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


Memorandum by the Railway Reform Group (RI 11)

INTRODUCTION

  The Railway Reform Group welcomes the opportunity to present evidence, provided by this timely Inquiry by the Transport Sub-committee. We see to bring to the Sub-committee's attention a number of aspects relevant to Rail Investment plans, in particular those of the Shadow Strategic Rail Authority.

  At this critical time for the industry we are concerned to ensure that the fullest consideration is given to obtaining value for money in Public/Private Partnerships and that the criteria used to distribute public sector funding within the industry are consistent and transparent.

  In setting the terms of reference of the Inquiry in the context of the Report by the Comptroller and Auditor General on Ensuring that Railtrack maintain and renew the rail network, we are comforted by the assumption that that Sub-Committee shares our concerns, particularly in view of Railtracks past performance in this area.

  In our Report in February 1998, we wrote "...unless a clear link is established between Railtracks ability to derive income from Track Access and the Company's ability, or otherwise, to invest, even the most recent modification to Railtracks Licence will do nothing to halt a widening gap between illusion and reality".

  Since then the Rail Regulator has consulted widely on the determination of the scale of Access charges which Railtrack will be permitted to levy during the second control period (from 2001) and Tom Windsor is due to announce his findings and determination later this year. It is widely anticipated that an increase in the level of access charges will result, although there may be some adjustment in the proportions of fixed and variable charges, with an increase in the latter.

  The structural issue which we raised in our 1998 report remains. We would be concerned if inadequate and unquantified mechanisms persisted which allowed Railtrack to receive increasing subsidy (through Track Access charges from the Train Operating Companies) without binding commitments to increase real investment in capacity of the network. Indeed Railtrack itself has indicated that it has no capacity to fund all of the improvements which have been identified as "customer reasonable requirements" in its latest Network Management Statement. No doubt as part of the process of attempting to influence the outcome of the game, well before the kick-off, Gerald Corbett has indicated that Railtracks ability to fund further borrowing may well be in breach of its banking covenants.

  This has left the "gap between illusion and reality" to be filled from only one possible source, the Strategic Railway Authority, whose strategy has yet to be revealed and whose authority has yet to be established and legislated into being.

  The means by which the Office of the Rail Regulator intends to ensure that Railtrack honours its future commitments is likely to be defined by terms of legislation and licence, and we submitted evidence to the Sub-Committee during the examination of the Railways Bill in the last Session. Since that time of course, Tom Windsor has shown himself to be more than willing to utilise existing powers to encourage an increasingly mature response from Railtrack, and this, together with the acceptance of wider community responsibilities, prompted in part by the tragic accident at Ladbroke Grove, leaves us with an impression that there has been a defining change in culture within Railtrack.

  Or if should, if there were not occasional inconsistent messages emanating from parts of the organisation which might not yet be "re-constructed". Since one of these attitudinal inconsistencies concerns investment mechanisms and the use to which so-called "Special Purpose vehicles" might be utilised in levering in investment in the industry, we will continue to urge caution and the necessity for exacting and binding conditions upon Railtrack in playing its undoubtedly major part in industry renewal.

  Whilst we may share the Transport Sub-committee's and the Comptroller and Auditor General's concerns regarding both Railtrack's past performance in renewing, maintaining and developing the rail network, together with the adequacy of the oversight exercised in the past by the Office of the Rail Regulator of Railtrack's performance, we are concerned within this memorandum of evidence to look forward to the effectiveness of the pivotal role which must be played by the Strategic Rail Authority in the industry's renaissance.

  In order to achieve this we will consider:

    —  Recent developments in investment evaluation.

    —  The direct role of the SRA in investment in the shorter term.

    —  The indirect role of the SRA and a longer term strategy and vision.

    —  The appropriateness and transparency of the criteria used in the franchise replacement process.

RECENT DEVELOPMENTS IN INVESTMENT EVALUATION

  Following the Green Paper inviting discussion of the initial proposals for a Strategic Rail Authority and the publication of the Government's White Paper "A New Deal for Transport" a Paper entitled "Setting the SRA in Motion" was published by Alan Whitehouse, whilst Press Fellow at Wolfson College.

  One of the questions posed by Whitehouse was: How would the SRA outlay the funds at its disposal to capture the wider community benefits which private rail industry interests will not have regard for. He referred to the reader back to the approach adopted by Government Road Transport planners in the 1970s' and the use of COBA (Cost Benefit Analysis).

  In Britain from the 1960s' onwards COBA was widely used to assess public expenditure proposals and the large projects of the day are well known such as the London Underground Victoria Line, the Channel Tunnel (several versions) and the Third London Airport Study. Formal economic appraisal utilising a computerised format for cost benefit analysis with a net present value (NPV) calculation as its output was introduced in 1973. Subsequent modification as a result of the Leitch Committee's Report which encouraged the inclusion of intangibles such as environmental benefits (although these were not valued in money terms) led to a more radical approach being developed by the DETR in it's New Approach to Appraisal (NATA) model.

  A further broadening of the basis for appraisal resulted from the publication of "A New Deal for the Trunk Roads in England" by the Government in July 1998, which proposed a series of studies "to address problems on the strategic trunk road network". There were to be two kinds of study:

    —  Road based Studies in which the focus would be on further consideration of solutions to particular problems on the road system; and

    —  Multi-Modal Studies in which consideration would be given to problems and solutions affecting all modes of travel.

  In considering the need for robustness of outputs from the Multi-Modal Studies DETR considered that although options for solutions were unlikely to be in the form of fully developed schemes, analysis of the schemes needed to be sufficiently detailed to ensure that robust decisions could be made.

  In February 1999 the Railway Reform Group published its own Rail Investment Scoping Study which introduced the concept of Net Public Benefit (npb). As we said at that time:

  "The challenge is to identify those areas where the narrow focus of the individual implementor does not encompass the wider benefits which accrue to the nation in return for public funding, and to direct that same funding to achieve desired goals rather than allowing public money to flow directly onto private balance sheets."

  In parallel, but unrelated to these developments, the former Office of Passenger Rail Franchising commissioned work on analysing the real reasons behind increasing growth on the passenger rail network as a variety of forecasts were beginning to show a range of options of between 5 per cent per annum and 50 per cent over 10 years. We are bound to observe that it is regrettable that the results of this work were not shared with the Commission for Integrated Transport until some pressure was applied.

   Within DETR work was now focussed on developing a model, recently unveiled by the Head of the Governments Transport Task Force at a joint meeting of the Railway Forum and the Confederation of Passenger Transport, which would assist with forecasting levels of growth across the network for both passenger and freight services. The real importance of this model was that it wrote into the forecasts the value of user and non-user benefits for the first time, which radically altered the balance for many potential rail related investment schemes.

  As a result of these developments in both appraisal mechanisms and emphasis we would consider that the Strategic Rail Authority is now well placed to evaluate proposals from both Railtrack and the Train/Freight Operating Companies. There still remain some mis-matches of process however, which may have resulted from changes in appointments, but which clearly need to be addressed.

  These include the latest Annual Assessment failing to include a review of how far Railtrack's annual Network Management Statement will secure the provision of the type and level of services which the network should provide, despite an undertaking to do so by OPRAF in the 1998-99 Annual Report. As the Assessment is in the public domain such a clear indication of the identifiable funding gap which we referred to earlier would have been an invaluable measure against which the SSRA's success in securing longer term investment funding could have been measured.

THE DIRECT ROLE OF THE SRA IN INVESTMENT IN THE SHORTER TERM

  In July 1998 the Government's Integrated Transport White Paper announced the establishment of two new funds: the Rail Passenger Partnership (RPP) scheme and the Infrastructure Investment Fund (IIF). Totalling £105 million, it provides RPP and Infrastructure Investment Fund support for three years from 1999-2000 2001-02. Approximately £20 million was expected to be allocated by the SSRA in year one.

  The RPP scheme was to provide a source of partnership funding to assist in the provision of new or enhanced local and regional rail services that could not be justified on financial grounds alone, but which contributed to the Government's wider objectives for rail. These included modal shift and integration with other modes. Funds could be used for both capital projects and operating expenditures, although in each case payments were to be made through franchise operators, generally by way of revenue support.

  The IFF would support strategic investment projects aimed at addressing capacity constraints at key infrastructure "pinch-points" on the existing rail network. These projects were to supplement the infrastructure investment undertaken by Railtrack to meet its public service duty. With the intention of helping to ensure that sufficient capacity was available both for existing demand and for new demand arising from initiatives to encourage more passengers and freight onto the railway.

  The RPP and IFF schemes made up the £105 million extra funding for new projects over three years, and were announced in DETR's Departmental Annual Report 1999.

  So far the following schemes have been announced:

    —  London Crosslink proposed by train operator Anglia Railways running from Chelmsford to Basingstoke across North London. The route aims to attract people who currently use the congested A12/M25 corridors. The SSRA agreed in principle to support the development of the Crosslink service over three years with approximately £2.8 million funding. The service commenced with the Summer 2000 timetable.

    —  Bristol—extra capacity. Aimed at alleviating overcrowding on peak services from Bath to Filton Abbey Wood and proposed by train operator Wales & West. The scheme will meet growing demand by providing more seats for passengers by lengthening the existing services to Filton Abbey Wood, a new station opened in 1996, serving major local employers and one of Bristol's universities. From January 2000 the SSRA agreed in principle to contribute £800,000 over three years.

    —  Sheffield-Hull Route Fast Service, a new fast service from September 2000. This £2.2 million award will secure an hourly fast service between Sheffield and Hull for three years. The new fast services will remove local stops, while local stations will be served by replacement new stopping services. Apart from faster journey times between Sheffield, Doncaster, Goole and Hull it will also increase the number of connections offered with other services at Sheffield and Doncaster. There will be better links to Bridlington and Scarborough as well as connections to a through service to London at Doncaster.

    —  Durham Coast Line Services. The special funding totalling £1 million will enable the frequency of services between Sunderland and Hartlepool to double to a half hourly service and increase the number of peak hour services from five to six per hour between Newcastle and Sunderland. The new services, which will start in May 2000, will improve rail access between Hartlepool and Seaham to Sunderland and Newcastle and relieve overcrowding on the Sunderland to Newcastle section of the route.

    —  Leeds Local Rail Services. A £3.4 million scheme, which covers Wharfedale and Airedale services provided by Northern Spirit for Metro, the West Yorkshire Passenger Transport Executive with 21 new coaches will be added to provide additional capacity for peak services into and out of the city, enabling existing trains to be lengthened from two/three to three/four coaches. The new money will cover the bulk of the running costs and be spread over three years. The first enhanced services were expected to run from the start of the summer timetable in May 2000.

    —  Edinburgh Crossrail. £800,000 of funding to cover the operating costs of the new Edinburgh Crossrail scheme will provide a new half-hourly passenger service from the west of Edinburgh via Haymarket and Waverley Station, to new stations at Brunstane and Kinnaird Park, in the east and south-east of the city. An existing section of freight railway from Portobello Junction will be upgraded, and a park and ride facility constructed at the new Kinnaird Park terminus. The service will be operated by two Class 158 units. The proposed commencement date for the service is early 2002.

    —  Esk Valley funding of £72,100 for the introduction of a winter Sunday service on the Esk Valley Railway between Middlesborough and Whitby section of the Northern Spirit network. The additional services will begin with the winter timetable. At present, Sunday services are only provided in the summer. It will mean four trains a day will run on all Sundays throughout the year. The scheme is the first to be awarded funding under the new Fast Track approval process launched in March. This enables schemes requiring less than £100,000 to be dealt with more swiftly.

  In total therefore the SSRA has claimed to have awarded £11.3 million to schemes to improve local passenger services under its new Rail Passenger Partnership Fund. So far, the fund has attracted more than 120 expressions of interest and 43 firm proposals. Seven have been given the go ahead so far and another 11, some of them major schemes, requiring a total of £30.5 million in support, are currently being considered.

  Schemes are appraised against the five main criteria set out in the SSRA's Planning Criteria. These are environment, safety, economy, accessibility and integration.

  No announcements have been made regarding grants from the Infrastructure Investment Fund. We note that in contrast to the RPP fund no published criteria are applied.

THE INDIRECT ROLE OF THE SRA AND A LONGER TERM STRATEGY AND VISION

  At the National Rail Summit 2000 Sir Alastair Morton lifted at least a corner of the veil behind which the Strategy of the SRA has been concealed for too long. Strangely this enticing vision excited little comment either at the Summit or in media comment afterwards so it probably bears repetition here as it encapsulates so much of the values which RRG have been espousing since the early 1990s.

  "I look forward with optimism to a very active partnership with Railtrack, in which Railtrack grows stronger and stronger, and eventually to a time some years ahead—when many large project risks have been quantified or eliminated—when Railtrack will be strong enough to do the whole job on its own.

  In the same way I look forward to strong revenue growth for all the TOCs and FOCs to a point where, franchise by franchise except for regional local services, the farebox will have grown to minimise or render obsolete any question of subsidies from the SRA. 30 per cent growth since privatisation brought £1.1 billion more into the farebox last year, despite capping key fares. Let us look for growth to bring an additional £2.5 billion or even more into the farebox each year within this decade without planning increases above inflation. That will relieve pressure on the public purse, bring the returns to justify the investment, and make the operation self-sufficient.

  In short, the SRA has a long term strategy with two long term goals:

    —  self sufficient network investment, supporting growth

    —  self sufficient service operation on the principal routes."

  (Sir Alastair Morton 25 May 2000)

  With such a statement, there were bound to be some negative reactions but it is unfortunate to record that the most negative came from a passenger representative who baldly stated that the industry could not exist without subsidy.

  In return those of the Railway Reform Group with some collective relevant experience can inform that individual quite candidly that there is nothing so demeaning or offensive as performing ones daily duty with one hand permanently occupied by a begging bowl. The prospect of near self sufficiency in such circumstances is clearly too important to be treated with contempt and we accordingly wish Sir Alastair well personally in seeking to determine a way in which such a transformation could be achieved.

  Whilst it is highly desirable that this transformation should be achieved it will undoubtedly require some considerable adjustments to attitudes and cultures which might mitigate against such an achievement. Sadly it is our experience that some of those attitudinal and cultural defects have been extant within the constituents of the Shadow Strategic Rail Authority, who may not yet have come to terms with the changes which are required to deliver quickly the improvements which are demanded. Certainly the industry as a whole will not wait for a Strategic Rail Authority which seeks to be at the centre of the industry if it is still espousing values such as those expressed from the OPRAF inheritance. This is the only explanation we can propose for the "Statement of Interim Purpose" held by the SSRA and which we quote:

    "SSRA's role is to secure the provision of railway services through franchise agreements".

  It would seem that the freight railway did not and does not exist, although we hope that the on-going Transition Project at the SSRA will equip it suitably and make it fully fit for purpose. Only on that basis will it be able to justify responsibility for determining the distribution of increased levels of public funding with the objective of levering in further private investment.

THE APPROPRIATENESS AND TRANSPARENCY OF THE CRITERIA USED IN THE FRANCHISE REPLACEMENT PROCESS

  On 27 January the SSRA issued "Building a Better Railway: Franchise Replacement-an Outline Guide". The first invitations to submit proposals (by potential franchisees) had already been issued two months before.

  This mis-matching of critical timescales has seemed, in our view and that of many other industry constituents, to have dogged the ensuing process throughout its development. This left many with the impression that the rules, such as they are or were, were being made up as the game progressed.

  In the Outline Guide the SSRA outlined laudable objectives in "seeking to secure the earliest possible delivery of better railway services for passengers while providing demonstrable value for money for the taxpayer". Despite (again) ignoring the contribution and effect of the freight railway, this was to be achieved by the evaluation of proposals "against criteria including" (but not exclusively):

    —  projects that will encourage modal shift and achievement of the Government's overall integrated transport objectives;

    —  provision of greater capacity on commuter services;

    —  improved safety standards;

    —  increased services and reduction of overcrowding on interurban/intercity routes;

    —  the total journey experience offered to passengers;

    —  improved station facilities and customer services;

    —  provision of high quality, reliable services to all customers, including those with disabilities;

    —  improved quality of information to customers;

    —  better integration with other transport modes, particularly through combined bus/air/rail interchanges and car parking and cycle facilities;

    —  consistency with local development and transport plans;

    —  provision of enabling infrastructure to allow expansion of freight services on a national and, increasingly, international basis; and

    —  making the most of opportunities provided by co-investors, which include franchise owners, to develop funding packages to improve railway services.

  What is most striking about these published criteria is that they fail to address any question as to the availability, suitability or competence of any potential franchisee and give no indication whatsoever as to how a situation would be dealt with when a "Hobsons Choice" arose and there was only one expression of interest. In short, they failed to carry through the logic of what was clearly in the mind of Sir Alastair Morton when he spoke of a bigger, better railway. There was no enticement to potential bidders and a wholly introspective view of the outputs.

  It comes as little surprise then that as the franchise replacement process has been carried forward it has failed to ignite substantial interest within the industry and has been put forward as yet another reason for uncertainty and indecision.

  Without evidence of a strategic approach there were no criteria acknowledged for prioritising access to the network in the cases where conflicting demands between types of operator might arise. More seriously there is no clarity about when it is appropriate to enable services and other rail growth by large-scale capacity increases. This leads to massive conflict in areas like London with some 220 separate and sometimes conflicting infrastructure schemes which Railtrack is left with no means of prioritising.

  Some items of key importance to passengers have however been left at the status quo. Fares policy is not mentioned within what purports to be an expression of "demonstrable benefits to passengers covering the whole door-to-door journey experience". There have been indications during development of the process that there might be less commitment to an "RPI-1 per cent" formula for fares increases and a working proposition is that Passenger Service Requirements (PSRs) will remain unchanged, despite the way this has allowed some operators to reduce rural services but also achieving the "double whammy" of perpetuating ridiculous specifics within a network timetable.

  The SSRA has naturally defended itself by taking the view that it has to have freedom to negotiate and that that process alone will produce results in terms of investment and improved performance.

  RRG, others within the industry and other stakeholders however take the view that without clear and transparent baselines and criteria no-one, including MPs, Councils or users has any idea whether value for money or consistency is being achieved.

  It is also hard to see how any test of value for money is possible other than through NAO investigations, by which time 20 year contracts will have been let. We, and many others have no wish to see a repetition of the NAO reports into the sale of the ROSCOs, particularly as a much better mechanism now exists and has been utilised by this Government in the sale process for next generation telecommunications.

  As the Railway Reform Group has long espoused both the principle and early implementation of a Strategic Railway Authority, it gives us no pleasure to write in, albeit constructively, critical terms. We express the hope that when the SSRA casts off its shadow it will also cast off some of it's defective inheritance in granting inappropriate franchises and understand collectively the welcome vision of its Chairman.

June 2000


 
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