Examination of Witnesses (Question Number
WEDNESDAY 17 OCTOBER 2001
157. Gentlemen, may I begin by saying I am very
sorry you have had to wait so long. I hope you understand the
session today has been a slightly different one than the one we
envisaged in the first instance. Life is full of these interesting
little stimuli! Can I ask you first to identify yourselves.
(Mr Preston) Kieran Preston, Chairman of the Passenger
Transport Executive Group and Director General of West Yorkshire
(Mr Wicks) I am Roy Wicks, Director General of South
158. Are you pleased that the Government is
taking action in regard to the ownership and operation of the
(Mr Preston) Yes we are indeed. We believe
that the Secretary of State's actioninterventionis
better for the industry generally. Any company that can pay out
£100 million in dividends to its shareholders at a time when
it makes a £300 million loss clearly has not got the interests
of the passengers as its priority. I am not saying that is necessarily
wrong but we believe a not-for-profit company or a company limited
by guarantee would be better for the passengers.
159. What do you think of the developments that
will follow these changes?
(Mr Preston) Listening to previous witnesses, what
is clear is that there is an opportunity to take a careful look
at how the industry can be restructured. If you look at the functions
of the Regulator, the functions of Railtrack and the functions
of the SRA, between them they have something like 30 key functions.
It seems absolutely essential that before incremental action takes
place that they get together. Most big organisations would have,
I do not know, an "away day", or several away days on
"what is it we are trying to achieve?" We have moved
from a regulated industry that was absolutely essential in regulate
to a private sector monopoly. If you look at the regime the Regulator
had to manage, it was an extremely complex regime that meant that
not only did he have to ensure that Railtrack had sufficient money
to maintain and renew the network, but he also had to make sure
that access charges played a proper role in allocating the scarce
resources (in our case) of the networks. That position has changed
and whilst we accept that there is a role for a Regulator in terms
of perhaps licensing and arbitration, there is an opportunity
for a very different kind of railway structure. We do think it
is essential that these key functions are carefully looked at.
160. My guess is that the passenger transport
executives would, quite rightly, welcome the Secretary of State's
drawing a line in the sand on this, as I believe most of the passenger
travelling public do. Would you agree that there is a haunting
concern at the back of all our minds that the quality that we
look for is not just going to come out of the nice visions but
is going to come from the correct degree and application of additional
resources? I am sure you do agree with that but what are the passenger
transport executives going to do in this crucial transition time
to ensure that the transition from one not very satisfactory body
to the new body is not going to result in cut-price terms for
new franchises and so on?
(Mr Preston) We have very clear views that there need
to be adequate levels of funding within the industry and we are
concerned that there certainly needs to be more clarity about
how much money is available. If you look at the £60 billion
that is available, is that £30 billion public and £30
billion private, and to what extent is that money available for
investment for example in PTE areas? It was touched on with Sir
Alastair's last statement. We are concerned. We are key drivers
of the United Kingdom economy outside London. If you look at key
cities like Leeds, Manchester, Birmingham it is absolutely essential
they are free to operate and be free from congestion. Local rail
services make an enormous contribution to that. We are concerned
at the very crude targets that have now emerged in the draft instructions
and guidance. For example, an increase of 50 per cent in passenger
kilometres clearly weights investment towards London and the South
East and Inter-City routes. Of course they need investment, but
if you look at the shorter journeys made in our kind of metropolitan
areas they play an absolutely essential role in keeping our cities
moving. We are very, very concerned that from the original range
of targets in the ten-year plan to get down to the three targets
that Sir Alastair talked about earlier is far too crude and is
not going to enable the Government to ensure that it is getting
best value for money for its investment.
161. What are you as a group of executives doing
to get some clarity about what is needed? And what is your view
of where there is a gap in resources, region by region by region,
as you see the present franchising pattern going. Certainly we
get it in South Yorkshire with the franchisees GNER, Midland Mainline
and Trans-Pennine, and the worry about all of them is that the
resources are got going to be there to deliver exactly what we
as a travelling public want. But the clarity, I suspect, has to
come from you. What steps are you taking?
(Mr Wicks) One of the things that we are trying to
do is get the Government to look at the directions and guidance
that it is issuing. It you looked at that and gave SRA different
162. You have specified that to the Government,
(Mr Wicks) We have said to them we are very concerned,
as Mr Preston has said, that by selecting three particular objectives
from the ten-year plan they have ignored other ones relating to
163. Is there any reason why you should not
give us a short note?
(Mr Wicks) We would love to give you a short note.
The second thing in response to the question is obviouslychoosing
my words carefullythere is a political issue here. Clearly
what we want to do is act in concert with all the authorities
that might be similarly affected. Things that affect South Yorkshire
also affect Merseyside. Lack of investment in Birmingham, Leeds,
Sheffield and Manchester is something that draws all of those
authorities together and I am sure the Local Government Association,
the PTAs and the MPs are increasingly concerned. What was not
apparent in the first instance is that what started out as three
objectives is now a combination of those three objectives and
a lack of clarity on funding. As Sir Alastair said, you cannot
do nothing, but you cannot even aspire to do the minimum.
164. Could I ask a quick question about the
future shape of the industry. It is a general question, not specific
to PTAs, but I would welcome your views as experts in the industry.
You say you welcome the Secretary of State's action after the
demise of Railtrack. We have heard from the Chair of the SRA,
Sir Alastair Morton, that he believes that a large section of
the Rail Regulator's responsibility on performance and access
payments would be better placed with the SRA. What worries many
of us is the issue of the fragmentation in the industry which
has always been of concern. If I understand what is coming out
now correctly, we could be faced with a replacement situation
where we have a private monopoly Railtrack with double figures
special purpose vehicles, five or six regional companies, and
I am just wonderingand I really would welcome your views
as professionalshow that is going to help the blight of
fragmentation that has been applied to the industry for the last
(Mr Preston) To give an example on that last point
on the six regional "Newtracks". It does strike me as
adding to the fragmentation. For example, I am not quite sure
what a trial in ScotRail would demonstrate because you have got
this degree of homogeneity , this one-to-one relationship and
it would be more difficult to try and make something work in an
area like West Yorkshire with five train operating companies each
staking their claim. It would take quite a complex set of arrangements
to make it work. It would be extremely complicated. You would
certainly need very long-term franchises for it to be worth that
effort, in my view. I can see how Newtrack can get on with operating
and maintaining and renewing the railway. I think that could work.
I think the SRA perhaps can take over most of the functions of
165. Is not the reality in what we are facing
here when we get down to it, putting all the politics to one side,
that there is a clear logic that the infrastructure of our railways
should be primarily the responsibility of the public sector and
the operation of our trains should be the responsibility of the
private sector? In your view, are we moving towards that sort
(Mr Preston) I think we are moving to that kind of
infrastructure, that kind of arrangement. We are bedevilled by
the PSBR arrangements. They are a uniquely British institution.
If you look at the lengths we have to go to gear in private sector
funds, PTEs are well-used to this kind of arrangement because
most of us are procuring light rail schemes so we understand how
that works, off balance sheet deals. That is an important part
of the issue. How do you gear in private sector funding? Otherwise
I do not think my colleagues would hesitate to say a public corporation
managing the infrastructure, managing the strategic direction,
and with direction from government would be the most appropriate
166. Can I start by just taking you back to
your comments about Railtrack at the start and profit for shareholders.
Given the relatively small amount of money that ended up going
out Railtrack as dividend payments by comparison with the capital
requirements of network, can you give me a sense of why you think
a not for profit company would be better placed to make the investment
that is necessary in the network?
(Mr Preston) I think it is about culture at the end
of the day and an organisation being geared to deliver. Our organisations
are geared to deliver for the passenger. Even now Railtrack and
its lawyers and advisers are concerned with protecting the interests
of its shareholders. It is not concerned with, for example, the
transfer of its rights and responsibilities and ensuring that
happens in the most efficient way possible; it is concerned with
its shareholders. Again, as I said at the beginning, I am not
saying that is wrong, I just do not think it is best for passengers
and any leakage out of the system, £300 million in three
years for dividend payments for example, is £300 million
that could have been invested in new trains in West Yorkshire
or Newtrack in West Yorkshire.
167. Could I touch on a couple of technical
points. I noticed in the audience earlier when I was referring
to the issue of retaining technical expertise in the TOCs, you
were nodding behind the civil servant who was scratching his head.
Can you say a little about your perspective on that problem.
(Mr Preston) In both our regions we have experienced
significant problems in getting services delivered by Arriva trains.
They themselves are the subject of a two-year franchise extension
and it is our belief that that degree of uncertainly significantly
impacts on a whole range of staff and how they see their future
prospects with that company. Arriva have never been able to achieve
a full establishment of drivers. They are three figures away.
We are experiencing ten per cent cancellations every single day.
Andrew Bennett: They are the worst payers.
168. It is not unconnected with the terms and
(Mr Preston) I think, Chairman, you are quite right,
£23,000 salary compared to £33,000 for a longer route
kind of driver is an issue. If you are retaining the people who
understand the business and can make best use of scarce resources,
that is a key issue and those kinds of people, I believe, have
been affected by the short-termism approach to franchising in
our part of the world.
169. Given that, does that rule out vertical
integration as an option for the industry, in the sense that the
expertise does not exist within the train operating companies
to manage the infrastructure, it is not there to deal with what
they have today? Is it not inconceivable that one of the options
open to the Government could be vertical integration given the
(Mr Preston) I suspect it may vary from region to
region to some extent. The massive problem I see with vertical
integration is sorting out equity and Virgin giving preference
to GNER, if they were managing a bit of the network, or GNER giving
preference to Trans-Pennine if they were managing a bit of the
network. I think that is a very real problem. I also think the
train operating companies would be very reluctant indeed to accept
responsibility for the network and the liabilities associated
170. Lastly can I ask you about SPVs. One of
my anxieties is that SPVs are being seen as a solution to relatively
small investment support. What is your perspective on SPVs as
a vehicle to deliver the investment that you are talking about
needing in your own particular areas?
(Mr Preston) We think they can work. There needs to
be absolute clarity about the funding available from the public
sector purse. I would very much like to understand in relation
to private sector funding how the £34 billion figure was
determined in the past and how the current presumption of £30
billion is determined. I wonder if there is not to some extent
there is some double counting. Private sector SPVs will bring
innovation, ability and expertise to the party. That is very welcome
but they also need to know that they are going to get paid.
Chairman: None of us imagine they are going
to go into it if they are not going to get paid. Mr Grayling,
was there anything else? Mr Donohoe?
171. How confident are you that, given the events
of 7 October, you have a future?
(Mr Wicks) I am confident because I think the Passenger
Transport Authorities do provide a vital function. They look across
the conurbation rather than across one part of the conurbation
and recognise that travel and is not confined by boundaries. We
have a record of achievement and I think, in particular, certainly
in South Yorkshire and I think in most of the other Passenger
Transport Authority areas, are taking on a wider role as we grapple
with some of the issues in our areas. After all, we are not there
dealing with transport for the sake of the service, we are there
to achieve the wider social, economic and environmental aims.
172. Do you see any merit in there being an
enlargement of that role? After all, the Government suggests it
has a strategic transport policy which attempts to embrace some
of the elements where you have the responsibility.
(Mr Wicks) I think there is a debate to be had particularly
about the Government's regional policy and about how the Passenger
Transport Authority areas align in the same regional areas with
each other. In our case we are in one region but we have two Passenger
Transport Authority areas, in Glasgow or Birmingham you have one.
That is certainly an issue. I certainly think the Government is
looking at Passenger Transport Authorities in other areas. The
Welsh Assembly is certainly actively looking at that in Wales.
173. Is it not an opportune moment, given the
events of recent weeks, for you to be making representations to
Government? Have you done that at this stage?
(Mr Wicks) We are cautious about encouraging the Government
to set up more PTAs. What we are encouraging the Government to
do is use the PTAs that exist to the full. If we go on to how
we take franchising forward we are very keen that we will have
business units within those franchises and those business units
will have a degree of autonomy in those franchises perhaps outside
their geographic area.
174. Are saying "we are the good guys,
we know we are doing, but do not set up any more"?
(Mr Wicks) I am not saying do not set up any more.
I am saying be a bit careful about saying they would be the right
solution for other areas. It is an issue of self-determination
175. If you take Scotland as an example and
the Strathclyde Passenger Transport Executive, if that were part
of this proposal that seems to be gathering a lot of pace that
we should have this vertical integration, and if you were to say
Strathclyde Passenger Transport Executive should be extended to
the whole of the ScotRail responsibilities, would that make sense?
(Mr Wicks) On a personal view, I think Passenger Transport
Authority areas have got to relate to a coherent area and I would
have thought that one single PTA area across the whole of Scotland
might be too big. You might want a separate one to cover the Edinburgh
region. Whether you would want any more than that is probably
unlikely. I am not saying they should expand to a massive area,
they have got to expand to the appropriate area over which you
have logical travel-to-work patterns and coherent economic and
176. Do you expect the private sector to meet
its share of private investment as expected in the ten-year plan.
(Mr Wicks) I have two views on that. Certainly if
we persist with short-term franchise extensions we will not optimise
the private sector investment we could get from the train operating
companies. I have been surprised by the extent to which you can
still pick up interest from some of the larger private sector
interests who do believe there is sufficient interest in transport
generally to want to be actively involved. So I think you can
get the two on the same course if you give investors confidence
that there is commitment to long-term investment in the railway.
By addressing the franchising issue so you maximise it because
most of the train operating companies are very big groups these
days and if you can maximise their enthusiasm and enhancement
you could get interest back. Certainly there are those around,
for instance the CBI, who still believe that most of that money
is still available if we can get the conditions and economy right.
177. So you do accept that the money that is
going to be required through the ten-year plan of £30 billion
is achievable from the private sector against the background of
the events of 7th October? You expect that to be possible? Can
you tell us how you see the additional funding being raised in
(Mr Wicks) I think it is possible if you do other
things as well. If things stay as they are with uncertainties,
fragmentation, short-term extension, you will not. If you can
change some of those you will. I think it comes down to two main
factors. One of your colleagues referred to the amount of money
companies have sunk into abortive bids. There is a total lack
of confidence in the train operating companies about investing
in franchises and somehow you have got to bring them back into
the fold and then you will have access to substantial funds. They
will invest in rolling stock, probably contrary to what was said
earlier outside the ROSCOs. Most of the train operating companies
are interested in taking control of the trains themselves and
in that way, as Mr Preston has said, you can start to get some
of the SPVs to deal with some of the major investment which is
needed which will bring other private sector investment in. There
is massive public sector investment that has got to go on alongside.
178. What should the role of the Strategic Rail
(Mr Wicks) At this particular moment, leadership.
Certainly we would say that there ought to be one body giving
strategic direction to rail in this country and there should not
be two, so between the SRA and government they have got to resolve
it. They both have a role but they have got to resolve their roles.
I share Sir Alastair's views that the SRA must be allowed to get
on with job with the normal checks and balances in there. I think
that role is investment and development of the network.
(Mr Preston) I really do think, going back to the
kind of rough and ready targets I talked about previously, there
is a key role for the SRA to identify the priorities for investment
on the network. As somebody said, I do not think there will be
more than a dozen or so major infrastructure projects. If you
look at the kind of projects that need to be developed, it is
essential that costs and benefits are probably evaluated by the
SRA with key priorities established because then the market-place
can take a look at what is available and if you have a proper
model determined for the SPVs, eg Design, Build, Finance and Transfer,
clear models, clear signals about where the risk transfer will
lie, then I think there is a genuine opportunity for the SRA to
deliver that leadership role and also, as Mr Donohoe was enquiring,
to attract the kind of private sector investment that we know
179. Who should be responsible for ensuring
those private sector needs are delivered?
(Mr Preston) That clearly has to be the SRA. That
is the direction the Government seemed to wish the Strategic Rail
Authority to take. They have to take that leadership role. They
have to set out the picture of what they want to see delivered
and they have to make sure that it is delivered.
180. You heard Sir Alastair claiming credit
for winding you up about resources for PTA areas. I thought you
had been wound up for the last ten years virtually! What are you
doing to make this a bit more effective? It seems that you always
have second best both in the Government's proposals and in the
allocation of resources.
(Mr Wicks) I did part answer this to Helen Jackson
earlier. It is an issue because I think we did feel, to be fair
(and we are wound up often) 18 months/ two years ago that things
were different. We saw the prospect of a 20-year Trans-Pennine
franchise, and the commitment to 15- to 20-year franchises for
Northern, Central Trains and Strathclyde, which are areas we represent.
It appears we have won the battle but not the war, and we have
got to go back and start to win the argument again. That comes
back to one simple point. We have got to win the argument about
what is the benefit of public investment in the railways in this
country? If we do not demonstrate that the Treasury, the DEAR
and the SRA are getting value-for-money investment in conurbations,
we will not get the investment in the rail network.
181. I understand that the Strategic Rail Authority
did a survey about travel needs in Greater Birmingham and that
was quite successful and came up with a set of recommendations.
A rather watered down version was done for Manchester, and I understand
that the process has now been stopped on the advice of the Treasury.
Does this mean we are not going to look at the conurbations' strategic
(Mr Wicks) I think that is true. There are two problems.
I understand in Birmingham that the first phase of the work has
been funded, but the work has now stopped and there is no clarity
on how Manchester will go forward. Alongside that, the Government
does have a problem in that it has taken on board a lot of multi-modal
studies across most of the conurbations which are coming back
with 10 or 20-year strategies about which we are quite concerned
because they are certainly not built into Government and SRA plans.
They are now recommending that to solve a lot of the problems
on the motorway network in those conurbations you need to invest
in the rail network. I think that will put this issue very much
back on the Government's agenda.
182. Last week you were upset because Arriva
only got a short extension to the franchise. Was that not good
news because they have proved they cannot hack it, so there is
very little chance of them fulfilling a long-term franchise.
(Mr Preston) I do not think we were upset they got
a short- term extension. We very much hoped that we would get
a replacement to the franchise. I think the SRA is very upset
because for the amount of money they put into the franchise they
have not seen the results delivered. What we are anxious to a
avoid is another short-term extension. We want the long-term confidence
of working with a partner who wants to invest in those services.
183. Should not the Rail Regulator be getting
most of that money back from Arriva because of poor performance?
(Mr Wicks) The Treasury may well get a fair share
of that money back but most of it will go to the SRA rather than
the Rail Regulator because it will either go in fines or in penalties
imposed upon them. At present not all those are retained within
the SRA, some of the are, and some of them can get back to the
Chairman: That is the point which you are making
quite strongly to the Government. Thank you both very much. You
have been very tolerant. I am sorry we made you wait.
1 Note by witness: The Group welcome the Secretary
of State's approach regarding industry representation on the Board
of the new company. PTAs/PTEs play a key role in delivering Government's
objectives, such as economic regeneration, social inclusion and
sustainable development in Metropolitan areas. We apply and co-ordinate
transport provision for more than 12 million people and we are
determined to deliver best value for the investment made by Government.
We would very much like to play a part in this new company helping
to insure it truly focuses on passengers and delivering the Government's
Rail Agenda. Back
Note by witness: Whilst it is essential that the SRA take the
lead through SPVs on major infrastructure investment this must
take place outside of franchise agreements. Franchises would focus
on operational matters. There would be some investment, for example
station enhancements and indeed in rolling stock. However, short-term
franchises would not facilitate even this level of investment
by the franchisee and the SRA would either need to under-write
any significant investment or ensure more realistic periods for
franchises, at least seven years, to enable pay-back on any investment
made by the franchisee. Back