Bill will enact all existing EU legislation directly into UK law, but it will then need amending to remove references to "EU Member State" and "EU Commission" and replace references to EU legislation with the equivalent UK legislation. Unsurprisingly, the DfT is asking for help in identifying all the references that will need changing.

The amendments will be made by way of three Statutory Instruments (SI)s:

  • An SI to amend EU Regulation 1370/2007 (the regulation governing how franchises are awarded)
  • An SI to amend the Railways (Access, Management and Licensing of Railway Undertakings) Regulations 2016 (as will be amended following this consultation), and all the directly applicable EU Implementing Regulations and Decisions made under the Directives (2012/34/EU and 2270/2016) that the 2016 Regulations implement – the consultation lists these in a table
  • An SI to amend the Railway (Licensing of Railway Undertakings) Regulations 2005 to ensure that those parts that relate to operator licensing work effectively after the UK leaves the EU.

Comment

It is encouraging to see that the Government is planning to continue implementing the Fourth Railway Package into UK law. This sends a clear signal that the UK is committed to reciprocal market access for rail although query how it sits with any wider government policy on vertical integration should that develop further. This is welcome clarity on the DfT's approach to Brexit from a rail perspective.

Although the changes to the 2016 Regulations to implement the 2016 Directive are minor and mostly have minimal impact, they do represent an opportunity for UK operators to benefit from the further opening of the EU rail market as the other EU member states begin to transpose the Directive into national law.

We will have to see what the new open access test looks like, but it is unlikely to be more stringent than the current "not primarily abstractive" test and should be similar to the current test for international services.