Select Committee on Transport, Local Government and the Regions Minutes of Evidence

Examination of Witnesses (Questions 540 - 559)



  540. So you do not have a view Chief Executives of organisations involved in the market on whether it can be done in the rail industry? You do not have a view on the viability or not of the company limited by guarantee model?
  (Mr Garnett) We are all waiting to see whether this can be made to work. I think there is a degree of scepticism about it.

  541. On the vertical integration front, do the skills exist within the train operating companies to run parts of the networks, if indeed the experiment you talked about were started?
  (Mr Green) Many of us spent 40 years of our lives doing it so we are going back to the way the rest of the world runs railways.

  542. You will not be doing it personally though. Do you have the skills within the organisation to take on that role?
  (Mr Green) The skills have been split so the answer is no, train companies would not have infrastructure engineering skills, but nor did Railtrack when it started on day one, so you acquire the staff with the work.

  543. What about the outlook for investment. Firstly, if I could ask you to talk about the two-year franchise extension; what is the consequence of that decision for investment and what in your view, is the consequence of the current approach to franchising across the industry for investment in new rolling stock?
  (Mr Garnett) We cannot go out and order new rolling stock for the East Coast Main Line on a two-year franchise, not because the Government will not say they will underwrite the cost of that in terms of guaranteeing the next franchisee who comes in, but the funders will not give the money because people do not get paid for new rolling stock until it is introduced into service. Only one piece of rolling stock has been successfully introduced and that is Chris Green's Voyager Bombardier trains. The rest of the history in this country has been pretty grim. So they want to know that the person ordering the train is on the hook to get that train into service because it is only then that the manufacturer gets paid. In the work we have done we have had letters back from financiers saying, "We will not put money up to buy these trains unless you are the people who introduce them into service and prove that they run for a period." That affects the rest of what we are trying to do in the two-year franchise such as station investment and refurbishing trains. The other thing it prevents us doing is getting on with staff development because our staff say, "What is our long-term future with this company?" We at GNER have prided ourselves in what we have done with staff. It is about career progression. We all say we need better management, more management, higher calibre people. It is very difficult to do that if you are looking at a very short time horizon.

  544. So are the SRA and the Government not offering you the support that would come through the use of Section 54 to enable you to go ahead with the orders regardless of the short nature of the franchise?
  (Mr Garnett) Section 54 does not solve the problem of you being the person who introduces that train into service.

  545. Finally, could I ask you both to give me your view on whether the current situation facing Railtrack, and the transition from the old Railtrack to the new Railtrack, makes it more or less likely that it would be possible to deliver major infrastructure improvements within the time-frames set out in the Government's ten-year plan?
  (Mr Green) I think it makes it much more likely that we are going to have a robust, reliable railway and we will make the existing network work because we have got a unity of focus on operations and engineering. I am very doubtful whether we are going to attract £34 billion from the private sector without some government guarantees behind it.
  (Mr Garnett) We are going to lose two years in the time process while all this indecision goes on.

Mr O'Brien

  546. What are you doing to attract passengers back on to the railway?
  (Mr Garnett) We are first of all trying to get the message out there that the railway is running rather well. There is still a massive perception that it is not running well. It is running well. Punctuality on our route has improved dramatically since the low levels of the summer, so you have got to get that over into the public perception. Every time there is a bad news story about Railtrack all we do is put more people off travelling by rail because they think the whole thing is a disaster. That is the image issue. Then we are going out trying to publicise with promotional work and advertising to tell people the service is good.
  (Mr Green) We have doubled the marketing budget for advertising, but the very best thing that has happened is having new trains working on the track which has raised passenger morale and staff morale.

  547. What about the cancellation of services on the East Coast?
  (Mr Garnett) We had a bad period of cancellations at the start of the summer when we were rebuilding our locomotives. Over the last eight to ten weeks cancellations are now less than one per cent of the trains we run.

  548. How many trains do you run?
  (Mr Garnett) We run 119 trains a day.

  549. So you are talking about 10 trains a day.
  (Mr Garnett) No it is one per cent so we are talking about one train a day being cancelled or less than that.

  550. This is not the experience that a lot of my constituents are witnessing. We look forward to that improvement. What about fares, are we going to have some stability with fares? Will there be fare increases?
  (Mr Green) We promised in May that we would freeze the fares for a year and we are doing that despite this being one of the most difficult years in our lives.

  551. What about GNER?
  (Mr Garnett) 22 per cent of our fares are regulated. We have always controlled our fares carefully. We are going up at one fare increase a year. We shall be going up in January with inflation. We deferred the increase last January until May and then we only put it up by the inflation of the 15 months.

  552. What about the other three phases on the East Coast Main Line to which we referred earlier? How will they improve the service if they ever were applied?
  (Mr Garnett) I think we have got to decide whether those three phases are needed. I think the demand of people to run trains on the route was unreal and that led to one of the massive increases in cost escalation. We need to go right back and say how many trains do we need to run the East Coast Main Line, how many freight and how many passenger trains and then say what is the best way of doing it. The thing grew like topsy.

  553. Are you saying that the assessment has not been made? You have not submitted to Railtrack or any other authority the number of trains you would like to increase?
  (Mr Garnett) We have submitted what we want to do. Other operators have put in some very inflated increases which I do not believe are sustainable, and one of the reasons behind the Secretary of State's standstill on the franchise was to say, " Let's go round this whole thing again" because the costs were getting totally out of the hand. We have got to go round and say what is the most sensible assessment of capacity on the East Coast Main Line.

  554. So you are saying that the three phases may not be necessary?
  (Mr Garnett) I think on the scale and costs, my guess is that it was over-elaborate.

Mr Donohoe

  555. Mr Green, if the Government were to come to you, and you as a company have argued that vertical integration is something that you would consider, and said to you that you were to get that on the West Coast Main Line, would you still pursue them for compensation?
  (Mr Green) I missed the first part. If they were to say?

  556. If they were to allow you (rather than using, as always happens, Scotland as an experiment) to run an experiment on the West Coast Main Line and give it to your company to run, would you then continue to pursue the Government for compensation?
  (Mr Green) We really would have to. You cannot have a hole of £300 million in your books and do nothing. Having vertical integration would not fill the hole.


  557. It is not altogether in the railway industry unusual to have holes of that kind.
  (Mr Green) Madam Chairman, we would not be able to do that deal.

Mr Donohoe

  558. You talk about the idea that there should be some form of trial and everybody seems to point to Scotland and say that is where it should be. Surely, there are additional problems there? You have got a devolved parliament where the stream of money is not absolutely certain, as it would be as it comes through the present procedures.
  (Mr Green) I would have thought that could be solved. There are practical reasons for it being Scotland. There is one big operator, ScotRail, there is one big track provider, Railtrack, and GNER and Virgin could have contracts with ScotRail. There would be no problem with that.

  559. Surely you set up a further form of bureaucracy? You have got the Regulator, you have got the Strategic Rail Authority, you have got the Government, you have got the potential for a devolved government, an administrator charging 450 quid an hour. All of that is added cost before the travelling public see anything happening as far as the investment itself is concerned.
  (Mr Green) The bigger cost saving comes from not having a separate Railtrack in Scotland and a separate infrastructure company, a separate ScotRail, and four other train operators. The less interfaces there are, the easier it is to run the industry.

  Mr Donohoe: Having been in ScotRail itself when it was nationalised, maybe that should be the direction we should go and we should look at the whole question on that basis. Given that all of the investment —

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