Select Committee on Environment, Transport and Regional Affairs Minutes of Evidence


Examination of Witnesses (Questions 113 - 119)

WEDNESDAY 5 JULY 2000

MR GILES FEARNLEY, MR CHRIS GREEN AND MR ALEC MCTAVISH

Chairman

  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 ATOC—Association 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.

Mr Stevenson

  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.

Chairman

  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?



 
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