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


Supplementary memorandum by the Railway Reform Group (RI 11A)

INTRODUCTION

  The Transport Sub-committee has already invited evidence on the role of the (currently shadow) Strategic Rail Authority in the renewal, maintenance and development of the rail network both directly and by securing investment from sources other than Railtrack, including from train operating companies through the franchise replacement process. In addition the Sub-committee will consider what criteria the Authority is using to decide on the replacement of franchises. In the light of developments during the summer, in particular the publication of the Government's 10-year plan for transport, this further supplementary memorandum of evidence is presented by the Railway Reform Group. As the Rail Regulator was due to publish his final conclusions at the time of writing this memorandum we have sought the Sub-committee's permission to present a further supplementary memorandum, if appropriate to do so, with our observations on the outcome of the periodic review of Railtrack's access charges by the Rail Regulator, rather than rely on the draft conclusions published earlier.

THE GOVERNMENT'S 10-YEAR PLAN: SETTING THE FRAMEWORK

  The defects in the railway industry structure identified in the 10-year plan placed the absence of a framework for strategic planning of the industry as a whole at the forefront and identified the failure of the structure in particular to cope with the need for significant investment to accommodate sharply increased growth in both passenger and freight traffic. Set against a strategic aim of increasing the use of the railway by passengers and freight, with enhanced capacity to meet demand and improving the quality of service to all customers, the "bigger and better railway" was to be created by a true public and private sector partnership.

The SRA: A role searching for accountability

  The role of the Strategic Rail Authority is defined in its enabling legislation but the 10-year plan specifies that the SRA will "decide what quality and capacity improvements are needed. It will procure them. . .will monitor delivery. . .be empowered to take swift action" and "will work to the directions and guidance from Ministers". Against this role the SRA will have sole accountability for the disbursement of £29 billion consisting of:

    —  £12 billion for revenue support of passenger and freight train operators;

    —  £7 billion for the Rail Modernisation Fund to facilitate an increased use of the network by 50 per cent for passenger use and 80 per cent for freight;

    —  £4 billion for what are described as capital payments for renewal schemes, notably the West Coast Main Line;

    —  £5 billion for completion of Channel Tunnel Rail Link and the development of St Pancras/King's Cross;

    —  £1 billion for residual liabilities of the British Railways Board and contributions to railway pensions schemes.

The Value for Money Question

  Given the scale of this spending the key question appears to us to be, what confidence can the nation and Government have that in the SRA we have a mechanism for achieving in its Chairman's words "a bigger bang for the taxpayers buck". In short will good, or even adequate, value for money be derived from this greatly increased level of public expenditure. Based on performance so far of the shadow SRA we, regrettably, remain to be convinced.

THE SRA: FITTING THE PICTURE TO THE FRAMEWORK

  As we pointed out in our initial memorandum of evidence, substantial development of appropriate evaluation, appraisal and analytical techniques has taken place since the early 1960s and this should place the SRA in an enviable position in regard to drawing on this collective expertise. In addition the DETR has, as part of the 10 year plan process constructed a robust and inclusive forecasting model which has concluded that high rates of passenger and freight growth usage will continue for the foreseeable future. The SRA therefore has access to a formidable "toolkit" to prioritise its delivery. The difficulty appears to be that it has no framework within which to apply the range of techniques. Moreover in at least one case, on the evidence of an admission from one of its senior managers, the SRA may be "flying blind by the seat of its pants" rather more than realised.

  The absence of a framework has varying degrees of effect clearly related to quantum of public money dispersed but also has a common thread of making comparisons between different types of schemes difficult most of the time and sometimes impossible.

The effects of framework absence

  For small schemes (for instance, additional revenue support (£100k), the existing system might be considered satisfactory. An appraisal framework has been published, and schemes can be analysed within this; however, the passmark remains unclear and, as a result, it is difficult to judge the Value for Money of any particular scheme.

  A much greater problem comes with medium-sized schemes. These are the key schemes which are going to make the big difference in delivering rail service improvements across the network, rather than just on selected key routes. Because rail is a capital-intensive mode, many schemes cost a small number of millions of pounds. Liaison is necessary with Railtrack, but the existing system of expenditure led by single-operator Customer Reasonable Requirements with the overlay of Incremental Outputs Statements from the SRA, does not lend itself easily to a strategic view of network development (for instance if a proposal benefits several industry parties, but only to a small degree).

  As an example, a developer-led proposal for assistance with the capital funding of a new station may outgrow the developer's remit if passing loops are also required in order to ensure operational performance. Such loops, however, benefit all TOCs on the line and potentially Railtrack; they are a strategic asset, which calls for some strategic input.

The "Virtual Reality Railway"

  A further example which has actually demonstrated the pitfalls of an absence of framework even where there are existing criteria, is the Anglia Railways service between Chelmsford and Basingstoke. Whilst this is dealt with in detail in Annex A, providing £2.8 million of public funding from the Rail Passenger Partnership Scheme, whose criteria at least nod in the direction of NATA by including such criteria as "heritage", "air quality" and "bio-diversity" the outcome is a higher level of subsidy per passenger than the Island Line. This not only raises questions of value for money but more serious basic questions of competence of the sSRA. The failures outlined in detail in Annex A are illustrative of what is really happening on the ground rather than the image propounded of what we have referred to before as "the virtual reality railway". As can be seen from the Report in Annex A, in this instance inaction is shared by the regulatory bodies.

The SRA: Activity or Action

  Despite the existence in Railtrack's NMS of a map clearly indicating existing and future line capacity problems, the SRA has also appeared impotent in directing such development speedily, and ensuring implementation. The apparent confusion which the Virgin Groups proposals for franchise replacement on the East Coast Main Line created within the sSRA and the unenthusiastic initial response, amply demonstrate this.

  The East Coast Main Line franchise replacement is of course of a completely different order of magnitude but we consider that the same lack of framework is clearly giving rise to similar difficulties. In addition, at this level, both the public and private sector sources will have different sets of investment criteria which have to be reconciled. The public sector has social benefit as its primary return based on cost benefit analysis, while the financial appraisal approach of the private sector concentrates on the profitability of the project. The reconciliation of these two disparate approaches is the key to mutual confidence and therefore success in the sought after full public-private partnership which the Government seeks as a delivery method in the 10 year plan.

  As yet there is no published material to indicate that the SRA have developed a technique similar in scope to NATA (DETR, 2000) or the Common Appraisal Methodology (DoT, 1994) or indeed has moved beyond its "propose and provide" immaturity espoused early in the current franchise replacement process.

  As we indicated earlier the predecessor of the SRA, OPRAF, produced an evaluation method based on the government's criteria for transport investment. Again however this was intended for marginal improvements in the system rather than for the appraisal of franchises or major schemes such as the West Coast Main Line.

  The OPRAF (1997, 1999) techniques would be applicable to small schemes costing £1-£10 million such as loops, new or improved stations. There is no indication that NATA is to be applied for example to major schemes in the Railtrack Network Management Statement for any public sector element of expenditure. This again begs the question as to how inter-operator appraisal is carried out and how the different submissions for each franchise are to be compared.

Appraisal by Default

  We are aware of the existence of cost benefit analysis based on techniques which are being used by bidders for new franchises and which, it is understood, have been approved by the SRA, if only by default in accepting the outputs from such appraisals as a basis for franchise replacement bids. Railtrack, of course, has its own appraisal techniques for investment which incorporate both financial appraisal and the social aspects of a scheme.

  Given the clear objectives set out in the Integrated Transport White Paper and numerous studies including:

    —  comparative results of projects using the Common Appraisal Technique indicating that in areas of high traffic/people flow, rail provides the best solution;

    —  the impact of "parkway" stations on adjacent traffic road flows has been to reduce such flows, eg Bristol Parkway;

    —  the transfer of traffic from road to high speed rail is confirmed by modal split effects of the TGV in France;

    —  the transfer from air (a highly pollutive mode) to rail (a low pollution mode) is confirmed by Eurostar/air modal split impacts and again by the French TGV network;

    —  transfers to rail from car as a consequence of service quality improvements on the East Coast Main Line. The table at Annex B indicates the degree of effectiveness of such improvements;

    —  in urban areas of several European cities eg Amsterdam, Grenoble and Munich, the improvements in rail/light rail services have led to significant and sustained increases in patronage.

We should be confident in saying that the SRA should be capable of justifying rail investment through:

    —  increases in demand from service improvements;

    —  change in modal split (road/rail);

    —  reductions in road traffic (a consequence of change in modal split);

without recourse to coercion transfer from other modes such as road. In any event the environmental consequences of "predict and provide" for road traffic requires new motorways (with visual intrusion, potential SSSI/AONB implications, eco-system effects which in themselves generate additional traffic (DETR/Mogeridge)), thus clearly additional roads are not the answer and the 10 year plan supports this analysis.

  The argument that people must travel less is similarly not wholly acceptable nor is it likely in a democratic, expanding market economy. Travel is one of the basic consequences of wealth and freedom, particularly when put in the context of recent eastern European experiences. Thus the most sustainable form of transport in mass movement has to be encouraged and rail meets that objective. The potential benefits to the industry as a result of pro-actively pursuing policies which encourage modal shift have been understood since the early 1990s and are illustrated at Annex B. We also note that actual trends have confirmed these benefits.

  Government expenditure on infrastructure (and possibly rolling stock) can therefore be justified in cost benefit terms. The primary criteria are:

    (a)  journey time reductions;

    (b)  resource costs of operating vehicles;

    (c)  accident cost reductions (safety);

    (d)  environmental improvements;

    (e)  economic regeneration and expansion.

and any proposal put forward by TOCs/Railtrack has to be justified in terms of these criteria. Similarly the criteria applicable to the SRA in determining its total expenditure and allocation to franchises has to be taken into account.

Suggested criteria for assessing franchise replacement

  Given the preceding justification for input of "the taxpayers buck" assessment of new franchises should transparently take into account the following criteria:

    1.  the service reflects demand flows and has appropriate "cut off" points for adjacent franchises;

    2.  the franchise is sufficiently large to be operationally possible and to achieve economies of scale but be managed locally to achieve maximum market growth;

    3.  the franchise creates a dynamic railway whose primary concern is service quality and an efficient attractive railway serving customer needs;

    4.  any services on currently peripheral routes will become major services where improved frequencies will lead to increased demand;

    5.  the creation of "hubs" where appropriate will allow increased frequencies leading towards a strategic rational network of interval services;

    6.  that while political imperatives will be a factor (the SRA is after all a politically appointed body), value for money and operational feasibility will be the primary elements in the Strategic Rail Authority's decisions.

Targeting the "Taxpayers Buck"

  Research has consistently shown that the largest potential mode shifts from road to rail are in off-peak trips in the London & South East area, and in all trips in the "Middle England" triangular belt between Bristol, Liverpool and Hull. Only in these areas are there potential rail service improvements large enough to change the balance between modes, and large enough quantities to trips to be transferred to make a difference to conditions on the roads.

  For instance, in "Middle England", road congestion is becoming an issue of growing importance. Not only do traffic problems occur in the centres of urban areas such as Oxford, Birmingham, Nottingham and Leeds, but also now on the motorways and trunk roads linking these centres.

  Many InterCity routes are already the subject of service development, for those long-distance trips for which they are suitable. However, people make far more medium-distance trips, which suggests to us and others greater potential for inter-urban services elsewhere in the country.

  On the other hand, inter-urban train service frequencies in Middle England are often only hourly, even between significant centres of population (eg Sheffield & Nottingham, Manchester/Stoke & Birmingham, and Birmingham & Bristol). Theory shows that the reduction in headway from hourly to half-hourly makes a significant difference to the ease of difficulty of making a journey by rail, and therefore can "get people out of their cars". So proposals for rail service frequency increases on inter-urban flows in this area could make a significant impact. Thus it is that a (barely-perceptible) one per cent mode shift was forecast nationally from franchisees' proposed rail service improvements, but a much higher and noticeable figure for the West Midlands area (Harris, 1997).

  Most proposals for such service enhancements also create new links, by adding direct services between urban areas not currently linked by rail except by a change of train.

  An example of this is the proposed Oxford—Coventry—Nottingham service. Although all parts of this route are already served at least every hour, through journeys require at least one interchange. However, rationalisation of infrastructure in the past now means that the introduction of additional services is not always possible without costly enhancement works—for instance, in raising line speeds, double-tracking or adding passing loops for passenger trains to overtake freight trains.

  An example of this is the single-track Leamington—Coventry line. On the one hand, an increase in line speed has been suggested, in order to minimise the time that trains spend on this line. On the other hand, there are local authority-supported proposals for an intermediate station at Kenilworth. Although Railtrack believes that it can increase the number of trains passing along the line without significant expenditure, a strategic investment in double-tracking would greatly facilitate the planned increase in train frequency (both passenger and freight) without prejudicing train service reliability.

CONCLUSIONS

  The sSRA has yet to publish its Strategic Plan, already delayed twice. Expectations of this Plan are extremely high and the level of committed Government funding supports this high level of expectation. The plan must provide the framework which is needed and which the current activity of establishing discrete Project Development Boards jointly by the SRA with Railtrack do not begin to address.

  The Strategic Plan must also provide for a process of reconciling the two disparate approaches to investment appraisal. As we have observed, both the public and private sector have different sets of investment criteria which have to be reconciled. Only when this is achieved and social benefit is seen as transparently balanced with profitability, thus sterilising the debate about profits and safety, will the SRA have any claim to leadership of the industry. Without mutual confidence being established there will be no success in the sought after full public-private partnership which the Government seeks as the delivery mechanism of the ten-year plan.

  Currently however, as a result of a lack of framework, opportunities are being lost—for railway development, modal shift, and the achievement of Government's stated objectives.

  With a range of forecasting tools indicating a continuing latent growth for rail travel, the significance of such lost opportunities will become increasingly apparent if the rail network becomes increasingly unreliable and over-crowded, whilst still failing to meet the needs of several key markets. This is particularly the case across that swathe of Middle England which is politically-important.

The Railway Reform Group
18 October 2000

REFERENCES

  DoT (1994) Common Appraisal Framework for urban transport projects; MVA/Oscar Faber/ITS Leeds for Department of Transport, London and Birmingham City Council.

  DETR (2000) Guidance on the Methodology for Multi Modal Studies (as a basis for the New Approach to Transport Appraisal (NATA)) DETR, London.

  OPRAF (1999a) Rail Passenger Partnership: Bidding Guidance Office of Passenger Rail Franchising, London.

  OPRAF (1999b) Planning Criteria—a guide to the appraisal of support for passenger rail services, OPRAF, London.

  OPRAF (1997) Appraisal of Support for Rail Passenger Services—Planning Criteria "a criteria guide" OPRAF, London.

  Harris, N G (1997) "The Privatisation of British Rail and its Impact on Mode Share", IHT Lecture, University of Newcastle.


 
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