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

Examination of Witnesses (Questions 200 - 219)



Miss McIntosh

  200. For the record, I do have a pecuniary interest in Railtrack and EuroTunnel. I should like to link my question to the current track access charging system and ask whether that should be revised to better align the incentives of Railtrack. May I mention the specific example which we have discussed before and link it to the franchise applications which we know about for the East Coast rail line and that is the particular bottleneck north of Newcastle on the East Coast Main Line. There all of us would like to see more freight go on rail, yet we are faced with two franchise applications promising more and faster passenger trains to London, which in themselves are obviously very attractive. At what stage is a decision going to be made as to whether we go for more passenger trains or whether we go for more freight on the line?
  (Mr Grant) The whole of the East Coast is being looked at from London to Edinburgh to Aberdeen. What we are trying to provide on the East Coast upgrade is more capacity for more passengers and more freight. There comes a point of course where you just cannot fit any more on. We are looking at the growth which is expected from the freight companies and the growth which is expected from the franchises which are being put forward at the moment. The upgrade will accommodate the growth we expect to be reasonable over that 10-year period. I am not sure about the particular bottleneck you are talking about.

  201. I was advised that there is a bottleneck. At what stage will the upgrade be completed? Will it be in time for the franchise to have been decided?
  (Mr Grant) The upgrade will be done in phases. We are actually working with Railtrack, who are obviously going to do the upgrade. We are working with Railtrack and it really is in a number of phases.

  202. So the answer is that it will not be ready by the time the decision is taken.
  (Mr Grant) No; the East Coast upgrade is a 10-year project.
  (Sir Alastair Morton) It will not have begun.


  203. I am sorry, Mr Grant, I am going to be mildly unkind to you and say you have really not answered the question because you are saying you would expect an upgrade to provide room for both freight and extra passengers. I am not misquoting you I hope.
  (Mr Grant) That is correct.

  204. On what basis do you actually do the assessment of the rate of growth? We are talking in very general terms. No-one would doubt that this is what we hope for and we do have in this Committee some experience of people who talk about aspirational targets. We are way ahead of you on some things. Aspirational targets are not very endearing. May I ask you something very boring like what are we talking about in real terms? What kind of growth figures? What band are you looking for? I am talking about percentages. I am not talking about numbers of extra services. You must have in your minds some idea of what this equal treatment for both freight and passengers means in percentage terms.
  (Mr Grant) Overall we are looking at about 50 per cent growth in passengers and 80 per cent growth in freight.

Mr Donohoe

  205. There is a fundamental flaw in what you said earlier in terms of capacity and that linked to length of franchises and the development of the railways in terms of the lines. You are talking about a 10-year programme to upgrade to a certain level. As I understand it, franchises are going to be for a longer period of time. If, within the franchise document—which I would suggest there must be—there are predictions as to growth over a 20-year period, which is what some of the franchises could well be, in these circumstances the two do not square in terms of what there is going to be as an operation. What we were trying to drive at and Mr O'Brien was trying to drive at is in these circumstances it is highly probable that the freight is the first casualty.
  (Sir Alastair Morton) The first point is that I think that is an attitude which British Rail did in the past do a lot to cultivate. When in doubt raise fares and cut freight rather than create capacity. That is an attitude which we have said will not be the SRA's attitude. There is a strategic policy approach: we are not adopting that old BR attitude. Secondly, if you want private capital over ten years to create capacity in some agreed form, it has to be able to earn the return and get its breath back, as it were, before you can ask it to invest more. Therefore the idea that you have an investment programme over 10 years which is part of a franchise lasting 20, is not automatically absurd. The second ten may be when you earn, rather slowly in the case of rail, the return on the investment which went in progressively with disruption costs during the ten. Disruption costs are part of what we have to talk about and disruption effects. Somebody has been quoting back to you our term "aspiration" and "aspirational upgrades".


  206. We do know about those, Sir Alastair.
  (Sir Alastair Morton) We created the term so I am just claiming ownership of it.

  207. That figures.
  (Sir Alastair Morton) What we are saying is that we want to know from a would-be franchisee what they are committed to do in the period until the first review in a longer franchise. We want to know what they think they will do, what we call the primary aspiration; what they are pretty sure they will do, probably in the second review period. All these are subject to variation. We want to know what they would think pretty likely to follow on that, to create a continuous improvement; a secondary aspiration that might be with a lesser degree of certainty and therefore answerability about it as they go through that chain. You could even say commitment, intention, aspiration, to signify the difference. When we get to the first review date, which might be after five years, might be after four, might be after seven, the one we agree, we would say to them, "Have you or have you not delivered the commitments? There is trouble if you have not. Have you cleared the way for your next lot, your intentions or your primary aspirations to be now commitments? You have gone through the Transport and Works Act process, you have invested in the design and development with Railtrack or others, you are ready to roll on the further investment? You have had the time, you have done it, and you are off. By the way, what are your firmer intentions for what was the third period and is now the second period ahead?". You create, we hope, a rolling investment programme. It may be that as the years go by things speed up or things slow down as the growth is faster or slower, as the needs change, as freight grows faster than passenger, as the value of freight rises because high value/low weight freight becomes absolutely natural for travelling by rail instead of by air. Things change. Technology or whatever change. You have the chance to adjust in these review periods and around them what you are going for in the now nearer future. You have also taken, and I keep coming back to the Transport and Works Act which is a real blot on the landscape, the chance to adjust and we would hope not to freeze the picture; in fact we would not freeze the picture now for the full 20 years. There is still that point that the return has to roll on ahead of the investment.

Mr Donohoe

  208. I can understand what you are saying but in a specific sense, in terms of the protection of freight, there is that problem, is there not, that if it is not one fifth of the use of the track, gauged against the capacity of track . . . I know you can gauge the capacity of Heathrow Airport and it is dead easy, but to gauge just what can be done in a railway is different. Your strategic role is in part to have the capacity worked out as to what it can be, what it is likely to be in terms of technological change and what proportion of that is going to be freight is fundamental to the question.
  (Sir Alastair Morton) The only point I am resisting in this line of questioning is the definition of one percentage. Over 40 per cent of the movement on the West Coast Main Line at the moment is freight. I do not think there is another line of such significance.

  Chairman: I do not want to go over the same evidence again.

Miss McIntosh

  209. If there were any disagreements about investment priorities, heaven forbid, between yourselves and the Rail Regulator, how would this be resolved?
  (Sir Alastair Morton) Disagreements as to what between us and the Regulator?

  210. As to how investment priorities are to be decided.
  (Sir Alastair Morton) It would be fair to ask his opinion as well, but the opinion I will give you—and he is in the room—is that we have a duty under law to provide a strategy and a strategic investment plan and he, under the Bill which is going through Parliament, will be under a duty to facilitate the implementation of our strategy. He is still an independent Regulator and how he proceeds is up to him, but the direction is influenced by our view of the way it should go.

Mr Bennett

  211. On the fares issue, what are you doing to make sure that fares are fair for all passengers? As I understand it, if you want to come from Manchester to London now, if you travel on the third Thursday in a month when there are five Thursdays in the month you can get one of these remarkably cheap tickets. If you want to travel any other time, you pay an extortionate amount of money. Is not fare control something you should be looking at?
  (Sir Alastair Morton) Let me start with the generality. The generality established at privatisation was that certain fares would be regulated, particularly commuter fares and fares of particular sensitivity. For the rest it would be a marketplace which has come since, rather to the surprise of many rail users, increasingly to resemble the market in air fares.

  212. Air fares seem to have come down and rail fares seem to have gone up.
  (Sir Alastair Morton) Some rail fares are down. As I am sure you know, some fares from London to Glasgow at differing times have a remarkably wide span.

  213. Yes, as I said, on the third Thursday when there are five Thursdays in the month and you have spent a week working it out, you can get some very cheap fares.
  (Sir Alastair Morton) When you seek to travel by Go or EasyJet or Buzz or whichever airline, it advertises say "from £19 to Genoa" and you find something like there are three £19 seats on the second Thursday of the month and after that you are paying something else. The Regulator has powers and the Office of Fair Trading have powers if there is an abuse of a dominant market position. That is clear. The regulation of fares, subject to anything Mr Grant wants to add, as provided for in the law so far is the business of the franchising director, but it only covers certain fares; the rest is a marketplace.

  214. Are you happy with that?
  (Sir Alastair Morton) I tell you something we have to be happy with, which is that we have to be happy with the balance between what the fare box pays for and what the taxpayer is asked to pay for. We all want a better railway, we all know it needs investment, we all know it is going to be expensive. There is a balance to be found and I would not say it is going to be perfect for every fare payer, between fares and taxpayers in the provision of a better railway.

  215. What about compensation for services which are delayed or do not run, are cancelled?
  (Sir Alastair Morton) I shall not do it in detail but I usually start by comparing what you get on those airlines with what we ask of our railways. The answer is that you get a very much better deal from the railways, much more payback in cash as well as kind than you ever can hope for by air.


  216. Which part are you talking about?
  (Sir Alastair Morton) Train operators in this country, franchisees. You may not get what you want every time but try it on the airlines. The fact is that we have a culture of giving money back if your train is late. We can decide that is the correct culture and we can then pursue it. We do not seem to believe that is appropriate for leisure or business travel by air. There is a reason for that difference which I have never yet discovered. Perhaps it is right to do what we do on rail. Perhaps we have it at the right level and over time public opinion will make itself felt. If anybody is abusing a dominant position, the Regulator and the OFT are there.

Mr Bennett

  217. Should people get compensation when only two carriages turn up when there are enough passengers for four?
  (Sir Alastair Morton) It definitely feels like it at the time; I am with you on that.

  218. What are you going to do about it?
  (Sir Alastair Morton) We are pursuing investment in rolling stock.
  (Mr Grant) We have said in new franchise agreements that compensation for individual delays over 30 minutes will be offered to season ticket holders. We have also said that cash rather than vouchers may be offered to passengers in compensation if they prefer it. It is open to the operators to add the value of vouchers over cash if they wish to. We are trying to address the point of compensation for delays in new franchise agreements.

Mr Donohoe

  219. How many operating companies do you believe there will be within the system in the next ten years? I mean that in terms of ownership.
  (Sir Alastair Morton) Operating companies first, ownership second. We published a map very recently which said there would be 22 operating companies. We added a sentence near the bottom saying it is quite possible that neighbouring operations will be in common ownership. There happens to be a case at the moment: Connex own South East and South Central. As things stand we have no objection to Connex unifying the management of those two; they have in effect done so. Whether that will survive the re-franchising of South Central we shall see quite soon. Ownership of the 22 or so? Difficult to tell: between six and 12 is low; between 10 and 15.

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