Examination of Witnesses (Questions 113
WEDNESDAY 5 JULY 2000
113. Can I apologise to you for keeping you
waiting but I am afraid there were questions that we had to pursue.
Could I ask you to introduce yourselves, please?
(Mr Fearnley) Thank you, Chairman. I am Giles Fearnley,
I am the Chairman of ATOCAssociation of Train Operating
Companies. On my left is Alec McTavish, he is ATOC's Director
of Policy for Regulation. On my right is Chris Green, a Board
Member of ATOC and Chief Executive of Virgin Rail.
114. Thank you very much, Mr Fearnley. Do you
have anything you want to say to us before you begin?
(Mr Fearnley) Thank you very much. Yes, very briefly,
if I may, I would just like to make four points by way of introduction
which relate to the various policy initiatives which are currently
under way affecting the railway industry. Passenger numbers have
grown considerably over the past five years. This is one of the
successes of the new arrangements. The revenue from these additional
passengers has not, however, gone into improving the railway.
Over the past five years every pound of additional passenger revenue
has been passed to the Treasury by train operators in the form
of reduced rail subsidy. The total money into the industry has
moved by less than one per cent in the last four years. We believe
that this must stop. A better balance must be struck between the
interests of public transport users and the interests of the Exchequer.
We look to the ten year review to do this. Secondly, more investment
is clearly required in the rail network. Exactly how much must
be determined bottom up from the plans of the train operating
companies to deliver their commitments to the Franchising Director
and to their customers, but it is likely to be as much as £10
billion over the next five years. ATOC believes that the sources
of funding in addition to Railtrack's, such as Special Purpose
Vehicles, can play a helpful role. We must find ways to encourage
this rather than finding the inevitable difficulties. We will
work, and are working, with the SSRA, Railtrack and the Rail Regulator
to do this. Better contracts between Railtrack and customers must
be found. The existing contracts give too few rights to train
operating companies and too few obligations to Railtrack. We look
to the Rail Regulator to correct this balance as part of his current
review. Finally, appropriate incentives must be designed to ensure
that both train operating companies and Railtrack's interests
are aligned within the broader transport objectives. We acknowledge
that when Railtrack was created it was not sufficiently incentivised
to grow its business and there was a perceived need to strengthen
the incentives on all parties to improve punctuality. However,
in resetting incentives great care must be taken to avoid blunting
the current incentive on TOCs to increase passenger numbers. We
look again to the Rail Regulator and the SSRA to do this.
115. Thank you, Mr Fearnley. We are going to
undoubtedly question you on various aspects of that but you have
repeated again today that the original track access arrangements
gave too few rights for train operators and too few obligations
on Railtrack. What are the consequences of that for investment?
(Mr Fearnley) One of the consequences so far has clearly
been that train operating companies have not been able to require
Railtrack at a local level to deliver what we require from the
networks to deliver our train service. That clearly affects our
ability to serve our passengers and, indeed, therefore to encourage
more passengers to travel and to bring much needed money into
the industry for investment. If I may I will ask Mr McTavish to
elaborate a little bit more.
(Mr McTavish) I think that we can perhaps use an example
that arose earlier in discussions on station leases simply to
illustrate the point of obligations and rights before moving on
to the effects on investment. The fact of the matter is that we
have no right to station leases. At the expiry of the current
leases there is no obligation on Railtrack to renew them. In terms
of our contractual rights and obligations we have, we believe,
too few. Therefore, we rely on Railtrack, not through contractual
measures but their goodwill in a sense, to take things forward.
We believe that we should have more contractual rights and that
Railtrack should have more obligations in this area. The same
applies to track access conditions and we are working together
with the Rail Regulator, indeed the Rail Regulator has extensively
consulted on the deficiencies of the existing model track access
agreements and we have presented evidence to him. In essence we
are saying that we need to make clearer what train operators are
getting for their money, and it is a very considerable amount
of money, we are talking about nearly £2 billion a year,
and what happens if things go wrong. We believe that there is
insufficient clarity on what we get for our money and the remedies
are insufficient. The implication of that for investment is if
one is investing in new rolling stock, in exciting new trains,
if you are not clear about what you will get for your track access
charges you will not be incentivised as you should be to invest
in that plan.
116. Do you think that your talks with the Rail
Regulator have made certain that will be taken account of in the
next round of charges?
(Mr McTavish) The Rail Regulator has personally involved
himself in most of these discussions and he has listened very
carefully to the points that we have made.
117. And you have told him where the weaknesses
are and you think he has taken note of that?
(Mr McTavish) We have indeed.
118. Could I press you a little further about
your assertion that every pound of your success has gone to the
Treasury. Looking at your Government support figures in the submission,
since 1996-97 they have reduced from 2.1 billion to 1.342 billion.
Could you remind the Committee what the Government support was
in the two years prior to privatisation?
(Mr Fearnley) I will have to ask Mr McTavish to answer
the detail of that.
119. Mr McTavish, I think it is not just a national
stereotype that put you in charge of the money.
(Mr McTavish) Thank you. The first thing to say about
the subsidy figures before and after privatisation is they are
not comparable. Can I explain very briefly why. At privatisation
Government sold assets that were in the public sector to Railtrack
shareholders and to rolling stock leasing companies. I believe
they received four or five billion pounds for that, I cannot remember
the exact figure. So in a sense what has happened is five billion,
let us say, has been taken by the Treasury in the form of a sale
at the time of privatisation. There is then a need, because someone
has now paid that five billion, to remunerate that investment.
So in looking at the subsidy figures one should be looking at
the effect of the sale proceeds being taken by the Treasury.
Chairman: Wait a minute. Mr Stevenson?