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


Memorandum by Lord Bradshaw and Richard Hope (PRF 13)

PASSENGER RAIL FRANCHISING

  1.  We were advisers to the Transport Committee in its inquiries into railway privatisation during the 1993-97 parliament and have observed the industry professionally over many decades.

  2.  The sub Committee asks whether the draft policy statement and guidance issued by government focusing on short term action, will ensure rapid improvements in the quality of railway services. Our conclusion is that it will not.

  3.  The problems of gauge corner cracking and arrears of maintenance of railway track, signalling and power supplies are very deep seated and are likely to take some years to overcome. For example the prevalence of wet spots (or wet beds) where the drainage of the track between sleepers has failed is now very high, a clear indication of defective maintenance. One result is the continued presence of more than 700 temporary speed restrictions compared to a "normal" figure of around 500.

  4.  The conditions of signalling causes particular concern because it is not being renewed nationally at a rate commensurate with the normal life of around 40 years. In addition, there is serious concern about degraded insulation of wiring dating from the 1960s and 1970s, which poses the risk of a dangerous signalling failure. Severe pressure on skilled staff in this sector means that the priority currently being given to the Train Protection Warning System is slowing down signalling renewal still further.

  5.  Traffic on the railways has increased substantially since privatisation. This is mainly attributable to the buoyant state of the economy and increased road congestion. In some cases better marketing has boosted carryings. As a consequence there are more trains and some parts of the network are seriously congested. Little has been done or is firmly planned to be done to ease this congestion. Neither in view of Railtrack's decision to concentrate resources on a few priority projects is there any likelihood of significant engineering work being carried out in the next few years.

  6.  After a long gap during the privatisation process new rolling stock is becoming available. The process of accepting this for operation on the railway is slow and the reliability of many new trains is worse than the old trains that they replace. We are satisfied that the companies involved in leasing rolling stock are capable of financing adequate provision. We are very disappointed that new trains perform so badly.

  7.  It is unlikely in our view that Railtrack will be able to fund the improvements in railway infrastructure needed to provide a decent modern railway in Britain. Neither, so we believe, has it the managerial and technical capability to carry out the work. The shortage of technical resources is a major barrier to improvements. It is the direct result of the deliberate dispersal of experienced managerial and engineering staff during the break-up of British Rail into consultancies, non-rail employment or early retirement.

  Firm estimates of the costs of infrastructure work required by any of the proposed new franchises have yet to be delivered by Railtrack. For example Heads of Terms were signed in August 2000 with the present incumbent, M40 Trains, for a new 20 year franchise of Chiltern Trains involving £370m of investment. But this has not progressed because Railtrack has not played its part.

  8.  We believe that Railtrack may soon approach the government suggesting a restructuring of the company. At this stage the responsibility for the infrastructure side of the operational railway may become available to the public sector without the requirement for primary legalisation to effect renationalisation. Railtrack is likely to remain as a property company and an investor in new projects such as new lines or station re-development.

  9.  We have always maintained that a properly functioning railway requires the infrastructure and train operation are brought together as a vertically integrated whole. From 1830 to 1987, all of the world's railways operated in this way without exception, even though virtually all other transport modes did not. Such a weight of practical experience cannot be cast aside without substantial risk. Apart from Britain, the few examples since 1987 of train operations being separated from infrastructure have seen the infrastructure at least remain in the public sector. In this country, the adversarial relationships with all the legal complexities involved destroy the teamwork necessary to deliver the service that passengers want.

  10.   The performance régimes associated with the present structure of the railway with Railtrack and train operators paying each other penalties for failure, employ hundreds of people but there is little perceptible effect on quality. Indeed, punctuality and reliability is if anything somewhat worse than it was under BR. Small refunds of fares to some users are in our view no substitute for a reliable service.

  11.  The performance régime associated with delays caused by engineering work has the effect of increasing (sometimes doubling) the cost of improvements to railway infrastructure. Such charges do not arise as a result of roadworks. This distorts competition. Major infrastructure work should be planned into the timetable and should not give rise to penalty charges.

  12.  It is difficult to see how major infrastructure enhancement projects can be taken forward without close involvement of the train operators. Obviously short extensions to franchises make this impossible as one company has told us "If a TOC is on a very short franchise, it will do the minimum necessary to retain the franchise and quite small investments will be avoided if they do not have paybacks of under a year or so". We therefore conclude that future development of the railway depends on long term involvement of stable TOCs involved in management of the infrastructure. This may involve few TOCs or alliances of TOCs. It should be possible to arrange funding in the private sector, maybe through the Rolling Stock Companies, which are in effect banks, provided government or the SRA underwrites a level of funding. It is however very difficult for private sector companies to take on substantial but rare and occasional risks and we suggest such major infrastructure features such as large bridges, tunnels and structures should be subject to a cost "pass through" process. This is consistent with arrangements in the water industry and places risk where it is most appropriate.

  13.  The leadership of the industry is confused. In our view there is a need for simplification of regulation. We suggest that the sub-Committee considers a system modelled on the Civil Aviation Authority which would include an Economic Regulator charged only with fixing track access charges on a five yearly basis; a Safety Division, headed by a professional engineer experienced in railways, licensing all companies and individuals with safety critical tasks; a Passenger Franchise Management Division and a Freight Division. This would allow the Office of the Rail Regulator to be closed and the involvement of the Health and Safety Executive in railway affairs to be terminated. A quite separate Rail Accident Investigation Branch would be created charged with investigating accidents and reporting to the prosecuting authorities any evidence of wrong doing. These changes require primary legislation.

  14.  Subject to the above the SRA should set out clearly the shape and capacity of the network it forsees as being needed to meet the government's aspirations, including any new lines. We suggest that the sub Committee should make clear their view as to whether they would be content that the whole of the increase in carryings in the 10 Year Plan, be achieved in the London area and on the main InterCity routes, as has been suggested by some commentators or whether the increases in carryings should be more widely spread. The SRA should procure these through long term franchise agreements with fewer TOCs or consortia of TOC, adding public finance to that raised from the private sector. We suggest the penalty régimes be replaced with strong incentive schemes for delivery of good performance, particularly focusing on growing passenger use where and when roads are heavily congested. This is one of the primary purposes of a subsidised railway.

  15.  The poor state of industrial relations in the industry is partly due to low morale and uncertainty. Longer franchises and re-kindling of the team spirit associated with a vertically integrated railway will in our view help raise morale.

  The real crisis is the lack of recruitment of engineers and middle managers over the years of privatisation and the period leading up to the process. The industry must come together and deal with this. The Institution of Mechanical Engineers' "Passport" proposal that would enable a young engineer to move around within the industry, thus gaining broad railway experience, is one example of how it might be achieved. But companies need some reassurance that their training effort will not be exploited by others.

  16.  Any vertical re-integration of the passenger rail industry will leave a problem for freight operation. To deal with this we suggest that the Freight Division of the SRA should purchase adequate paths for freight trains in an expanding system and make the honouring of these part of the new franchises. The SRA would sell these paths to freight companies, the difference between the purchase and sale price would amount to social cost of decreasing freight traffic on the roads.

  17.  We draw the attention of the sub Committee to the very high costs associated with both the safety measures proposed for the railway and the costs of compliance with the Disability Discrimination Act. There is a real danger that the resources made available for the railways will largely be absorbed by these demands. It may be advisable to prioritise safety and access expenditure to focus on the areas of greatest benefit.

  18.  This paper presents a radical set of proposals for the railway but these if developed would be welcomed by most companies in the industry and by users. Nothing short of changes of this nature will rectify the damage done to the system.

September 2001


 
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