Examination of Witnesses (Questions 140
WEDNESDAY 5 JULY 2000
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
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,
(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
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.
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
(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 investmentwe have heard several times today the
levels of investment that are going to be requiredinto
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.
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
(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
150. Is the franchise bidding process and franchise
replacement process contributing to that pace of trying to improve
(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?
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
Chairman: We know that; I am glad you have heard
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.
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
(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.