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
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
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
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
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
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