Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 140 - 159)



  140. Paragraph 2.10 seems to be a fairly key paragraph in what we are talking about. I know it has been referred to already but it needs some more discussion I think. "Work done in 1999 by AEA Technology and London Economics on behalf of OPRAF compared punctuality and reliability incentives to company revenue and found that even if companies' trains were always punctual the maximum incentive payment would still represent only two to three per cent of revenue." It goes on later to say: "This view was confirmed by the consultants' econometric analysis which examined the relationship between performance and a number of factors and found a `mainly insignificant' relationship between incentive payments and better performance. This weak relationship between incentives and performance might also reflect the fact that the rates of incentive payment were set to reflect the disbenefit to passengers caused by cancellations or lateness, and not the amount of investment that would be needed to secure improved performance; in other words, it may be cheaper for the company to pay the penalty than to fix the problem." This seems to be central to the issue, does it not, that whatever you are going to do, no doubt with the best will in the world, to try to improve the system, is it actually going to make a great deal of difference?
  (Mr Grant) In the long-term the solution is major investment and, therefore,—

  141. Exactly.
  (Mr Grant) Therefore, setting a penalty today has to help but it is not going to solve the problem. The problem needs to be solved in the long-term by major investment in the infrastructure.

  142. Exactly. So you are agreeing with this phrase here "...the fact that the rates of incentive payment were set to reflect the disbenefit to passengers caused by cancellations or lateness, and not the amount of investment that would be needed to secure improved performance;"? That is the key phrase, is it? Do you agree with that?
  (Mr Grant) I agree with it but, on the other hand, I would not suggest that we take away all penalties. It is somewhere between zero if you take away all penalties and billions of pounds to put major infrastructure in place. We have suggested, and we are implementing, that these incentive payments should be doubled. It is not to try to solve the major problems but to make sure that train operating companies are incentivised.

  143. Although it only affects currently two to three per cent of revenue you are going to double them and you think they could make a real difference, is that your view?
  (Mr Grant) It will make a difference in terms of the train operating companies but, as I said, it will not solve the long-term problems.

  144. Paragraph 3.7, this definition of overcrowding, it says here "Thus, on most suburban London commuter trains, three per cent overcrowding equates to around 31 passengers standing per carriage..." I do not represent a London constituency, I am a London commuter. By the way, do you commute to work on the train?
  (Mr Grant) Yes, I do. Connex.

  145. Poor you. I am glad anyway that our rulers have to suffer in the same way that we do, that is at least something. How is this definition arrived at? When I have been travelling up to Newark in the last few weeks, a journey which used to take an hour and a half, now supposed to take two hours but in fact takes anything up to two and a half hours, if I go up on Friday I have to sit on the floor with perhaps 25 people standing in a carriage. Is that overcrowded or not?
  (Mr Grant) The definition of overcrowding—Mr Jenner can help me here -comes from the original BR days. I think more generally the overcrowding solution, as the report says, will come from investment in the infrastructure. I come back to the same point I made earlier. In fact, the report identifies that some of the newer trains, because of the Disability Act, will take up more space for disabled access.

  146. We need a better definition, do we not? It is just ludicrous at the moment. Are 20 people crammed on the floor overcrowding or not?
  (Mr Jenner) The technical way it is calculated is a certain amount of space is allocated to a standing passenger which, if my memory serves me right, is something like 0.55 square metres. That is how the calculation is made.

  147. I suppose it is a bit better than a cattle truck, is it?
  (Mr Jenner) It is a lot better than London Transport.

  148. That is something anyway. Can you tell me something about the cost of improvements, just a general reply, please? I think the public would like to know how much the cost of improvements is going to fall on the customer and how much is going to fall on the profits of the train companies. Can you just help me out with a general response on that, please?
  (Mr Grant) This is quite a difficult question. Where we are at the moment in franchise replacement is we are agreeing heads of terms with two franchisees. Depending which type of franchise it is, some of them will produce a premium, ie money back to us at some stage, and others will be on the basis of a subsidy profile for the life of the franchise. Our intention would be to put the subsidy in place at the beginning and receive the premium towards the end. I cannot give you a definition at this stage of how much would fall on the public purse and the private purse, other than outline what was in the ten year plan in terms of the expectations of public sector and private sector money.

  149. But you can understand the interest the public have in this. I wish you could come up with a more consumer friendly answer, something that they can understand. You will appreciate that as they are going through this misery at the moment they want to know that people like you, who are acting on their behalf, have this clearly in focus. This is your opportunity in a public forum to give them reassurance, not in technical language, the sort of language you have just spoken, but language that they can understand. How much of the cost of improvements is going to fall on the customer and how much is going to fall on the profits of the train operating companies? In language that the general public can understand.
  (Mr Grant) If I could give you an outline, for example, of the Chiltern franchise and the Midland Main Line, which we are putting together. We are looking there at £600 million of new investment for the two. If you were to talk about the South Central franchise, you are talking about £1.5 billion of investment. In terms of the profitability, yes, we expect the train operating companies if they are providing a service to make a profit and any excessive profits will be under the claw back regime.

  150. Can you tell me how you are going to define "excessive profits"?
  (Mr Grant) That will be a negotiation that we will have with the train operating companies before we sign that franchise agreement. We have not done that as yet.
  (Mr McGann) The enhancements in the ten year plan were predicated on the basis that there would be no real increase in currently regulated fares. The assumption that fares would be capped on RPI minus one was kept in the plan.
  (Mr Grant) And the mechanism for the profit share? Not the actual figures but the mechanism.
  (Mr McGann) The mechanism will be that when a train operator passes an agreed benchmark, and we will not do it on an annual basis because of the risk that profits will peak and trough but we will look at it over a five year period, if in that five year period they reach the benchmark then we will claw back in the fifth year and that will keep rolling on a five year basis.

  151. I appreciate why you may not want to say a lot of what your plans for the future are in terms of your negotiations but it would be quite helpful, as you are an expert in this field, to give us a general feel about how you think it has gone so far in terms of profitability. What is your general view? Have there been examples of excess profit making? Could you give us some examples and give us a feel of what you think has been going on and how you think things might be improved?
  (Mr Grant) There have certainly been examples, and I cannot give you figures off the top of my head, of where train operating companies are making healthy profits. South West Trains, the First Group, have made profits that were recently announced. At the same time there are train operating companies who have found it extremely difficult to live with the current franchises. I suspect the fact that some of the franchises are in portfolios means that their losses have been offset by profits in others. It is not a complete picture but it is a mixed picture. Some have found it very difficult to make a profit while others have made healthy profits. That is the result of the first round of privatisation where I have been told that the first franchises were let but on a competitive basis, if you like, with more flexibility, and as the franchising process got into gear the later franchises were much tighter.

  152. Just a last question. There has been a lot of talk in recent weeks about botched privatisation, too many companies with their fingers in the pie. I was always an enthusiast for the previous privatised network which used to exist before British Rail where Great North Eastern Railways would be responsible just for the track it ran its trains over. I cannot resist asking this question. I do not suppose you want to give us, as you are here now, your view about whether you think the present system is capable of delivering what the public want or whether we are just flogging a dead horse, or slow train, whatever the expression is?
  (Mr Grant) What I can say is that the SRA will be working extremely hard to try and make the existing structure work. We have these working groups. I would like to see what they can do first. If they do find structural problems no doubt they will tell us. More importantly, we have to keep going, we have to try and keep delivering. I would not want to see a hiatus whilst in some way the structure was reorganised.

  153. It is your instinct that you can succeed in that laudable aim?
  (Mr Grant) We will certainly give it our best shot. These five working groups are going to report to the steering group in December. We will report to the Deputy Prime Minister and if there are structural issues there we will address them.

Mr Davies

  154. I would like to ask a few London questions before I ask a few strategic ones. Am I right in saying that you recently agreed plans for London trains to allow much larger numbers of people to stand up in their commuting journey? In terms of the train plans, am I right that you have agreed that commuters will have to stand up during their journey, therefore, making it more of a risk to safety?
  (Mr Grant) There have certainly been some experiments on Connex in terms of taking seats out to see if it would be more comfortable for passengers.

  155. More comfortable to stand than to sit!
  (Mr Grant) You are never going to be able to supply all of the seats that are needed. If you wanted to make somebody travel for 15 minutes on the train you will never—never is a long time—it would be very difficult to provide seats for everyone travelling into London on a computer journey.

  156. You obviously support a plan for making more passengers stand for the entirety of their commuter journey to fit more sardines into a can.
  (Mr Grant) I travel on Connex myself and in some instances I would find it more comfortable to stand in a wider space than to have more seats and, frankly, more people more squashed.

  157. Do you think there are safety concerns over having large numbers of people standing in carriages, given the history of collisions we have just witnessed?
  (Mr Grant) I am not an expert on safety. I assume as part of that experiment Connex consulted the Health and Safety Executive and they did get their approval to do that.

  158. Your organisation agreed these train plans. I know you said you are not an expert in safety, but you do know enough about safety to know these things may be unsafe?
  (Mr Grant) We would not have agreed it if it had not been safe, because the Health and Safety Executive would have told us it was not safe. We would not have agreed to try the experiments. I would certainly in some instances prefer to stand in a wider area than have an extra seat.

  159. London commuters can look forward more and more to stand rather than sit while commuting, from your answer to the last question.
  (Mr Grant) Not necessarily, because we are trying to provide more capacity.

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