Question to the Department for Transport:

To ask the Secretary of State for Transport, what specific provisions within the Forecast Revenue Mechanism which his Department introduced into rail franchises are planned to protect those franchises from future risk and balance the appropriate level between risk and reward.

The Forecast Revenue Mechanism (FRM) provides a risk sharing mechanism by which the risk of actual revenue diverging significantly from the original franchise bid forecast is shared between the Department and the Train Operating Company (TOC). It is designed to respond to the difficulty of accurately forecasting revenue over the long term. It ensures that the TOC shares revenue with the Department when actual revenue outperforms this bid forecast, outside of a specified range and protects the TOC when revenue falls below the specified range. FRM is designed to provide protection against passenger-related revenue risk. The TOC remains on risk for other revenue streams. There are also requirements to align the TOC’s incentives with those of taxpayers and passengers and to protect the quality of passenger services.