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Insight

Impact of a "no deal" Brexit on the UK rail industry

12/11/2018
The Government's guidance on "Rail transport if there's no Brexit deal" was published on 12 October 2018.

The Government's guidance on "Rail transport if there's no Brexit deal" was published on 12 October 2018.

Because most of the rail services operating in the UK are entirely domestic, the impact of a "no-deal" Brexit will be less significant than that on other industry sectors.  However, certain issues still need to be addressed, with cross-border operators needing to take some action to continue operating in the EU. Passengers and freight customers also need to be aware of potential disruption.

Licensing and safety

To operate both domestic and cross-border rail services, an operator must obtain relevant licences, certificates and authorisations from an EU regulator – in the UK the regulator is the Office for Road and Rail (ORR), the Department for Infrastructure in Northern Ireland or the Intergovernmental Commission for the Channel Tunnel. Most domestic UK operators (passenger and freight) have a licence and other documentation issued by the ORR. However, currently, rail operators can use documentation issued by an EU regulator in one country to operate services in another.

The Commission has indicated that post-Brexit, in a no-deal scenario, licences issued by the ORR will not be valid in other EU countries. Cross-border operators, and UK entities that run rail services in the EU relying on ORR-issued documentation, would need to reapply for licences and other relevant documentation through an EU regulator. This would result in operators who run cross-border services and/or operate in both the UK and one or more EU countries being required to have relevant documentation issued by both the ORR and an EU licensing authority.

In the event of a no-deal Brexit, the Government has proposed a flexible business continuity solution that would allow licences and safety certificates issued by an EU country to be valid in the UK for a period of 2 years after the exit date. This is a pragmatic solution to bridging the gap. Given the alignment between current EU and UK licensing requirements, no detrimental impact is envisaged, for example, in relation to safety or passenger rights.

There is also currently alignment between the EU and the UK in relation to technical specifications for interoperability (TSIs) and safety requirements, and the legislative changes referred to in the following section will ensure these continue to apply in the UK (unless decided otherwise in relation to specific elements). As regards new TSIs and changes to the safety regime that are developed by the EU Agency for Railways (EUAR) after the exit date, the UK may opt to align with new requirements – but it will not be obliged to do so. Divergence would be by exception, and following full consultation with the industry including in relation to cost, commercial and operational impacts. In the medium-term, therefore, there may be opportunities to inform and shape a bespoke UK regime that is more agile and responds to the needs of UK industry.

If there is no deal, no formal participation in the EUAR (as a "third country") is anticipated. The Government is however encouraging the rail industry to continue to participate with the EUAR at a technical and working level.

Legislation

Post-Brexit, the Government will have the flexibility to shape UK legislation to best meet the needs of all rail stakeholders, without being bound by the constraints of EU legislation. That said, it is likely to retain much of the current legislation, particularly in relation to safety, which will remain of paramount importance and will not be adversely affected by Brexit (whether there is a deal or no deal).

In common with other legislation, the European Union Withdrawal Act 2018 will ensure that relevant EU law is brought onto the UK statue book on exit day. Minor amendments will also be made to UK legislation to ensure it can continue to operate seamlessly.

In terms of rail franchising, the UK led the way in shaping the European competitive tendering process, so it is unlikely that Brexit (whether there is a deal or no deal) would have a material impact. However, the UK could choose to relax or cherry pick procurement rules, to allow it to retain elements that support value for money bids – such as transparency and equality – whilst phasing out more restrictive requirements that could limit the market interest. It could also choose to structure procurement processes to favour UK bidders.

Cross-border services

The principal operational considerations for the rail industry of a "no-deal" Brexit scenario relate to the cross-border passenger services and freight movements between the UK and France, Belgium, the Netherlands and Ireland. The Government is working with those countries to ensure cross-border rail services can continue to operate smoothly post-Brexit. This will involve putting in place bilateral agreements with those countries, including the mutual recognition of all relevant documentation.

In theory, it is possible that UK trains could be turned back at the French border. However, it is in both sides' interests to ensure such agreements are in place, given the significant amount of cross-border passenger and freight trade.

Entities relying on cross-border freight movement should be checking their contractual position as regards potential delays to the movement of goods and putting in place contingency arrangements to address potential disruption.

To the extent bilateral agreements are put in place before the exit date, the requirement for dual licensing referred to above may fall away. However, operators running services in the EU should also be thinking about contingency plans, and should be considering applying for parallel EU licensing authorisation. As with all things related to a no-deal Brexit, the time is getting very tight.

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