Select Committee on Environment, Transport and Regional Affairs Sixth Report



Measures proposed to increase investment

TRACK ACCESS CHARGES REVIEW

64. At the end of the first control period, which ends in April 2001, the charges made by Railtrack to the train operating companies for the use of its network came up for review by the Rail Regulator. Given the problems with the regulatory regime established at the time of privatisation, which we have described above, the process of undertaking the periodic review presented "the opportunity for a comprehensive reappraisal of the commercial and regulatory framework within which Railtrack operates".[227] The Regulator published his draft conclusions in July 2000, towards the beginning of our inquiry.[228] In October 2000, he published his final views, which not surprisingly concluded that the financial framework established at the start of the first control period in 1995 was not fit for purpose.[229] The Regulator proposed that for the second control period between 1 April 2001 and 31 March 2006 a number of major changes should be made to the structure and level of the charges made by Railtrack for access to the rail network, and many of the weaknesses in the regulation of the company should be addressed.[230] Thus the aim of the periodic review is to ensure that Railtrack is properly funded and given incentives to maintain and renew the network in a safe and efficient manner, with such incentives being reinforced by changes proposed to the Network Licence, and to the framework of contracts between Railtrack and the train operating companies.

The outcome of the periodic review

65. The periodic review has determined two key figures: the level of revenue that Railtrack will be allowed to earn from franchised train operators during the control period,[231] and the value of the company's core regulatory asset base and the return it will be permitted to make on that asset base. The review concluded that £14.9 billion would be required to operate, maintain, renew and enhance the network in order to deliver the "baseline outputs".[232] The Regulator told us that Railtrack has generally accepted his assessment of the level of maintenance activity required to sustain the network, and thus the level of funding for that purpose given by the periodic review, although the Regulator has allowed for significantly more renewal activity, and therefore funding, than was anticipated by Railtrack.[233] The value of the Regulatory Asset Base at the start of the second control period has been set at £5.5 billion. This is £405 million more than was assumed in the Regulator's draft conclusions, but is more than £1.3 billion less than Railtrack had proposed.[234] The review permits a return on the company's Regulatory Asset Base of 8 per cent per year,[235] or £2.8 billion over five years. The review also assumes that Railtrack will receive £3.7 billion in income from other sources including stations, property, freight and open access passenger operators.[236] Thus Railtrack's net revenue requirement over the second control period has been assessed as £14 billion.[237]

66. The Government has decided that £4.6 billion of this revenue requirement should be met by a direct grant to Railtrack, and the Regulator has determined that £8.8 billion should be raised through the track access charges paid by franchised passenger operators.[238] The remaining £0.6 billion has been added to Railtrack's March 2006 Regulatory Asset Base and will be funded during the third control period. The projected expenditure over the next five years has been increased significantly from the Regulator's earlier assessment of £14.2 billion, although it is more than £1 billion less than the amount sought by Railtrack.[239] The Regulator is also expecting the company to become more efficient: cost savings equivalent to 3.1 per cent per annum over the five-year control period have been assumed.[240] It is worth noting that this level of efficiency savings does not appear to be particularly demanding when compared with examples from overseas: railways in the USA have been achieving average efficiency improvements of almost seven per cent annually over the past 17 years.[241]

67. At the same time as the funds available to Railtrack have been increased, the means by which the company will be held accountable for use of the money have been strengthened. Track access charges have been restructured to ensure that the incentives that Railtrack and the train operating companies have for increasing the use of the network are more closely aligned. Indeed, for the first time, Railtrack has been given incentives to promote the use and development of the network and a direct interest in the number of passengers using it,[242] by increasing from eight to twenty per cent the proportion of the track access charges paid by the train operating companies that varies according volumes of traffic rather than being fixed.[243]

68. The periodic review has also specified more clearly what Railtrack is expected to provide in return for the money that it is paid. For the new control period, the specifications will include requirements such as annual performance improvements and reductions in the numbers of broken rails, developments that must be made in order to comply with new obligations such as the introduction of the train protection and warning system, enhancements to the rail system that the Strategic Rail Authority wishes to purchase, and the standards which the condition of certain types of its assets must meet, such as the number and severity of temporary speed restrictions.[244] For example, the periodic review assumes that Railtrack will achieve the target set for 2000-01of a five per cent reduction in delays for which it is responsible, and that the company will catch up with last year's short-fall. Over the next control period Railtrack is expected to reduce these delays by 2.5 per cent per annum.[245] Failure to achieve these targets will incur predetermined financial penalties.[246]

69. As well as such financial penalties in relation to reducing delays, Railtrack may be held accountable for providing the outputs specified in the periodic review in a number of other ways. Another means of holding the company to account is through the performance regime found in the access contracts that the company has with train operators. A further means is through changes to the assessment of Railtrack's Regulatory Asset Base: if Railtrack does not meet its performance targets for reducing the number of broken rails, for example, the Regulator could adjust the company's Regulatory Asset Base and thereby alter access charges in the next periodic review. Alterations to the Regulatory Asset Base could also be used to reward the company for better than expected performance.[247]

70. In short, the Regulator claimed to have established a "better, clearer and fairer balance of responsibility and obligation in the [railway] industry".[248] The Regulator told us that the periodic review "equips Railtrack to invest strongly and efficiently. The shortcomings of the current regime are swept away, replaced by a sound framework for investment and the finance to carry out a rail renaissance whose momentum must increase strongly and quickly".[249] He argued that "thus endowed, Railtrack has no more excuses".[250]

Reaction to the periodic review

71. A number of our witnesses, and others, have expressed surprise at how favourable the outcome of the period review had been for Railtrack. The Rail Freight Group said that the Regulator, who had been wielding "a big stick" with regard to Railtrack, had produced "a very generous settlement" for the company in his final conclusions on the periodic review.[251] Several significant changes were made between the publication of the Regulator's draft conclusions and his final conclusions, in particular that the rate of return allowed on Railtrack's Regulatory Asset Base was raised from between seven and seven-and-a-half per cent to eight per cent, and the efficiency savings expected were at the lower end of the range that had been under consideration.[252] The financial sector also appeared to believe that Railtrack had been treated leniently: the company's share price rose by 58½ pence to £11.08 per share as the market "celebrated the Regulator's more generous treatment of the privatised company".[253] The Regulator, however, denied that he been "too soft", and insisted that he had taken a "carrot and stick" approach to regulating the company: the allocation of additional funds to the company was, he said, balanced by closer monitoring of Railtrack's expenditure and by other measures to increase its accountability.[254]

72. Conversely, although it has now accepted the results of the review, Railtrack has said that it is concerned about a number of aspects of the Regulator's final conclusions. Most importantly, it is worried that the financial framework set out in the review will not allow it to raise the £8 billion required for investment in the network over the next five years.[255] More recently, as we have discussed, it has warned that the consequences of the aftermath of the Hatfield accident, combined with other factors, will leave it in "a materially worse financial position from the start of the second control period to that which the Regulator assumed in reaching his final conclusions".[256]

73. The periodic review, however, allows the Regulator a degree of flexibility to deal with exceptional circumstances by permitting interim reviews subject to certain conditions.[257] The Regulator has already indicated that he would consider sympathetically a request from Railtrack for an early interim review, in order to ensure that the immediate consequences of the Hatfield accident and its aftermath on the company's financial position are appropriately addressed in the timing of the revenues that it receives. He would similarly consider an application for a subsequent interim review which would look at the longer-term implications of Hatfield for Railtrack's costs and revenues over the second control period.[258] Railtrack is particularly anxious, as we have seen, to resolve the issue of the timing of its revenues and has welcomed the prospect of the interim review process being able to consider the matter. Given that payment of some revenue under the periodic review is deferred until 2006, and that other revenues from grant income is also deferred until later, Railtrack would have to increase its borrowing to meet its investment targets, taking its net debt to £8 billion by March 2003. This represents "an unrealistic financial challenge" in Railtrack's opinion and it is, as we have said, exploring ways of bringing forward the payment of the deferred revenues with the Strategic Rail Authority.[259]

74. Railtrack has expressed particular concern about the requirement of the periodic review for Railtrack to improve its performance in respect of delays by 2.5 per cent per annum over five years. However, the initial benchmark against which such improvements will be measured is likely to differ from the reality of April 2001, since, Railtrack has said, the 7.8 per cent reduction in delays demanded by the Regulator during the current year is "simply not going to be achieved".[260] The impact of the Hatfield accident and its aftermath is likely only to make the position worse. Railtrack estimates that the difference between the Regulator's assumptions and its actual performance could lead to it having to make performance-related compensation payments of at least £300 million over the second control period.[261] The Association of Train Operating Companies also told us that it had reservations about the decision to double the incentives and penalties relating to delays to trains, because it thought that they might encourage Railtrack to concentrate on measures that improve performance at the expense of accommodating more services on its network.[262]

75. The Regulator's requirement that costs are reduced by 17 per cent in total over the next five years was also thought by Railtrack to be "extremely challenging",[263] because it will have to improve efficiency at the same time as it has to deal with a growing network and demands for better performance.[264] The company thinks that it is unlikely that it will be able to achieve any efficiency improvements in the current year as a consequence of the accident at Hatfield.[265] Further doubt was cast on the efficiency targets set for Railtrack by the Railway Industry Association. It believes that Railtrack would have to secure most of its cost savings from its suppliers and contractors, who are already under great pressure to operate as efficiently as possible. The Association argued that many were working on "unsustainably low" margins already.[266] The Regulator, on the other hand, remains confident that there is "substantial scope" for improved efficiency, and said that there were many examples of where this could be achieved, for example, through better project management and improved knowledge on the part of Railtrack of the condition of its assets.[267]

76. The comments made about the efficiency target set for Railtrack reflected a wider debate about the relationship between safety, performance and growth. Railtrack told us that the substantial growth in passenger and freight traffic using the network in recent years "inevitably puts pressure on the operation of the network",[268] and said that mechanisms were needed to "reconcile the sometimes conflicting pressures for network safety, performance and growth".[269] The company said that joint industry working groups had been set up to consider the matter, and that these would in due course report to an industry steering group chaired by the Chairman of the Strategic Rail Authority.[270] The Rail Regulator refuted any suggestion that demanding efficiency savings, seeking growth or improving the performance of the railway in any way conflicted with safety: he said that "a well-managed railway is a safe one if we have well-maintained rolling stock, competently operated, running on time on well-maintained infrastructure".[271] Similarly, the Association of Train Operating Companies told us that there was "absolutely no conflict" between safety and punctuality for the train operating companies.[272]

CHANGES TO RAILTRACK'S NETWORK LICENCE

77. The periodic review builds on the Regulator's plans to increase Railtrack's accountability by amending the company's Network Licence. The aim of the Regulator's amendments is to improve his own and Railtrack's knowledge and monitoring of the condition of the railway network, through the creation of a proper asset database, the establishment of a system of independent reporters, and other changes to the way in which the condition of the railway is monitored.[273] Such changes to the Network Licence will underpin and help in the enforcement of several of the proposals of the periodic review.

78. One of the amendments proposed would compel the company to establish and maintain an asset register containing details of the condition, capacity and capability of its network. Railtrack is already taking steps to create an asset register, although the Regulator noted that the work currently being undertaken represented the company's third attempt to complete such a register. He said that he was disappointed with progress so far. In November 2000, however, the Chief Executive of Railtrack reported that the register should be completed by April 2001.[274] The Regulator agreed that he expected to reach agreement with Railtrack on the current condition of the network by April, although it would take time after that to complete the register.[275] We have already made clear our strong support for the creation of the asset register, or database, and for the Regulator's efforts to ensure that it is set up as soon as possible. The asset database will play a key role in ensuring that Railtrack in future delivers on its investment plans.

79. Although it is clear that the asset register will be useful to train operators, rolling stock manufacturers, developers of new railway facilities and the Passenger Transport Executives, as well as to Railtrack itself and to the Rail Regulator,[276] concerns have been expressed the register might be open to inspection only by those organisations that have a contractual relationship with Railtrack. By restricting access to the information in this way, third parties, such as developers, would be prevented from preparing schemes in competition with Railtrack.[277] However, the Regulator has indicated that the register will be available to "just about everybody who has a legitimate public interest in it",[278] and he is currently consulting about the terms under which third party access to the register should be permitted.[279] We believe that whilst some restrictions must be placed on the availability of the information contained in the asset register, it will contain information of critical importance to many parties. We therefore recommend that the Regulator ensure that it is made accessible to as wide a range of those interested as possible.

80. Another of the changes to the Network Licence proposed by the Rail Regulator is intended to improve the monitoring of Railtrack's stewardship of the network through the introduction of independent experts or reporters, again by April 2001.[280] Although appointed and paid for by Railtrack, these individuals will be approved by and accountable to the Regulator, who will decide the details and frequency of their investigations. They will examine different aspects of Railtrack's work such its maintenance and renewal of the network.[281] One key responsibility will be to verify the accuracy of the information provided by Railtrack about the performance and condition of the network. Another will be to examine particular areas where stewardship problems have arisen. Reporting on the progress of the West Coast Route Modernisation project will be another task.[282] The reporters will have extensive powers and will be able to look at the work of Railtrack's contractors as well as the company itself.[283]

81. In addition to establishing an asset register and introducing reporters, the proposed new licence condition includes a requirement that Railtrack produces an annual return on the performance and condition of the network,[284] makes changes to the information and presentation of the company's regulatory accounts,[285] and introduces measures to ensure that Railtrack's ability to finance its core activities is not jeopardised by any other activities that it may undertake.[286]

TEN YEAR PLAN FOR TRANSPORT

82. On 20 July 2000, the Government published its Ten Year Plan for Transport. In it, it set out the resources which would be available to implement its integrated transport policies.[287] The plan envisages that a total of £180 billion will be spent on transport over the next ten years, comprising £121 billion of public and private capital investment, an increase of nearly 75 per cent in real terms compared with the previous ten years, and almost £69 billion of revenue expenditure by the public sector.[288] The plan focuses on developing surface transport and outlines spending plans for, amongst other things, new roads and road maintenance, and light rapid transit projects. It also sets policy objectives including targets for reducing traffic congestion levels and increasing the number of trips made by bus passengers.[289] The rail industry will be one of the major beneficiaries of the plan with more than £60 billion allocated to it over the next 10 years. Of that total, £34 billion is expected to be invested by the private sector, with the public sector providing almost £15 billion in capital investment and a further £11 billion in resource expenditure.[290] The money will be used to create "a bigger and better railway" which provides new capacity to meet demand and to improve the quality of service offered to users.[291]

83. The Government has said that a partnership between the public and private sectors will be required to implement its vision: those involved will include the Strategic Rail Authority, the Rail Regulator, Railtrack, and the passenger and freight operators.[292] Central to the proposals to improve the railway is the creation of "new incentives for all parties to deliver quality, performance, investment and growth",[293] including increased performance payments and penalties applied to train operating companies, and the letting of longer-term contracts for passenger rail franchises in return for commitments to service improvements. A new £7 billion Rail Modernisation Fund will also be introduced, to be managed by the Strategic Rail Authority, which will provide funding directly to Railtrack and others during the next decade. The Fund is intended both to attract and complement additional private sector investment in rail infrastructure, and to pay for capacity and performance enhancements to the network which would not be commercially viable.[294] The Fund will operate alongside the Rail Passenger Partnership, which was established by the then shadow Strategic Rail Authority to support innovative projects that produce significant wider integrated transport benefits and reduce car use.[295] Over £18 million has been awarded to 17 schemes since 2000, and an additional 23 proposals are under consideration with the potential of £52 million being spent under the initiative over three years.[296]

84. The Government has said that it expects the capital investment planned under the Ten Year Plan for Transport to secure "the biggest rail improvement programme for more than a century".[297] The enhancements to the network that should be completed during the lifetime of the plan should include completion of the Channel Tunnel Rail Link, upgrading the East Coast Main Line, modernisation of the West Coast Main Line, the completion of Thameslink 2000, gauge and capacity enhancements on freight routes to major ports, and the installation of the Train Protection and Warning System across the network and full Automatic Train Protection on the high-speed passenger network.[298]

85. The improvements planned for the rail network will enable passenger and freight use to grow by 50 per cent and 80 per cent respectively by 2010.[299] Passenger services will be faster and more frequent with increased levels of punctuality and reliability and the provision of information will be improved.[300] At the same time, real reductions in the cost of rail travel will be sought by maintaining the cap on increases of most fares that are presently regulated at one per cent below the rate of inflation.[301]

West Coast Route Modernisation scheme

86. One of the projects included in the Ten Year Plan, the modernisation of the West Coast Main Line, is described by the Government as one of the "most complex and important projects on the railway".[302] The 640-mile route between London and Glasgow is used by approximately 2,000 trains each day.[303] The modernisation programme, which is already underway, includes track renewal, major works to remodel junctions, the renewal and strengthening of overhead power lines, and the installation of new signalling. Once completed, it will enable Virgin Trains' new fleet of high-speed tilting trains to travel at up to 140 miles per hour on the route. Journey times will be reduced significantly: the time taken to travel between London and Manchester, for example, would be 1 hour and 50 minutes by June 2005, compared to the 2 hours and 30 minutes it took before journey times were extended following the post-Hatfield disruption to the network.[304]

87. The arrangements for the project were established in two stages. The first upgrade agreement (known as 'PUG 1') between Railtrack and InterCity West Coast, which was then publicly-owned, was negotiated by the Franchising Director in 1996. Once Virgin Trains won the West Coast franchise in 1997, it renegotiated the original agreement with Railtrack and replaced it with a new contract known as 'PUG 2'. Under the new contract, trains should be running at 125 mph by May 2002 and at 140 mph by May 2005. The PUG 2 contract was approved by the then Rail Regulator in June 1998.[305]

88. Progress with the West Coast Route Modernisation project has been unsatisfactory. In November 1999 the Regulator commenced enforcement action in relation to the project because he considered it likely that Railtrack would breach its obligations under the Network Licence to enhance and develop the network to given standards.[306] The action required Railtrack to demonstrate that it could meet its existing obligations to provide additional capacity on the route for operators other than Virgin, and to review the capacity of the West Coast Main Line in order to establish how it can be developed.[307] A principal difficulty has been that the project has been "reconfigured" because the new form of 'moving block' signalling that the project was to have used has been abandoned.[308] 'Moving block' signalling is a new concept that was also intended to be used on London Underground's Jubilee line. It involves a central control centre communicating directly with computers on board every train to regulate their movement, rather than relying on lineside signals. The then Chief Executive of Railtrack that the system was "great and cheap" in theory, but "almost impossible to do" in practice:[309] the difficulties being experienced with the system on the Jubilee line in 1998 forced Railtrack to reconsider its use on the West Coast Main Line because it might prove to be unworkable.[310] The company had decided to revert to "a lower risk, but more expensive approach" using more traditional forms of technology.[311] As a consequence of this fundamental change, the cost of the project has increased dramatically from the original estimate of £2.3 billion to approximately £5.85 billion.[312]

89. The Regulator examined the costs of the West Coast Main Line upgrading as part of his periodic review of Railtrack's access charges. The project was covered by the periodic review because much of the expenditure on it relates to renewals, although it also includes enhancements not covered by his assessment. The Regulator had previously described the increase in costs as being "remarkable":[313] after examining the project, he determined that its cost had increased to around £5 billion, not to Railtrack's estimate of £5.8 billion.[314] The Government accepted the Regulator's findings in respect of the cost of the project. It decided that it would support the scheme through direct capital payments. Accordingly, £4 billion allocated under the Ten Year Plan for Transport for rail renewal schemes, although not specifically earmarked for this upgrading, will be used to assist the West Coast Route Modernisation scheme.[315] Railtrack told us that without the grant the project would not have gone ahead,[316] since the company would probably have needed to raise an additional £1 billion of equity through a rights issue.[317]

90. The Rail Freight Group argued that the additional costs associated with the West Coast Route Modernisation project resulted from Railtrack's decision to base the upgrade of the line on an unproven signalling system: therefore, it said, the company should bear all of the additional costs. It thought that the Government's decision to provide additional funding had little to the merits of the case and more to do with Railtrack's financial position.[318] The RMT expressed similar reservations about the Government's actions and thinks that the agreement it had reached with Railtrack was "decidedly one way".[319] It believes that taxpayers are being given a poor deal as they will be paying for the modernisation work while Railtrack retains ownership of the assets.[320]

91. The Regulator explained that the Franchising Director had in effect decided in 1996-97 that, the Government would pay for the project to maintain, renew and enhance the West Coast Main Line, subject to a review by the Regulator of the cost efficiency of the project.[321] The Regulator's review would determine what the costs of the project would have been if they had been incurred by an efficient operator. His consultants had examined the change in the signalling strategy, which was the main reason why the costs had risen, and they had accepted that "moving block" was "a signalling system too far".[322] He explained that part of Railtrack's estimate of the total cost of the project, £800 million, had not been allowed and would have to be borne by Railtrack's shareholders, because it related to part of the scheme which is covered by a fixed-price contract.[323]

92. The Regulator admitted that the arrangements for the West Coast Route Modernisation project were not "a good economic deal", but the approach had been agreed by his predecessor and the Franchising Director at the time that the contracts were signed.[324] He agreed that the £4 billion grant that Railtrack will receive is "a gift", inasmuch as the Government was not expecting any of it to be returned.[325] What have been described as "strings of steel" are attached to the money,[326] however, in the form of measures to ensure that Railtrack's accountability in relation to the West Coast Route Modernisation project is stronger than that for the maintenance and renewal of any other part of the part of network. The measures to ensure accountability include a detailed work programme, the setting of milestones to monitor progress, and the appointment of a reporter to check what work the company is actually doing. Payments to Railtrack will be linked to the achievement of specific targets.[327]

93. Sir Alastair Morton also thought that the £4 billion grant being given to Railtrack could be viewed as a gift.[328] He was comfortable with the Government continuing to give money in this way or through the alternative route of advancing the money subject to conditions. He found the latter approach attractive, as he believed in earning a return on investment. He thought, however, that it was ultimately a political decision as to which approach should be taken.[329] The Department of the Environment, Transport and the Regions disputed that the grant to Railtrack was a 'gift', with nothing expected in return. It argued that the grant will be used to purchase improvements on the network which would otherwise not be forthcoming.[330]

Investment under the Ten Year Plan for Transport

94. While Railtrack will play the key role in expanding the network, the Strategic Rail Authority will be able to secure publicly-funded enhancements through third parties where this represents better value for money and will not adversely affect safety or the operation of the network. The options for doing this include joint ventures with operating companies, construction and project management firms and City finance houses, as well as the creation of special purpose vehicles (SPVs), which are companies established specifically to undertake rail infrastructure works.[331] Railtrack was, however, critical of the proposal to use SPVs which it said would pose "considerable practical problems" and would be "the most expensive form of finance".[332] Unsurprisingly, this view was not shared by the Strategic Rail Authority.[333] Indeed, the Authority expects most major network enhancements will be managed by project development boards comprising itself, Railtrack, train operating companies and others, such as financiers and developers.[334]

95. The Association of Train Operating Companies is very positive about using SPVs to bring new investment into the industry.[335] It thinks that SPVs would enable the investment base for the railways to be broadened, which is particularly important as, in its opinion, Railtrack is unlikely to be able to undertake all of the anticipated infrastructure improvements on its own. In addition, better value would be obtained for the money available for investment by introducing competition into this area.[336] There has been a development in this regard already with the successful bidder for the new South Central franchise, GoVia, proposing to use a SPV involving Railtrack and other parties to provide infrastructure improvements on the parts of the network that it will be using.[337]

96. The principles which will underpin investment support, and the forms of funding that will be available, are to be set out in the Strategic Rail Authority's strategic plan, which will also identify priorities for investment. At the time of the publication of the Ten Year Plan for Transport, the strategic plan was scheduled to be published before the end of 2000.[338] In July 2000, the Chairman of the then shadow Strategic Rail Authority said that he thought that it would be produced in late October or early November.[339] In spite of the important role it will play in guiding investment in the railways, the strategic plan has been delayed. In the Autumn of 2000, we were told that the draft plan would be published before the Strategic Rail Authority was formally established on 1 February 2001, with the first formal strategic plan being published in the Autumn.[340] The Strategic Rail Authority has now promised what it describes as a 'Strategic Agenda', which will set out the "questions to be answered, the practical steps forward to be planned, the structures and projects to be developed, the industry consensus to be encouraged, and so on. [It will not be] a Strategic Plan, telling everyone to sit down and read what each is to do, in what order at what time".[341] The strategic plan is now, apparently, due to be published in the Autumn:[342] the delay in producing a strategic plan has reportedly led to much frustration amongst train operators.[343]

97. That said, although the detail has yet to be added the spending plans for the railways announced in the Ten Year Plan for Transport were generally well received by the industry. Railtrack, for example, welcomed the extra investment that would be provided and the acknowledgement of the need to provide financial support which reflects the social, environmental and economic benefits that cannot be paid for through fares and charges.[344] The Association of Train Operating Companies thought that the plan appeared to allocate sufficient funds to meet investment needs, and said that although the private sector had contributed "very little money" to the first round of passenger rail franchises,[345] the ten-year plan had given it confidence to invest in the railways:[346] the Association noted that two operators had already committed themselves to investment under the franchise replacement programme.[347]

98. The Passenger Transport Executive Group was also impressed by the scale of the funds to be allocated under the plan. It had found, however, that while expenditure in the early years of the plan to address the investment backlog compared very favourably with the average spent by European Union member states over the past decade, it failed to keep pace with expectations of economic growth towards the end of the ten year period.[348] Moreover, the Group's chairman was yet to be persuaded that all of the private sector finance expected under the Ten Year Plan would be forthcoming. His experience with the Manchester Metrolink system had shown that the private sector would be unwilling to accept much risk, and that uncertainties afflicted the railway industry, including its vulnerability to the economic cycle.[349]

99. The RMT also noted that the plan's proposals for the railways are heavily dependent on the contribution of private companies. It was concerned that a deterioration in economic conditions would lead to "a dramatic hiatus" in investment by the private sector.[350] Indeed, the need to provide additional public funds to enable the West Coast Route Modernisation scheme to proceed, and the relinquishing by Prism Rail of its two loss-making Welsh passenger rail franchises prompted one commentator to say that privatisation appeared to be a case of "heads the railway operators win, tails the taxpayer loses".[351] By contrast, the Association of Train Operating Companies thought that the new franchises had secured much transfer of risk from the public to the private sectors including the risk that revenues might decrease during a down-turn in the economy.[352] The Department of the Environment, Transport and the Regions also defended its proposals, saying that the estimates that had been made of the private sector's contribution to the ten-year plan were "conservative" and "robust".[353]

100. The railways must be provided with consistent public and private sector funding both to tackle the backlog of past under-investment and to accommodate future increases in passenger and freight use. It is essential that both parties keep to their commitments to invest in the industry over the full term of the plan and are not allowed to renege on their agreements. The Government must ensure, therefore, that there is a genuine transfer of risk to the private sector in any contracts reached with private sector partners. Companies must not be allowed, as has happened in the past, to escape from their obligations or seek recourse to the taxpayer because they have misjudged the level of cost savings they could achieve or because there was a down-turn in the economy.

The growth in rail traffic, and the implications of the Hatfield accident

101. The Ten Year Plan for Transport assumes that around 60 per cent of the new investment required to provide increased passenger capacity on the railway will be funded from fare revenues as passenger numbers rise, although it expects that regulated fares will continue to fall by one per cent per annum in real terms.[354] There are concerns that the assumption that such a large proportion of the total investment expected under the plan will be generated by rising fare revenue may prove to be unrealistic because passenger numbers might fluctuate in the future. The Association of Train Operating Companies, however, believes that although there is "significant risk" associated with forecasting revenue over the ten years of the plan, much of it can be managed by train operators, although it agreed that changes in factors such as central London employment levels are obviously outside of their control.[355]

102. Expectations of continuing growth in passenger numbers were thrown into doubt, however, following the disruption suffered by the network in the aftermath of the Hatfield derailment and the implementation of the national rail recovery programme. Professor David Begg, the Chairman of the Commission for Integrated Transport, warned that the fall in the number of passengers travelling by train since the Hatfield accident could jeopardise long-term improvements on the railways. Uncertainty about future demand for rail travel could reduce the private sector's ability to raise its share of the investment anticipated under the ten-year plan.[356] Indeed, GB Railways, the holder of the Anglia Railways franchise, admitted that it could run out of money if it was not compensated quickly for the losses that it incurred because of the post-Hatfield disruption.[357] However, the Association of Train Operating Companies told us that although there had been a high short-term cost in terms of lost revenue, it did not think that Hatfield would have a long-term effect on passenger demand as this was determined by other factors such as economic growth and motoring costs.[358] Recent reports in fact suggest that passenger numbers may be reviving more quickly than expected despite continuing disruption to services on parts of the network.[359]

103. While long-term prospects for a continuing increase in passenger demand may not have been seriously damaged, the outlook for rail freight is less clear. The Rail Freight Group has warned that freight customers are unlikely to return to the railways as readily as passengers.[360] Freight traffic has already been permanently lost as a consequence of the disruption, according to the Group, and many prospects for expansion had disappeared.[361] It hoped that the Regulator would propose low track access charges for rail freight in order to help the sector recover from Hatfield and earlier set-backs such as the ending of the fuel duty escalator and the decision to allow 44-tonne lorries for general use.[362] The Chairman of the then shadow Strategic Rail Authority agreed that while passenger traffic was likely to recover relatively quickly, he was more concerned about the picture for rail freight. He thought that rail freight had suffered "quite a lot" following the Hatfield accident and that the industry was already facing a challenge if it is to increase rail freight volumes by 80 per cent over the life of the Ten Year Plan for Transport.[363]

104. The view that passenger numbers would soon recover was shared by the Minister for Transport, who also hoped that the same would be true for rail freight. He told us that there is presently unallocated money within the Ten Year Plan for Transport which could possibly be used to assist with any funding shortfalls that arise if passenger and freight volumes do not grow by as much as expected.[364] We expect the rail industry to make every effort to regain the business that has been lost following the Hatfield accident and to attract new passengers and freight users who were already using the roads. As confidence in the railways has been severely shaken by recent events, we are concerned that rail traffic may not grow by as much as anticipated in the Ten Year Plan and that more journeys will be made by road instead. We recommend, therefore, that the Government considers the case for providing additional financial support to the industry and, in particular, to the rail freight sector, to ensure that it meets the targets for increasing traffic by 2010.

Skills shortages

105. We are also concerned that the expansion of the rail network expected under the ten-year plan could be constrained by shortages of people with the necessary training to implement such a substantial investment programme. The Association of Train Operating Companies told us that the effects of skills shortages had already been felt, and that the industry had looked overseas for skilled staff. Such shortages might impede the investment programme, with areas including train planning, signalling and engineering likely to be affected. Although most groups had training programmes, the Association of Train Operating Companies acknowledged that there were skills gaps that had to be addressed.[365] The then shadow Strategic Rail Authority agreed that this was a problem: its chairman reported that there is "a shortage of skilled resource in the industry at all levels".[366] He thought that the solution lay in better employment prospects as well as in training. Career prospects in the industry will, of course, be much improved by the programme of continuous investment outlined in the Ten Year Plan for Transport.[367]

106. The Minister for Transport agreed that there is "a real problem" with training in the railway industry. He also agreed that the investment planned for the industry could exacerbate existing difficulties, although it should enable companies to recruit and train staff with greater certainty than they had done in the past.[368] He thought that it would be vital, however, to try and increase recruitment and training up to the levels necessary to meet the forecast increases in traffic levels. Training would be assisted by the Institution of Railway Operators, which was established in 1998, and the Department of the Environment, Transport and the Regions, Strategic Rail Authority and the Health and Safety would discuss what more needed to be done. The Minister said, however, that it is now time "to go up a gear or two on that".[369] Progress with implementing the investment programme for the railways contained in the Ten Year Plan for Transport must not be delayed by shortages of skilled staff which may worsen as the amount of activity on the network increases. The Government and the industry must urgently assess the extent and nature of the likely skills gap and put in place a training programme that addresses those future needs.

FRANCHISE REPLACEMENT

107. The Government sees that replacement of the current short passenger rail franchises as being central to the creation of a better railway.[370] New contracts of between ten and twenty years in length, with review points every five or seven years,[371] will be offered, in order to encourage the development of stronger train operating companies which are more willing and able to invest in their franchises.[372] Amongst other things, franchisees will be expected to invest in the expansion of network capacity, improve the quality of information given to passengers, upgrade station facilities and customer services, and provide high quality, reliable services to passengers, and thereby become full partners, alongside Railtrack and the ROSCOs, in sharing the risks and the rewards of investing in the railways.[373] Whilst we welcome the range of criteria which the Strategic Rail Authority will use to decide between bids for new franchises, we believe that by far the most important of them is that new franchises will deliver better standards of service to passengers.

108. The shadow Strategic Rail Authority published its new franchise map in June 2000.[374] The map outlined its views on how the existing franchise areas could be amended, including the creation of new franchises such as Trans-Pennine Express and Wales and the Borders. The Authority has said that it expects to replace the 18 shorter-term franchises, due to expire by 2004, by Autumn 2001.[375] The Strategic Rail Authority believes that fewer, but stronger, franchises are required not only to raise money for investment, but to "hold their own in negotiations with Railtrack and other rail companies".[376] This is an important development: relationships between the different companies involved in the rail industry are in need of considerable improvement. In particular, the train operating companies have appeared to be unequal partners in discussions with Railtrack, which is, after all, the monopoly provider of access to the national rail network. Although the situation had since improved, Mr Gerald Corbett agreed that relationships within the railways soon after privatisation were poor. He attributed this to the fragmentation of the industry with all of the players "sitting behind adversarial contracts".[377] According to Mr Richard Middleton, who was then Railtrack's Commercial Director, the company has put forward a code of practice to improve the way in which the complex contractual relationships within the industry are managed.[378]

109. The Association of Train Operating Companies shared the view that the relationships should be improved. It was looking for more far-reaching developments than the code of practice, and saw the code as being "a fall-back" position.[379] Instead, better contracts would be "the bedrock" of improved relationships,[380] and the Association advocated the revision of the original track access agreements which it thought contained "too few rights for train operators and [placed] too few obligations on Railtrack".[381] The Regulator agreed that Railtrack's relationships had often been criticised as being "unresponsive, inefficient and in other respects unsatisfactory".[382] He thought that for too long Railtrack had considered itself to be "a giant which was a dictator to the industry", and that the train operators must come to it as "supplicants".[383] The company is in fact a supplier of infrastructure services and it must become "far more customer-focussed and customer-orientated than it ever has before". The Regulator also told us that Railtrack needed to change its attitude to reflect that running on its network was a right that train operators had, rather than a privilege.[384] He had proposed adding an extra condition to Railtrack's Network Licence which would require the company to behave with "due efficiency and economy and in a timely manner" and in way which would be expected of "a skilled and experienced" network owner and operator.[385] There is much criticism of the way that Railtrack has handled its relationships with its dependent customers since the railways were privatised. We recommend that measures to improve Railtrack's accountability to its customers be introduced without delay to ensure that the company performs in accordance with the contracts that it has entered into.

110. The franchise replacement process itself has not been without its critics. The Railway Reform Group, for example, noted that the then shadow Strategic Rail Authority produced the first version of its guide to the franchise replacement process two months after the first invitations to submit proposals for new franchises had been issued. The Group believes that this mis-matching of important time-scales has adversely affected the process and has left many with the impression that the rules, such as they are, were "being made up as the game progressed".[386] Although welcoming the prospect of new services, the Passenger Transport Executive Group expressed concern that the proposed Trans-Pennine Express franchise might add to congestion around Greater Manchester. While the shadow Strategic Rail Authority had acknowledged the capacity constraints in the area, it was not clear to the Group, when it appeared before us, when the necessary infrastructure enhancements would be made and how they would be funded.[387]

111. Long-standing concerns about the competition between passenger and freight operators for train paths also remain. EWS is worried that the new franchises may include passenger service enhancements which absorb the capacity that will be needed if rail freight volumes are also to expand.[388] The then shadow Strategic Rail Authority told us, however, that the franchise replacement criteria includes provision for infrastructure improvements to allow the expansion of freight,[389] although there were no universal answers, however, to the question of how to accommodate freight growth. Solutions will have to be developed according to the circumstances of a particular case.[390]

112. Early progress with the replacement progress has seen the award of two new 20-year contracts for the Chiltern and the South Central franchises. In addition, a two year extension has been granted to the Midland Main Line franchise which was due to expire in 2008. Other deals, for example, involving the existing West Anglia Great Northern franchise have been agreed which prepare the ground for new franchises in a few years time.[391] A commitment to invest £370 million over the life of the franchise has been secured from the successful bidder, M40 Trains, in return for the new Chiltern franchise. Infrastructure enhancements, including additional tracks and platforms, are planned as part of the deal, as well as the examination of new lines and stations in the longer-term.[392] Meanwhile the agreement with GoVia on the new South Central franchise provides for £325 million to be spent on infrastructure out of a total of £1.5 billion.[393] GoVia intends to use a joint venture for all of its investment in infrastructure, involving Railtrack and Bechtel as its partners. The joint venture will be used to upgrade existing lines, refurbish existing stations and develop new ones.[394]

113. Nevertheless, in spite of their importance for securing investment in the railways, the new franchises have not been awarded as quickly as expected. The then shadow Strategic Rail Authority had announced that it intended to determine the new South Central franchise in the "late Spring" of 2000,[395] while heads of agreement were not actually signed with GoVia until 24 October of that year. More significantly, the Strategic Rail Authority has abandoned negotiations about replacing the Central Trains franchise because it was not satisfied with the value of the proposals it had received from the two remaining bidders. The existing franchise agreement will remain in place until it expires in 2004.[396] Furthermore, the competition for the franchise to operate inter-city services on the East Coast Main Line between the incumbent, Great North Eastern Railways, and Virgin/Stagecoach,[397] has proved controversial, not least when the Authority reportedly gave a lukewarm response to Virgin's proposal for a major infrastructure development in the form of a new high-speed line to run parallel with part of the existing route. Bids based on Railtrack's existing plans to increase capacity on the route were thought to be preferred.[398] Furthermore, the Strategic Rail Authority was forced to declare a pause in the re-franchising process, at a late stage, after being informed by Railtrack that the cost of upgrading the East Coast Main Line had increased. The Authority described the increase in costs as "rapid", and said that they might rise by as much as 100 per cent if all of the options set out by Railtrack were adopted.[399] In fact, the increase in the costs of the project was later assessed as being nearer 20 per cent, and after a delay of a fortnight the re-franchising process began again.[400]

Conclusion

114. Railtrack's past performance in maintaining, renewing and developing the network has been seriously inadequate. The regulation of the company has also been found to be wanting with serious weaknesses in the way in which the work expected from the company was specified, how its performance was monitored, and how the company could be held to account. The existing financial structure of the industry has been found to be flawed as it did not provide for the increased demand for passenger and freight services which have been experienced in recent years and is forecast to continue at least for the next ten years

115. The appointment of a new Rail Regulator, the completion of his periodic review of Railtrack's access charges, the proposed changes to Railtrack's network licence, new powers under the Transport Act 2000, the creation of the Strategic Rail Authority, and the letting of new passenger rail franchises, as well as the Government's Ten Year Plan for Transport provide the opportunity for the long-term backlog of investment in the railways to be addressed, and for investment to be made in increasing the capacity of the network to accommodate greater volumes of traffic.

116. The railways are expected to benefit from large sums of public money over the next ten years. The Government has committed to spend almost £15 billion on capital investment in the industry over that period, and will make no obvious financial return on that investment. The £4 billion of capital grants to be made by the Government to Railtrack in respect of the West Coast Route Modernisation project, taking into account the £1 billion rights issue required by Railtrack if this grant were not available, is more than the total market capitalisation of the company. Some of our witnesses, such as the RMT believe that it is inconceivable that the Government will not take a stake in Railtrack, either in the form of shares or a seat on the board, in return for its investment proposed under the ten-year plan. This would ensure that there was direct public influence over the use of this money.[401] The Rail Freight Group also told us of its surprise that the Government is not proposing to take shares in Railtrack in return for its investment.[402]

117. When Mr Gerald Corbett, then Chief Executive of Railtrack, appeared before us, he told us that the company had recommended that the Government take preference shares[403] in the company as the most efficient way of levering public money into the railways.[404] It is worth noting that Mr Corbett's successor, Mr Steve Marshall, told us that this possibility had not been contemplated seriously by the company or by the Government for any length of time, and said that it was not in fact the best option for levering public funds into the industry.[405] The Minister for Transport explained that the Government was against taking equity in Railtrack because having a minority stake would not, in its opinion, give it influence over the company.[406] It would also make the Government complicit in decisions taken by Railtrack, which would be undesirable given the Government's relationships with the industry's regulators.[407]

118. Several other options have been proposed for restructuring the industry. One has been the proposal to bring the national rail network back under public control. The RMT told us that as a first step to reuniting the railway it would like to see the integration of Railtrack and the infrastructure maintenance companies.[408] It subsequently joined the two other main railway trades unions and 100 MPs in the 'Take Back the Track' campaign to bring Railtrack back under public control. It has started a petition which urges the Government to return the company to "an appropriate form of public ownership in the interests of rail safety and the efficient management of the network." It believes that such action is necessary to restore public confidence in the railways.[409] Separate proposals for reintegrating the railways, in the shape of bringing together train and infrastructure operation, have come from a different source: in its bid to retain the South West Trains franchise, Stagecoach has proposed that it should take responsibility for running and maintaining the routes that it uses to and from Waterloo station.[410]

119. The Rail Freight Group, however, advocated a different approach which would involve the creation of smaller infrastructure companies or "mini-Railtracks" based on the company's existing zones. The Group believes that this change would have many advantages such as enabling senior management to cope more effectively with their workload, permit the 'benchmarking' of performance, and provide alternative contractors if one company should have performed so badly that its Network Licence is revoked. In response to concerns about the further fragmentation of the railway, the Group accepts that good coordination between the regional companies would be needed, but feels that the benefits of such an arrangement would outweigh the disadvantages.[411] The Minister for Transport told us, however, that "we are where we are" and rather go for the upheaval that might be caused by restructuring, the Government had decided to adopt a strategy of trying to support the railways with investment, while ensuring that industry was carefully monitored and regulated.[412]

120. A further alternative approach would be to convert Railtrack to a non-profit making stakeholder trust. A partnership would be created with those with interests in the industry, including the Strategic Rail Authority, the train operators, passengers and the trades unions, with each taking seats on the board of the trust. It has been suggested that the expense of buying-out Railtrack's shareholders need not be met. Instead, the Government could issue guaranteed bonds in order to raise the money with Railtrack's profits effectively being converted into interest payments. This approach, it is argued, would ensure that the industry was given shared objectives and that the various parties would be much more likely to cooperate than has been the case under the present system. In addition, with Railtrack no longer a private sector monopoly, economic regulation of the company would no longer be required.[413]

121. Our view is straightforward. We believe that the Government's role in relation to the nation's railways demands that it should have some influence over the management of Railtrack. We also believe that the very considerable sums of money to be granted to Railtrack from taxpayers over the next few years deserve to make some sort of return. We note the Minister's reservations about taking an equity stake in the company. We also note the views of those who argue that Railtrack's status as a private company should not be affected, and therefore oppose any change to its structure: those views are, we contend, spurious, given the uniqueness of Railtrack's position as a highly-regulated company which receives the vast majority of its income from the Government. We therefore strongly recommend that the Government should consider a number of options: (1) that it should take a majority equity stake in Railtrack, and use that stake to exercise influence over the management and policies of the company; (2) that it should take Railtrack wholly back into public ownership; and (3) that it should consider the role and responsibility of the Strategic Rail Authority in relation to maintenance, renewal and development of the rail network.

Summary of conclusions and recommendations

122. Our principal conclusions and recommendations are:

    (a)  Although there are welcome signs that the regulatory framework in which Railtrack operates is being tightened, it remains the case that the regulation of Railtrack since its privatisation has not been adequate, considering the significant growth in passenger and freight traffic following privatisation. The regulatory regime set up at the time of privatisation was not intended to deal with a growing railway, and consequently has failed to ensure that Railtrack has delivered what has been required of it by train operators, passengers and the wider public during a period of growth. An example of the weakness of the regulatory regime is its failure to ensure that Railtrack had adequate knowledge of the condition of its assets. Without such knowledge it is difficult to know how Railtrack was supposed to manage its assets properly, or how the Regulator was to oversee investment by the company. Moreover, the actions of the Regulator were for a long time half-hearted and ineffectual: we welcome recent signs of a more vigorous approach (paragraph 32).

    (b)  Railtrack has undoubtedly spent a great deal of money on the maintenance and renewal of the rail network since privatisation. It has faced the problems of historic under-investment in the railways in the United Kingdom, and greatly increased rail passenger and freight traffic following privatisation. Nevertheless, we note that track quality had been shown to have deteriorated even before the inspections of the network which followed the Hatfield crash. We therefore agree with the Rail Regulator's assessment, that Railtrack has not maintained and renewed the network to a standard which could reasonably be expected of it. Its past record is simply not acceptable (paragraph 42).

    (c)  We recommend, therefore, that HM Railway Inspectorate review Railtrack's management of its contractors once again, to ensure that the company either takes full responsibility for the training of maintenance staff or puts adequate safeguards in place to ensure that they are already properly trained before they are allowed to work on the railway (paragraph 45).

    (d)  The system of managing contractors who carry out maintenance and renewal work on the railway through the system of 'cascaded safety cases' has been shown to have utterly failed. It is not just the system that has failed: Railtrack's management of its contractors has been woeful (paragraph 49).

    (e)  Railtrack has been told several times that its management and monitoring of maintenance and renewals contractors has not been adequate. It is clear that it was only after a major accident that Railtrack decided to take steps to address the issue (paragraph 50).

    (f)  Given that the previous means of managing maintenance and renewal contractors has failed, we strongly recommend that Railtrack take over direct responsibility for inspecting the network, and for directly employing those who work on the maintenance and renewal of the rail network. It should do so without any further prevarication and delay, and without awaiting the outcome of a spurious 'review'. In order to carry out these functions properly we recommend that Railtrack employ adequate engineering and project management expertise. Moreover, the Board of Railtrack should reflect a knowledge of engineering that complements these responsibilities (paragraph 51).

    (g)  The short-term and long-term costs which have arisen as a result of the Hatfield accident and the national rail recovery plan have arisen principally because Railtrack has failed in the past properly to manage maintenance and renewal of the national rail network. Such costs are likely to end up being borne, in one way or another, by the Government: the only alternative would be to permit Railtrack to cut back vital investment in the railway. It is unacceptable that the taxpayer should be compelled to bail out a private monopoly company which has acted so incompetently, without taking any stake in the company in return (paragraph 54).

    (h)  Railtrack's record in managing major infrastructure projects is a matter of serious concern. Doubts remain about the company's ability to deliver developments and enhancements to the network. We are far from confident about Railtrack's competence in this regard (paragraph 63).

    (i)  We have already made clear our strong support for the creation of the asset register, or database, and for the Regulator's efforts to ensure that it is set up as soon as possible. The asset database will play a key role in ensuring that Railtrack in future delivers on its investment plans (paragraph 78).

    (j)  We believe that whilst some restrictions must be placed on the availability of the information contained in the asset register, it will contain information of critical importance to many parties. We therefore recommend that the Regulator ensure that it is made accessible to as wide a range of those interested as possible (paragraph 79).

    (k)  The Government must ensure, therefore, that there is a genuine transfer of risk to the private sector in any contracts reached with private sector partners. Companies must not be allowed, as has happened in the past, to escape from their obligations or seek recourse to the taxpayer because they have misjudged the level of cost savings they could achieve or because there was a down-turn in the economy (paragraph 100).

    (l)  As confidence in the railways has been severely shaken by recent events, we are concerned that rail traffic may not grow by as much as anticipated in the Ten Year Plan and that more journeys will be made by road instead. We recommend, therefore, that the Government considers the case for providing additional financial support to the industry and, in particular, to the rail freight sector, to ensure that it meets the targets for increasing traffic by 2010 (paragraph 104).

    (m)  Progress with implementing the investment programme for the railways contained in the Ten Year Plan for Transport must not be delayed by shortages of skilled staff which may worsen as the amount of activity on the network increases. The Government and the industry must urgently assess the extent and nature of the likely skills gap and put in place a training programme that addresses those future needs (paragraph 106).

    (n)  Whilst we welcome the range of criteria which the Strategic Rail Authority will use to decide between bids for new franchises, we believe that by far the most important of them is that new franchises will deliver better standards of service to passengers (paragraph 107).

    (o)  There is much criticism of the way that Railtrack has handled its relationships with its dependent customers since the railways were privatised. We recommend that measures to improve Railtrack's accountability to its customers be introduced without delay to ensure that the company performs in accordance with the contracts that it has entered into (paragraph 109).

    (p)  We believe that the Government's role in relation to the nation's railways demands that it should have some influence over the management of Railtrack. We also believe that the very considerable sums of money to be granted to Railtrack from taxpayers over the next few years deserve to make some sort of return. We note the Minister's reservations about taking an equity stake in the company. We also note the views of those who argue that Railtrack's status as a private company should not be affected, and therefore oppose any change to its structure: those views are, we contend, spurious, given the uniqueness of Railtrack's position as a highly-regulated company which receives the vast majority of its income from the Government. We therefore strongly recommend that the Government should consider a number of options: (1) that it should take a majority equity stake in Railtrack, and use that stake to exercise influence over the management and policies of the company; (2) that it should take Railtrack wholly back into public ownership; and (3) that it should consider the role and responsibility of the Strategic Rail Authority in relation to maintenance, renewal and development of the rail network (paragraph 121).


227   The Periodic Review of Railtrack's Access Charges: Draft conclusions, Office of the Rail Regulator, July 2000, para.1.1, which can be seen at www.rail­reg.gov.uk/prdcrev/prdcrev_27_7_vol1.pdf. Back

228   See The Periodic Review of Railtrack's Access Charges: Draft conclusionsBack

229   The Periodic Review of Railtrack's Access Charges: Final conclusions, Office of the Rail Regulator, October 2000, para.1, which can be seen at www.rail­reg.gov.uk/prdcrev/prfinal1.pdf. Back

230   The Periodic Review of Railtrack's Access Charges: Final conclusions, Office of the Rail Regulator, October 2000. Back

231   Charges paid by freight train operators are subject to a separate review, which is currently under way. See Review of Freight Charging Policy: a consultation document, Office of the Rail Regulator, May 2000. Back

232   These relate to the capability and performance of the network as well as the condition and serviceability of Railtrack's assets (RI21A, para. 19).  Back

233   RI21A, para. 14. Back

234   The Periodic Review of Railtrack's Access Charges, para. 1.12. Back

235   The Periodic Review of Railtrack's Access Charges, para. 1.17. Back

236   RI21A, para. 4. Back

237   £14.9 billion, plus £2.8 billion, minus £3.7 billion. Back

238  The base level of access charges for franchised passenger train services will reduce by 11.2 per cent in 2001-02 and then increase in real terms such that charges in the final year of the control period will be 6.5 per cent higher than at present. In the absence of grants, these charges would increase by 34.4 per cent in the first year and by the end of the period they would be 62 per cent higher than they are in 2000-01 (The Periodic Review of Railtrack's access charges: final conclusions, para. 1.21). Back

239   The Periodic Review of Railtrack's Access Charges, Volume 1, para. 1.11. Back

240   The draft conclusions assumed a cost reduction of 3.8 per cent per annum. That has been cut to 3.1 per cent because of expectations that increasing activity in the construction sector over the next five years will lead to higher prices (RI21, para.18).  Back

241   RI09. Back

242   RI23A, para. 8. Back

243   The Periodic Review of Railtrack's Track Access Charges, para. 1.26. Back

244   RI21B, para. 25. Back

245   £15 billion to deliver a modern, safe railway with greater public accountability - Rail Regulator, ORR Press Notice, 23 October 2000. Back

246  The Periodic Review of Railtrack's Access Charges: final conclusions, para. 1.28. Back

247   RI21B, para. 29. Back

248   RI21A, para.34. Back

249   RI21A, para.35. Back

250   RI21A, para. 35. Back

251   Q. 505. Back

252   RI07A. Back

253   Market welcomes Winsor's rail 'carrot', The Daily Telegraph, 24 October 2000. Back

254   Market welcomes Winsor's rail 'carrot', The Daily Telegraph, 24 October 2000. Back

255   RI20C. Back

256   Revised exceptional charge for the current financial year and response to the regulatory review, Railtrack News Release, 15 January 2001, which can be seen at www.railtrack.co.uk/buildarticle.cfm?id=1124&t=3. Back

257   Periodic Review: Statement on the Implications of Hatfield, Office of the Rail Regulator, 15 January 2001, para. 2. Back

258   Periodic Review: Statement on the Implications of Hatfield, paras. 7-9. Back

259   Revised exceptional charge for the current financial year and response to the regulatory review, Railtrack News Release, 15 January 2001, which can be seen at www.railtrack.co.uk/buildarticle.cfm?id=1124&t=3. Back

260   RI20C. Back

261   Revised exceptional charge for the current financial year and response to the regulatory review, Railtrack News Release, 15 January 2001. Back

262   Q. 424. Back

263   RI20B, p.4. Back

264   RI20B. Back

265   Revised exceptional charge for the current financial year and response to the regulatory review, Railtrack News Release, 15 January 2001. Back

266   Railway Industry Association response to the Periodic Review of Railtrack's Access Charges: draft conclusions, 13 September 2000.  Back

267   Q. 851. Back

268   RI20B. Back

269   RI20B, p.5. Back

270   See RI20B, p.5. Back

271   Q. 827. Back

272   Q. 479. Back

273   See RI21, para.32; see also Consultation on proposed modifications to Railtrack's network licence, Office of the Rail Regulator, 14 September 2000. Back

274   QQ. 658 and 659. Back

275   QQ. 916-20. Back

276   RI21B, para. 42. Back

277   RI07A. Back

278   Q. 284. Back

279   RI21B, para. 44. Back

280   Q. 922. Back

281   RI21B, para. 46. Back

282   RI21B, para. 47. Back

283   Q. 923. Back

284   RI21B, para. 51. Back

285   RI21B, paras. 55 and 56. Back

286   RI21B, paras. 53 and 54. Back

287   Transport 2010: The ten-year plan, DETR, July 2000, at www.detr.gov.uk/trans2010/plan/index.htm. Back

288   Transport 2010, p. 9. Back

289   Transport 2010, pp. 10 and 11. Back

290   Transport 2010, para. 6.19. Back

291   See Transport 2010, para.6.10. Back

292   Transport 2010, para. 6.10. Back

293   Transport 2010, para.6.12. Back

294   RI12. Back

295   RI23A. Back

296   Developing an integrated transport system: SRA invests in West Wales interchange, Strategic Rail Authority News Release, 1 February 2001. Back

297   RI23A, para.19. Back

298   RI23A. Back

299   Transport 2010, p.96. These increases are measured in terms of passenger kilometres and tonne kilometres respectively. Back

300   Transport 2010, para. 6.22. Back

301   Transport 2010, para. 6.12. Back

302   Transport 2010, p.45. Back

303   Transport 2010, p. 45. Back

304   See www.wcrm.co.uk. Back

305   RI21A, para. 13(b). Back

306   RI21, para.14. Back

307   RI21, para. 14. Back

308   RI20.  Back

309   Q.18. Back

310   Q. 18. Back

311   RI20.  Back

312   Maintenance and renewal of the West Coast Main Line, Office of the Rail Regulator Press Notice, 20 June 2000. Back

313   Q. 295. Back

314   RI21A, para. 25. Back

315   Transport 2010, p. 45 and para. 6.14. Back

316   Q. 572. Back

317   Q. 575. Back

318   RI07A. Back

319   RI02A. Back

320   RI02A. Back

321   Q. 900. Back

322   Q. 903. Back

323   Q. 903. Back

324   Q. 903. Back

325   Q. 909. Back

326   Q. 910. Back

327   Q. 910. Back

328   Q. 703. Back

329   Q. 701. Back

330   Q. 965. Back

331   RI23A, para. 2.5. Back

332   RI20. Back

333   QQ. 233-39. Back

334   RI12. Back

335   Q. 123. Back

336   RI17. Back

337   Q. 437. Back

338   Transport 2010, p.45. Back

339   Q. 176. Back

340   RI12A. Back

341   Speech by the Chairman of the Strategic Rail Authority to the Waterfront Conference, 31 January 2001, which can be seen at www.opraf.gov.uk/sra/news/Default.htm. Back

342   See Railtalk, in Modern Railways, March 2001, p.4. Back

343   No strategy, not much authority, The Guardian, 1 February 2000. Back

344   RI20B. Back

345   Q. 457. Back

346   Q. 456. Back

347   RI17A. Back

348   RI16B. Back

349   Q. 378. Back

350   RI02A. Back

351   A letter from the Editor of Rail Business Intelligence to the Financial Times, 21 June 2000.  Back

352   Q. 454. Back

353   Ten-year plan for transport, minutes of evidence, 26 July 2000, Q. 8). Back

354   Transport 2010, annexe 3. Back

355   RI17B. Back

356   Rail investment threatened by switch to air, The Daily Telegraph, 14 December 2000. Eight weeks after the Hatfield accident passenger use of the railways had fallen by 14 per cent overall and was down by 30 per cent on inter-city routes. At the same time, there was a 15 per cent increase in domestic air passenger numbers with routes such as London-Manchester showing a 40 per cent rise.  Back

357   GB shares plummet to all-time low, The Daily Telegraph, 15 November 2000. Back

358   RI17B. Passenger revenues in the four weeks between 15 October and 11 November and 12 November and 9 December 2000 were £55 million and £65 million below expectations.  Back

359   Rail passengers return after Hatfield delays, The Daily Telegraph, 30 January 2001. Back

360   Q. 504. Back

361   RI07A. Back

362   Q. 530. Back

363   Q. 759. Back

364   Q. 988. About £9 billion has been earmarked for capital expenditure in the second half of the period covered by the plan, which has yet to be allocated to road or rail or any other specific spending programme (QQ. 991-93).  Back

365   QQ. 488-90. Back

366   Q. 802. Back

367   Q. 802. Back

368   Q. 998. Back

369   QQ. 1001 and 1002. Back

370   Transport 2010, p.43. Back

371   A Guide to Franchise Replacement, shadow Strategic Rail Authority, May 2000, which can be viewed on the internet via www.sra.gov.uk/sra/publications/default.htm. Back

372   RI12. Back

373   A Guide to Franchise Replacement, shadow Strategic Rail Authority, May 2000. Back

374   Building a Better Railway: Sir Alastair Morton sets out Map for UK Rail, shadow Strategic Rail Authority News Release, 20 June 2000. Back

375   Building a Better Railway: Sir Alastair Morton sets out Map for UK RailBack

376   The New Franchise Map for Britain's Railways, shadow Strategic Rail Authority Briefing Note, 20 June 2000. Back

377   Q. 26. Back

378   Q. 28. Back

379   Q. 134. Back

380   Q. 135. Back

381   RI17. Back

382   RI21B, para. 48. Back

383   Q. 838. Back

384   Q. 838. Back

385   RI21B, para. 49. Back

386   RI11. Back

387   Q. 406. Back

388   RI09. Back

389   Q. 187. Back

390   QQ. 192-98. Back

391   RI12A. Back

392   RI12A. Back

393   RI12A. Back

394   RI12B. Back

395   Building a better railway: six companies short-listed for first franchise replacement round, shadow Strategic Rail Authority News Release, 14 March 2000. Back

396  Strategic Rail Authority halts replacement process for Central Trains franchise, Strategic Rail Authority News Release, 7 February 2001. Back

397   In July 2000, the shadow Strategic Rail Authority said that the proposals from the two organisations needed to be developed and improved. It hoped to announce the name of the preferred bidder in Autumn 2000 (Update on progress with East Coast Main Line franchise, shadow Strategic Rail Authority News Release, 25 July 2000).  Back

398   Franchise replacement - back to the future, Modern Railways, February 2001. Back

399   See Railtrack cost increase forces East Coast Main Line review, Strategic Rail Authority, 14 February 2001, which can be viewed at www.opraf.gov.uk/sra/news/Default.htm. Back

400   See SRA approves ECML costs and announces strategic agenda approval, Strategic Rail Authority, 2 March 2001. Back

401   Q. 338. Back

402   Q. 516. Back

403   In the event of a company being wound-up, preference shares rank ahead of ordinary shares, but behind bonds for the repayment of capital. Preference shareholders do not normally have the right to vote on appointments to the company's board. Back

404   RI20. Back

405   QQ. 588-603. Back

406   Q. 957. Back

407   Q. 958. Back

408   Q. 343. Back

409   See www.aslef.org.uk/tbtt.html. Back

410   Stagecoach plans to operate key rail line, The Financial Times, 29 January 2001. Back

411   RI07A. Back

412   Q. 964. Back

413   Railtrack could be a non-profit trust, The Guardian, 10 January 2001. Back


 
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