David and Keir offer a detailed discussion of the influence of European law in the UK. This continues post-referendum, with the introduction of the Railways (Access, Management and Licensing of Railway Undertakings) Regulations 2016 at the end of July this year, and the forthcoming Fourth Railway Package of legislation (assuming the UK does not leave the EU before the required implementation date).
The future very much depends on where the UK stands in a post-Brexit world. To what extent will the UK be required to implement European requirements as a condition of access to markets? Will Scotland remain part of the “united” Kingdom? To what extent will incentives be introduced to encourage investment? A lot depends upon the strategy for withdrawal from the EU, which (at the time of writing) continues to be the subject of considerable debate.
EU legislation
In addition to considering European law in detail, it is worth taking a step back and remembering a little history. The purpose of the majority of European railway legislation has been to liberalise European rail markets and open them to competition. The UK has long been a pioneer in railway liberalisation - the Railways Act 1993 introduced the concept of separation between infrastructure management and train operations, and pre-dates most EU rail legislation. Indeed, the UK’s influence in Europe has meant that much of what the EU has implemented has a distinct UK flavour.
Over time, EU requirements have developed, and in many cases have become more detailed - largely with a view to ensuring full separation and a level playing field for competition. In many cases, this is in response to reluctance from other EU Member States to comply with both the letter and spirit of existing legislation. While it is probably not possible simply to repeal all EU railways legislation applicable in the UK as soon as Brexit occurs, if the UK Government was to do so, the industry would not be considerably different from how it looks today.
Change in law and recession
There are more practical issues that will be of immediate concern to the industry, some of which are highlighted in the article. The risks associated with the law changing will be key - in particular, how these are allocated in contracts such as franchise agreements and rolling stock contracts.
From a broader perspective, however, what if Brexit leads (as widely predicted) to a recession, fewer jobs, lower passenger numbers and less revenue for operators? It is these sorts of practical issues that will be of immediate concern. Are there any protections available to mitigate the impact of any drop in revenue (for example, revenue share/support or GDP reset mechanisms)? Will ‘quality’ remain a key part of franchise bid assessment with the purse strings tightening? Will European rail operators want to continue to bid for UK-based franchises (and vice versa)?
Rail industry suppliers
Suppliers to the industry should not be forgotten. With the decline in the value of sterling following the referendum, suppliers operating in euros may become more expensive relative to their British competitors. There is also the possibility of tariffs or quotas between the UK and the EU in future, which could make suppliers less competitive still.
On the flip side, the Government has recently announced an upturn in manufacturing in the UK, as UK products become more competitive on the continent. Many UK-based suppliers to the EU rail industry may therefore see the weaker sterling as a benefit. Likewise, the UK has been selling its railways expertise and services overseas into areas such as the Middle East, Far East, America and Africa. A weaker sterling may make this more attractive.
Infrastructure
There may also be concern about whether infrastructure projects will go ahead or be slowed down, particularly if being publicly financed (although an efficient transport network will be required regardless of the UK’s role within the EU). This will have an impact not only on Network Rail (which is already subject to spending being moved into the next Control Period), but also on other infrastructure managers such as Transport for London. There must also be a question mark around ambitious plans for an integrated Wales and Borders franchise.
On the other hand, the Government may well take the opportunity to promote infrastructure spending to boost the economy - and in that case, the railway industry needs to be at the front of the queue setting out why such funds should be directed to it. Integrated concessions of passenger operations and infrastructure have always been possible under EU legislation, but perhaps may become easier if new EU legislation is not adopted (for example, the Fourth Railway Package).
Passenger rights
In relation to passenger rights, the Government has very recently decided to bring all railway operators into the ambit of the Consumer Rights Act 2015, from October 1 2016. Broadly, this means that services have to be provided on time, at a reasonable price and in accordance with anything that is represented in relation to those services – allowing passengers a breach of contract claim if this is not provided. The application of this Act to railways was contested, with DfT initially saying that it would not apply to railway services. Although the Act partially reflects directives in this area, we agree with Dentons that there is unlikely to be any weakening of passenger rights as a result of Brexit.
There are plenty of possibilities highlighted in the article. Ultimately, much remains to be determined about the UK’s relationship with the EU – and it is difficult to speculate at this stage what the implications might be for rail. What the rail industry (and the country) now needs is a period of certainty and stability where the macro issues can be resolved before any detailed arrangements are finalised.
