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


Examination of Witnesses (Questions 140 - 159)

WEDNESDAY 5 JULY 2000

MR GILES FEARNLEY, MR CHRIS GREEN AND MR ALEC MCTAVISH

  140. Therefore, you are agreeing with the statement that your charges should significantly increase on the basis of the investment of Railtrack?
  (Mr McTavish) If more is delivered we are happy to pay more.

  141. Do you agree that Railtrack's recommended five year, £8 billion investment programme to accommodate a 25 per cent increase in passenger traffic is the best way to develop the rail network in the short term?
  (Mr McTavish) We believe that the investment requirement is around the £10 billion mark. Our members tend to work bottom up, they are train companies working out what needs to be done on particular routes, rather than the overall planning. The exact amount that is going to be required will need to be validated through the franchise replacement process that is going on because investment ideas are coming forward as a part of that. Indeed, that is the way this Franchising Director wants to see them, he wants to see innovative ideas coming forward.

  142. How much of that necessary investment that you round up to ten million would you, as the operating companies, invest?
  (Mr McTavish) Much of that investment will be expected to come from Railtrack. Railtrack renumerate their investment in the form of track access charges. In a very real sense therefore investments will be paid for by train operators. In that sense the investment will be paid by train companies but via access charges over a period of time.

  143. But only a very small proportion of that investment in real terms will be from the operating companies, will it not? The great bulk of the investment monies is coming from the public purse, is it not?
  (Mr McTavish) Indeed.
  (Mr Fearnley) Mr Green has an example to share.
  (Mr Green) If I can offer an example, Chairman. On the cross-country franchise we are going to double our train service over the next three years. To do that we have worked out with Railtrack a certain amount of work has to be done at big junctions and we have agreed to have an increased track access for that work.

  144. If I were an ordinary person thinking about this, as I hope I am, as most of my constituents are, I would not think that we are getting all that much of a good investment without something coming back at me as far as the public purse is concerned. Why does the Government not consider it in a different way, maybe taking shares in your companies?
  (Mr Green) Shares in Railtrack would probably bring the big advantage, because, as we heard earlier on, it is Railtrack that is going to make the big investments in the infrastructure.

  145. They are the ones who are going to make the investments, you are the ones who are going to make the profits out of these investments, so therefore the Government, instead of handing you money, would be better handing you a share option that they could buy in order that the imbalance to that equilibrium that has come about by virtue of privatisation once again could be reclaimed by the public pursue which seems to be at the very basis of everything that is going towards the railway industry? Is that the case or is it not?
  (Mr Green) It could be another mechanism.

Chairman

  146. What you are really saying to us is it does not matter what happens and what profits anybody seems to make at any point along the line, it is actually the poor old taxpayer who coughs up.
  (Mr Fearnley) Clearly the authorities, whether it is the Regulator or the SSRA, need to ensure that against the profits that are earned there is adequate investment made back into the railway. I certainly believe that the new franchise replacement agreements that we are beginning to see will do just that. They are investment led. There is going to be a requirement on train operating companies to facilitate levels of investment far beyond that which was required in the current round of franchising. On top of that, we are aware that we have yet to see the details, the SSRA are going to be looking for a profit share mechanism to ensure that excessive profits versus levels of investment are not earned by the train operating companies. It looks as though that is the route they have decided to go down rather than the golden share option, or whatever, that you have just described.

  147. In terms of what Railtrack has already given us in evidence this afternoon as far as the role of the Regulator, what would be your opinion of the role of the Regulator and the powers of the Regulator? Do you believe that they need to be tightened up and they need to be strengthened to a point where he makes sure that he squeezes the last pips out of that system that makes it operate better as a service than it is at present?
  (Mr Fearnley) We clearly all want to ensure that we get what we pay for from Railtrack, that we can enforce our contracts with them and as a consequence we can deliver a first rate service to our passengers. We believe the Regulator is very much focused on this, as he is focused on the level of remuneration Railtrack should receive for the job that they do. It is essential that they are allowed to make a level of profit to enable them to plough further investment—we have heard several times today the levels of investment that are going to be required—into the railway going forward. What we have got to do as an industry is to become much more proactive in investment rather than reacting, as we have done in the last five years since privatisation, against the tremendous volume of growth that we saw that came before we had a network capable of serving those passengers the way they expect to be served. We must see investment led from the front and we do look to the Regulator and we are confident that through his current review he will deliver a framework that will enable that investment to come forward.

Dr Ladyman

  148. EWS have expressed concerns that one of the impacts of the franchise replacement programme might be to swallow up capacity on the network to the detriment of freight. What is your view on that?
  (Mr Fearnley) Clearly there has to be a place for both passenger and freight and it is as exciting to see freight growth as it is passenger growth. Mr Green has examples of the interactions.
  (Mr Green) An example would be the Virgin/Stagecoach bid for East Coast which expressly addressed total line capacity, not just passengers. That was offered up as part of the formula which in its turn brings its price in subsidy. A current one would be on the West Coast where we do not believe there is enough capacity between Birmingham and Coventry for all of us and we have got together with EWS and with the Centro PTE to push the case for four tracking. Railtrack have taken that very positively. That is an example where we would like to see investment prioritised.

  149. I want to ask you some specific questions about the franchise in a moment but can I just pick up that point. It does seem to me that in the evidence we have received from you, and prior to you from Railtrack, these investment plans are being made in order to provide capacity to cope with a perceived growth in traffic that somebody else is creating, either the road congestion, fuel charges, whatever. You have predicted this increase in traffic so you are investing to sop it up. I do not hear anything about people investing in order to improve the service to pull new traffic into the service. I do not hear anything about investing to identify new markets.
  (Mr Green) I would suggest in our particular case there is not much more we could be doing. We are investing £2 billion in a completely new fleet of trains where we will renew every single train both on the West Coast and the whole of Cross Country which affects 130 towns and cities. These are going to go at 140 miles an hour, the most advanced trains in Europe. We believe that will double the number of passengers using those services.

  150. Is the franchise bidding process and franchise replacement process contributing to that pace of trying to improve the service?
  (Mr Green) Yes, and we are locked into it. We cannot walk away from it. We have a contract with Railtrack to make that happen and the Regulator has been helping us to enforce it.

  151. So the need for you to win franchises back again or win new ones is incentivising you to improve service more than just the day-to-day running and providing of a service?
  (Mr Green) I can only speak for the long-distance train companies but, yes, for the long-distance train companies.
  (Mr Fearnley) I think for all train companies our success, whether we are running the Island Line or West Coast or whatever, is dependent on running a safe and punctual train service and maximising the number of passengers we carry. Clearly we all see huge opportunities for what is happening in the country in the widest sense, with congestion and so forth being a key player, but we want to fight for every passenger we can carry. We are also acutely conscious (because of the tremendous growth we have seen over the last five years, particularly in the South East) that we are not catering for the growth we have seen particularly well and we are not meeting passengers' current reasonable requirements of us in terms of capacity, full trains, delays, and so forth. We are wanting to tackle both those issues. Under the present franchise agreements, which were made three or four years ago now, we are going some way towards that. The replacement process and the new franchise will accelerate our ability to give us a longer-term focus which will enable us to attract investment in ways we have not been able to do to date and to plan long term rather than plan for what some of us now is another three or four years before the end of our franchise term.

  152. It sounds a bit like a mousetrap manufacturer that is relying on a plague of mice to increase its sales rather than making a better mousetrap.
  (Mr Fearnley) We have all seen in our businesses, whatever we have done, whether it is to improve the security of passengers with closed circuit TV monitoring on stations on trains, whether it is by increasing frequencies or whatever we can readily attract new people to use the trains. People are hungry too use the train service. We are doing that and we will continue to do that because the experience we have had over the last four to five years has given us huge confidence to go into this replacement process and to be long-term players in this industry.

  153. Do you have a sense that the rules about the franchise replacement programme are being made up as you go along or are they clear?
  (Mr Fearnley) I think it is unfair to say they are being made up as they go along. I know that is said. It is a huge new process being embarked upon. We welcome the fact that the SRA has been consulting widely asking operators, bidders, let alone many other parties, for ideas as to how that part of the railway can be developed over a 20-year vision. Clearly, people have different ideas there. The SSRA are trying to work under very tight timescales to get this process moving and therefore it is clear the rules need to develop as the process unfolds, but it is now moving fast. We understand the first new franchises may be let quite shortly and that in itself we believe will set the rules going forward.

  Dr Ladyman: Is the Strategic Rail Authority being as strategic as it ought to be? Do you get the feeling that they are taking that holistic view?

Chairman

  154. Are we talking about customers? We have not heard that strange word this afternoon "customers" or "passengers". We hear all about the interests of train operating companies, all about Railtrack, all about investment, all about the City. What we do not hear about is franchises being decided on the basis of the interests of customers.
  (Mr Fearnley) Our understanding is that the criteria for evaluating these replacement bids is not purely financial. We welcome that enormously because the financial criteria has led to some of the difficulties we have seen over the last few years but it is, excuse the pun, on the track record of the incumbent to run a rail service and, particularly, the vision they have for that part of the railway as it will serve the passengers' interests over 15 or 20 years. I do assure you that while we may not have used the word "customer" many times this afternoon our success in the future depends on us serving our customers well.

  Chairman: We know that; I am glad you have heard it too.

Dr Ladyman

  155. Carrying on from Mrs Dunwoody's theme, one of the things that customers are always rather interested in is price. I have heard no suggestion that fares might be a variable in any of these equations, that anybody might be bidding on the basis of running a cost-effective service or a cheap service.
  (Mr Fearnley) All operators over the last few years have introduced new fares products, off-peak fares, discounts and so forth, to see what level of patronage they can encourage and draw from that. Going forward we understand that the SSRA are going to maintain the RPI-1 per cent annual increase factor for encompassing just over 50 per cent of all passengers. That in itself leads to substantial growth. We have begun to see that already over the last few years. We must have the investment into the industry, I am sorry to use that word again, to enable us to cater for that growth. Other fares clearly will be free of regulation but we are seeing the way to our success is attracting passengers and we do that by producing value-for-money products.
  (Mr Green) Just linking the last two questions, the passengers do have a chance to vote every month. It is called the customer satisfaction survey.

Chairman

  156. Come now, Mr Green, I have the greatest admiration for you and unlike many of your colleagues you know about railways which makes you practically unique in this day and age but, frankly, the idea that people get the chance to vote once a month on railway services seems to me, let me be tolerant, mildly unrealistic. When I was flung off a train in Watford on the hottest day of year with 400 other people and nobody had any idea what was then happening, I have to tell you that not only was there no one (when we finally got out of our Sprinters at Euston where we had been standing with our luggage in a highly dangerous manner) to ask us what we wanted to do to complain, there were no passenger forms for rebates, no indication of why neither Railtrack nor the train crew nor the people on Watford station nor anybody else seemed to know what the hell was going on. It is very bad to argue from individual incidents to general principles, but the reality is that the idea passengers get to vote once a month on satisfaction responses, frankly, seems to me to be ridiculous.
  (Mr Green) That is a little unfair, Madam Chairman. First of all, my apologies for the incident. I was at Watford station, you will be glad to know, for about six hours on that day and it was about one of the worst days of my life.

  157. Forgive me, Mr Green, but I am delighted to hear it!
  (Mr Green) It was an extremely hot day and that was an infrastructure failure.

  158. I hope you were as hot as the rest of us.
  (Mr Green) The result of that was a 24 per cent increase in complaints in the following week.

  159. I am not really surprised but the point I am making to you is no one was at Euston station on Sunday night. Between 300 and 400 got off a boat train, most of them with vast amounts of luggage and exhausted children. I will give you an example. I was so embarrassed at the way one particular American family in my carriage were treated that I arranged for them to go round the House of Commons in order to apologise for the behaviour of the British transport system. I assure you, I do not do that normally.
  (Mr Green) There comes a point when you are swamped with numbers. We took that one extremely seriously. I spent three hours yesterday going through the reactions to it. It was a reaction to a 24 per cent increase in complaints, my point is that complaints do get noticed.



 
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