Select Committee on Transport, Local Government and the Regions First Report



35. When Railtrack was taken into administration, the Government announced its intention to legislate to change the regulatory regime for the railways. Although the details have yet to be revealed, the aim is to provide "stronger strategic direction while reducing the burdens of day-to-day interference in the industry and a self-defeating system of penalties and compensation".[205] "Transparent independent economic regulation" would be retained under the new regime.[206] It is expected that a "more streamlined" regulatory system would help underpin the credit rating of the company limited by guarantee,[207] although it was not clear precisely what changes would be made.[208] The Government will still be a major purchaser of the services of Railtrack's successor and that company is expected to be a monopoly supplier of those services. The Rail Regulator highlighted the fact that it was important to investors to maintain an independent regulatory body, separated from the Government, to check the quality and price of those services.[209] Moreover, the industry itself supports the retention of independent economic regulation.[210]

36. While the need for an independent economic regulator with clearly defined responsibilities, duties and objectives will continue, the respective roles of the Regulator and the Strategic Rail Authority should be reviewed. There are, unhelpfully, some issues that fall within the jurisdiction of both organisations, for example, decisions about how track capacity should be shared among train operators, and the allocation of public funds to the railways. Sir Alastair Morton argued for the Rail Regulator's responsibilities for pricing, performance and access regulation to be transferred to the Strategic Rail Authority, although he acknowledged the need for "an appellate body or tribunal" that is expert in railways. Such an arrangement was justified on the grounds that the Strategic Rail Authority was responsible for funding the railways and "he who pays the piper should call the tune".[211] The Rail Regulator, however, pointed to the importance of his role in determining the fair price for funding the long-term stewardship of the rail network There would be the question as to whether the Strategic Rail Authority, as the dominant purchaser of railway services, should also determine the price and quality of those services. That would be likely to discourage the private sector from investing in the railway. Moreover, the long-term development of the railway could be undermined by changes in the Strategic Rail Authority's budget in the same way that had happened under British Rail.[212] Similarly, with regard to the allocation of track capacity, the Regulator thinks that there are benefits from his office, as an independent body, balancing the needs of different operators.[213] While private sector companies remain involved in the railways, it is clear that the industry must have an independent Regulator. However, if the Strategic Rail Authority is to play a strategic role, it should be given sole responsibility for allocating funds and deciding how network track capacity be used and overall responsibility for rail infrastructure. Even though it may take some time before any legislative changes are in place, we further recommend that the Government present its proposals for changing the regulatory regime before Railtrack's successor emerges from the process of administration.


37. The Government's 10 Year Plan for transport planned that more than £60 billion should be spent on the railways by 2010 of which approximately £26 billion would come from public funds.[214] It was not clear then that would be sufficient funds to provide a railway that meets the country's needs and there was a widespread view that insufficient funding had been earmarked for the railways in the 10 Year Plan.[215] The Strategic Rail Authority's former chairman described the approximately £30 billion that he had notionally been allocated under the 10 Year Plan as being "wrongly structured and not sufficient in amount".[216] He warned that the available funds were insufficient even if the Authority chose to 'do minimum' improvements.[217] Sir Alastair is reported to have estimated, before Railtrack's administration, that the Government would need to spend up to £10 billion more on the railways than was originally budgeted for in the 10 Year Plan.[218]

38. Circumstances have changed significantly, however, since the Plan was published.[219] The Strategic Rail Authority believes that several developments in safety and accessibility will have "substantial implications" for the costs of the railway. The train protection system recommended by the Cullen-Uff inquiry might cost between £3 billion and £5 billion;[220] compliance with the European interoperability directives may cost £1.5 billion;[221] and the costs of works to provide station access under the Disability Discrimination Act 1995 are as yet unquantified, but are likely to be very large.[222]

39. Railtrack's chief executive also expressed the view that it will prove more difficult to attract private-sector funding following Railtrack's administration.[223] Furthermore, assessing the funding requirements for the railway[224] is complicated by several additional factors, such as the lack of knowledge about the cost of bringing the entire network up to a state of good repair.[225]

40. Despite the importance of achieving the targets of the 10 Year Plan, there is overwhelming evidence that funding allocated to the railways is under attack from a number of quarters not envisaged at the time of the plan's preparation. We are concerned that the Treasury will not provide sufficient funds to enable the objectives set for the railway to be met, especially as extra money has already been allocated to Railtrack. It is essential that the bias in favour of road rather than rail investment is overcome[226] and that the historical under funding of the railways is finally tackled. Since the publication of the 10 Year Plan, the level of funding allocated to the rail network has been increased from £29.1 billion to £33.5 billion.[227] The Strategic Plan did not contain any commitment to provide an increase in investment above the £33.5 billion. More public and private money will be required, as the Strategic Rail Authority points out, to meet the goals set for the railways, as opposed to the core targets, in the 10 Year Plan.[228] The economy of the United Kingdom depends on an efficient railway. This will not be achieved without investment on a scale which dwarfs the figures proposed in the first 10 Year Plan. We recommend that the forthcoming review of the 10 Year Plan establish the amount of additional public money needed for rail investment and that the Treasury make an unequivocal commitment to provide the necessary long-term funding. Without additional resources, the Department for Transport, Local Government and the Regions will have to reallocate more money in the 10 Year Plan from roads to railways in order to ensure that the targets for rail are met.


41. As the Prime Minister has said, there are two reasons why the problems with the railways have arisen. The first is related to privatisation which "is generally accepted to be a disaster".[229] This is now being addressed in the proposals for Railtrack's successor and appointing a new Chairman of the Strategic Rail Authority. Secondly, there is the under-investment in the industry which went on for "a considerable period"[230]—for several decades. It was most unfortunate that, in 1997, the Prime Minister did not give the railways the priority that they required when he took office. Just about all the players in the industry have also contributed to the chaos that the railways are now in: Railtrack did not meet its responsibilities to maintain and develop the network; the Strategic Rail Authority failed to provide the industry leadership that was expected of it; and the train operating companies did not improve their services to meet the needs of their passengers. Both short- and long-term measures must be taken urgently to put the industry right:

  • The Strategic Rail Authority must be made into an effective body; it must perform its key tasks of planning strategically for the industry, and letting and managing new franchises much more efficiently than in the past; it must not be micro-managed by the Department;
  • New, long-term passenger franchises with bigger, properly-enforced, penalties and incentives to ensure that the train operating companies improve their performance dramatically;
  • Railtrack's successor must be taken out of administration as quickly as possible and by October 2002 at the very latest;
  • The new company should be directly responsible for inspecting the network and for directly employing maintenance and renewal workers;
  • The Government must ensure that Railtrack's successor is adequately funded and it must indicate soon how it will achieve at least a single-A credit rating;
  • There is no simple solution to the conundrum of how to upgrade railway infrastructure: Railtrack was not up to the task and the proposed alternative, the use of special purpose vehicles, is unproven. It is essential that clarity exists between those responsible for rail infrastructure and train operation. We strongly recommend consideration be given to the Strategic Rail Authority's role and responsibility in relation to the maintenance, renewal and development of the rail network. The fundamental problem is that the modernisation work will require very large sums of public money and the Treasury must accept this reality;
  • Ways of constructing new lines alongside existing routes and reducing the amount of time that it takes to build new routes should be investigated; and
  • Very large sums must be made available for the railways. The funding proposed in the 10 Year Plan is inadequate. Sufficient funding to meet the targets set in the Plan is the very minimum that the Government must provide.

42. Once the new arrangements are in place, the railways will need a period of stability with minimal Government interference to enable the day-to-day performance of train services to be improved and to invest in new infrastructure and rolling stock.

205   'Railtrack placed in administration: Byers proposes a private company without shareholders, but with the interests of the travelling public as its top priority', DTLR News Release, 7 October 2001. Back

206   H C Deb, 23 October 2001, col. 197W. Back

207   Ibid. Back

208   PRF 35D. Back

209   Q 733. Back

210   For example by Great North Eastern Railway (Q 562) and the then Chief Executive of the Strategic Rail Authority (Q 636). Back

211   Q 110. Sir Alastair also referred to his concern at "the Regulator's hand getting into the Strategic Rail Authority's pocket to remove money". This was in reference to the Regulator allocating additional funding to Railtrack following the periodic review of the company's access charges which was unplanned and had to be diverted from investment projects (Q 101). By contrast, the Rail Regulator did not think that the jurisdictions of his office and that of the Strategic Rail Authority overlapped and that any points of friction and ambiguity had been addressed in the Transport Act 2000 (Q 744).  Back

212   PRF 53A. Back

213   Ibid. Back

214   A total of £60.4 billion was allocated to the railways between 2001/02 and 2010/11 in the 10 Year Plan. This figure comprised £14.7 billion of public investment, £34.3 billion of private investment and £11.3 billion of public resource expenditure (Transport 2010: the 10 Year Plan, Table A2). Back

215   For example, see comments from ASLEF (Q 285) and the Rail Passengers Committee (PRF 17). It has been suggested that the Government has considered borrowing funds initially allocated to roads expenditure within the ten-year plan to increase spending on rail ('Byers may raid roads budget to aid railway', Financial Times, 5 December 2001).  Back

216   Q 115. Back

217   Q 103. Back

218   'Byers to press Chancellor for extra rail cash', Financial Times, 10 September 2001.  Back

219   A Departmental spending review is expected to be concluded in July 2002 (Q 80). Back

220   'Railtrack chief argues against installation of expensive train control system recommended in first Cullen report', Sunday Business, 16 September 2001. Back

221   Estimate produced by the Railway Forum and reported in 'Commons to probe cost of EU rules on railways', Financial Times, 29 December 2001. Directive 96/48/EC Interoperability of the trans-European high-speed network is intended to enable the inter-working of trains on that network and to assist manufacturers by the adoption of commons standards. It applies to projects for the construction or upgrading of infrastructure or rolling stock on the defined high-speed network. The regulations to implement the directive are expected to come into force in early 2002. Directive 2001/16/EC on the interoperability of the trans-European conventional rail system is required to be implemented by April 2003 (H C Debates, 23 October 2001, col 193W). Back

222   PRF 39, para. 6. The DTLR admitted that it did not how much it would cost to ensure compliance with the Disability Discrimination Act (Q 75).  Back

223   See comments by the then Chief Executive of Railtrack (Q 345). This view was countered by the Commissioner of Transport for London who thought that the private sector would return if the Government committed funds to a long-term investment plan for the railways (Q 217).  Back

224   SwiftRail UK, the WestLB-backed consortium which may bid for Railtrack, has estimated that the infrastructure operator is facing a funding gap of £6.8 billion over the next ten years. Earlier in the year, the figure had been estimated as £3.8 billion ('Railtrack "faces £6.8bn funding gap over 5 years"', Financial Times, 21 December 2001. Back

225   Transport for London argued that "a thorough-going, stem-to-stern, asset assessment" had not been undertaken but would be essential to establish what work needed to be done and how much it would cost (Q 203). An additional concern, expressed by Transport 2000, and others, was that there would be a strong bias in rail investment and development towards London and the South East as a consequence of the Government requiring the Strategic Rail Authority to focus on achieving three of the ten-year plan's objectives namely: a 50 per cent increase in passenger km; an 80 per cent increase in rail freight; and reduced levels of overcrowding on passenger services (PRF 11). The PTE Group similarly feared that inter-city and London and the South East services would be favoured above those on provincial routes as they would generate the best commercial return (PRF 15, para. 6). Back

226   Transport Statistics Great Britain 2001, TSO, Table 1.16. Back

227   The Strategic Plan, pp. 24 and 25. Back

228   Ibid, p.9. Back

229   HC Deb, 9 January 2002, col. 537. Back

230   Ibid. Back

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