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

Examination of Witnesses (Questions 420 - 439)



  420. When you say that too much reliability is being put on punctuality and too many incentives, you are almost saying—are you really saying—that you cannot run your trains on time?
  (Mr Brown) If I can comment on that. I think our point is that the industry has a number of objectives which we are quite rightly looking to achieve. Two key objectives, apart from the absolutely paramount objective of improving the safety performance of the industry, are to achieve substantial growth in passenger numbers. The Government is quite rightly looking for us to grow passengers numbers by at least 50 per cent as well as an improvement in the service delivered to passengers. I think our concern about, as Mr Muir has described it, super-charging the performance incentives, is that it may just imbalance the focus within the industry when we also need to grow strongly as well.

  421. Why should it unbalance your focus if you are asked to perform to certain levels, which presumably are to do with safety, with reliability, with time keeping? Why should those be subjects that you do not wish to see overly emphasised?
  (Mr Brown) If I may just go into a point of detail, Madam Chairman. The incentives that are in the Regulator's review, of course, apply to Railtrack, not the train companies yet. The incentives for the train companies will come about, either as a result of franchise extensions or replacement franchises.

  422. The thing that Mr Muir mentioned were those that were directly the responsibility of the train operating companies.
  (Mr Brown) I think you were asking us our views on the Regulator's review, which, of course, applies to Railtrack—

  423. Yes.
  (Mr Brown) —and what it is able to deliver for us.

  424. You think there are too many incentives and they are putting too much pressure on?
  (Mr Brown) We think—and we said this to the Rail Regulator—that the doubling of the incentives and penalties on train performance may risk causing an over focus on Railtrack on performance at the expense of growth.

Mr Stevenson

  425. As a lay person, it is the first time in my memory that virtually the whole of the railway system has been closed down. Do you think that Railtrack, as presently structured, can deliver the investment that the Government wants to see?
  (Mr Brown) You are, of course, referring to the effects of flooding and all the speed restrictions around the network in the last few weeks.

  426. I am referring to the fact that in my living memory this is the first time the whole of the railway system has been virtually shut down.
  (Mr Brown) Certainly it is the worst case of closure. It is not the whole system, but widespread parts of it were closed and, in my 24 years in the industry, so I can only agree with you on that. I think one has to say that, yes, we do have concerns about Railtrack's ability to deliver the sort of improvements that are required.

  427. What would those concerns be, Mr Brown, specifically?
  (Mr Brown) Well, I think we are talking about the post-Hatfield speed restrictions, and that is of concern to us, that that level of problem with the rails can have existed and have come about and we get into a situation where it has to be solved via a crash programme rather than by pre-planned sustained regular maintenance over a period of time.

  428. Are you satisfied as the Association of Train Operating Companies that Railtrack has (a) anything like sufficient control over its sub-contractors, and (b) what is your reaction to the notion that Railtrack has effectively transferred its safety responsibility to those sub-contractors?
  (Mr Brown) A working group has been set up involving the train operators, as well as the Strategic Rail Authority and Railtrack. At the initiation of the Strategic Rail Authority we have been actively participating looking at the relationships between Railtrack and its maintenance contractors. I think one can only say that after both the tragic accident at Hatfield and the extent of rail flaws discovered since, there has to be a change in the relationship between Railtrack and its contractors. Not being an infrastructure person or a civil engineer, I am not particularly qualified to say what those changes should be.

  429. Can I ask two more quick questions? In evidence to this Committee, Mr Corbett, the Chief Executive of Railtrack, has consistently insisted that Railtrack does not put profits before safety. Do you agree with that?
  (Mr Brown) Yes, I would agree with that.

  430. Can I ask my last question about access charges, which you have referred to? According to the figures that we have, the access charges will reduce next year and then increase in real terms so that over the period 2005-06 they will be 6.5 per cent higher than the current year. The question I want to ask is in relation to the next bit in this section. In the absence of grants, according to the Regulator, these charges will increase by 34.5 per cent in the first year and at the end of the period charges will be 62 per cent higher. Does that worry you? Are you concerned about that? Has the Regulator got this about right, do you think?
  (Mr Brown) That is quite a complex question. The track access charges that Railtrack levies to train companies is a pass through to the Strategic Rail Authority. They do not directly affect the finances of the individual train companies, so the issue is, is the Strategic Rail Authority, as part of implementation of the 10 year plan, happy with taking higher level track charges. Now, given the level of investment that I think everybody is looking for, going forward, that clearly has to be financed, and given the level of maintenance and renewals, which needs to be funded going forward, yes, it is necessary that those charges are incurred, but I would just stress that those charges are not falling on us directly.

  431. They may not be falling on your profits, but they are falling on the taxpayer, I can tell you that, because the grants referred to are due to increase by no less than 20 per cent over the period, from £826 million to over £1 billion. So, without that increase in public support you would agree that the figures quoted by the Regulator, 34.5 per cent in the first year to 62 per cent higher without those grants are in fact true?
  (Mr Brown) I could not confirm to you those precise figures, but clearly there has been a substantial increase.

  432. My last question on this, and I hope you might have a view on it, I have talked about the increase revenue support in terms of grants, 20 per cent higher over the period, would those figures be affected in your view by the grants directly coming from Government to Railtrack, for example, £4 billion direct grant improvement for the West Coast Mainline, which presumably your companies will benefit from?
  (Mr Brown) Certain train operators will benefit from those, and are making major contributions to them. My company is a particular company which is involved. Yes, clearly the charges which Railtrack levies to the train operators through to the SRA are affected by the level of grant and there is the Rail Modernisation Fund, which is running at £7 million which effectively is paid direct from SRA for specified investments and improvements, not channelled through the grant. That is additional funding available to Railtrack and to the industry, not channelled through grants. It is an important impact, yes.

  433. Tell me, finally, this scenario where investment, access charges, SRA involvement, the ability of Railtrack to deliver the programme is predicated to a massive degree, is it not, on public money, one way or the other? You are nodding your head, Mr Muir. Do you agree with that?
  (Mr Muir) It certainly is predicated on public money.

  434. Would you agree when I say "a massive degree"?
  (Mr Muir) Certainly.

Miss McIntosh

  435. We heard evidence from Mr Knapp this afternoon and in his view it is a big mistake that the operation of the trains was separated from the track on which they travel, do you agree with that?
  (Mr Brown) I think it is an issue which will need to be revisited when the various inquiries are concluded. What we would say at the moment is that what the industry needs more than anything else is some stability, because there has been a lot of change and a lot of problems in the industry.


  436. What does that mean, Mr Brown, you do not want to look into it until somebody else has taken some decisions, or you do want to look at it but you do not want to change anything until somebody else has taken some decisions?
  (Mr Brown) We believe that structural changes in the industry at the moment, and for some time to come, would not be helpful given the scale of the task—

  Chairman: So the answer to Miss McIntosh is quite plainly, no.

  Miss McIntosh: Well, no, because would you not agree that in the airlines it has already happened? The operation of air space is operated completely independently by the various operators, so there is model in other sectors of transport, as there is, in fact, in the rail industry and other European Union countries. So we are not unique in this country in having the track separate from the trains which operate on it.


  437. I do not quite think you put it to Mr Brown in those terms, did you?
  (Mr Ludeman) We are going through a process of re-franchising at the moment in the industry. This is something we have asked for and we are very happy to be given the opportunity to bid for longer franchises. Those longer franchises will allow a lot more investment to come into the industry. A lot of that is public investment, but there is also private investment in there as well. In order for us to deliver that investment to the times we are promising in these new franchise agreements there would have to be some change to the current structures in the industry. There may be, as part of that process, some need for more vertical integration. We, in our bid for South Central Railway, have come up with the concept of an SPV, which is a joint venture with Railtrack, Bechtel and others to deliver the infrastructure product. That is not the model which is currently adopted in other parts of the network.

  438. What did you call it?
  (Mr Ludeman) Special Purpose Vehicle. It is a generic term to describe a way of financing investment and the way partners work together to deliver that new investment. We believe there does need to be structural change. We do not want massive change at the moment. The change we have is the vehicle of re-franchising, and we believe by using that vehicle of re-franchising we can gradually introduce change. What the passengers want is a safe, punctual and reliable railway. They do not want, I believe, us spending our energy and time in finding further ways of restructuring the industry in a very short space of time. That does not produce stability and I do not think that it is to the benefit of the passengers.

Miss McIntosh

  439. Do you believe in times of an economic down-turn people are less likely or more reluctant to travel by train and, in fact, such an economic down-turn might interrupt private sector investment?
  (Mr Ludeman) The thing that drives investment is revenue, and you are quite right that if there is an economic down-turn the railways suffer pretty quickly. The risk of that happening to the re-franchising process is passed on to the franchisee, so it is the private sector that takes that risk. For example, in the South Central franchise we have taken the revenue risk for 20 years. If there is a revenue down-turn, it is our problem.

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