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


Memorandum by the Passenger Transport Executive Group (PRF 15)

PASSENGER RAIL FRANCHISING

BACKGROUND

  1.  The Passenger Transport Executive Group (PTEG) represents the 6 English PTEs and Strathclyde in Scotland. The Passenger Transport Authorities (PTAs) cover areas with a population of 13 million people. All PTEs are co-signatories to the appropriate local franchises in their area and, therefore, feel well placed to comment on the impact that the Secretary of State's Draft Directions and Guidance and Policy Statement will have on delivering an improved, and fit for purpose, modern railway.

  2.  PTA/Es are committed to delivering high quality integrated transport networks for the conurbations they represent. Through investment in rolling stock, new stations and other improvements to the network, use of the local railways in conurbations has grown significantly. Furthermore, each PTA/E has in place Local Transport Plans and Rail Strategies for further developing their networks. These strategies recognise that if rail is to continue to play its part in an integrated transport network which underwrites the economic, environmental and social objectives for the conurbation, long-term strategic planning is required. Most such strategies take a 15-20 year view. Such a timescale is essential and is based on PTE experience of developing light and heavy rail networks.

  3.  Since the publication of the SRA's Strategic Rail Agenda in March of this year, the PTA/Es have been working closely with the SRA to put in place a more robust franchise agreement which could deliver the aims of both the PTEs and the SRA through new longer-term franchises. PTEG believes that the investment that is needed in rolling stock and infrastructure can only come through the commitment to longer-term franchises. It is, therefore, concerned that at the heart of the revised Draft Directions and Guidance and Draft Policy Statement there is a tension between the greater emphasis being placed on franchise re-negotiations and short-term extension and the delivery of long-term improvement in performance and the need for substantive investment. Whilst it may be appropriate for some longer, more viable, franchises PTEG does not believe that short-term extensions will be effective in the case of those franchises to which it is co-signatory.

FUNDING

  4.  Central to the Guidance is the funding envisaged in the 10 Year Plan. In section 8.1 of the Guidance, DTLR restates the investment envisaged in rail in the 10 Year Plan, namely £49 billion in the period up to 2010, of which £34 billion is expected to be private investment. PTEG believe that this is no longer a realistic planning assumption. The ORR's decision on the Second Control Period and changes in Railtrack's role mean that there is substantially less funding in total and less available from the private sector. Without clarity of future investment levels, there can be no major enhancement of the network and, therefore, service development. There are also significant shortages of skills and staffing and a lack of agencies to deliver investment. PTEG believes these to be significant factors in the renewed emphasis on short-term franchise extensions. This may be an acceptable tactic to cover the period until these issues are addressed. However, if this is the case, it should be accompanied by a clear directive to the SRA to prepare realistic financial estimates quickly, rather than reproducing the £49 billion figure in the Draft Instructions. As they stand, the draft Directions and Guidance and Franchising Policy Statement will not bring about the improvement that PTEG believe is necessary in the rail network, nor will it achieve many of the objectives set out in section 2 of the Guidance and in its Annex A.

FRANCHISE EXTENSION

  5.  PTEs have direct and indirect experience of the effect of seeking to secure improved services through franchise extension.

Northern Spirit/Mersey Electrics

  In 2000, it was necessary to re-negotiate these franchises, which affect all of the English PTEs except Centro (West Midlands PTE). Initially, Arriva Trains took over the existing Northern Spirit franchise in February 2000 and in February 2001 agreed a two year extension to the franchise for substantial additional funding. The SRA's justification for the additional funding into the Northern Spirit franchise (and also the Mersey Electrics franchise) was that there would be real improvements in service. It was in recognition that the original franchises were seriously under-funded. Unfortunately, in the last 12 months there have been no improvements in service delivery within those PTA areas served by the Arriva Trains Northern franchise indeed it has deteriorated. Problems with performance, particularly through the management of driver recruitment and training, have continued. There has been no investment in new rolling stock.

Midland Main Line

  This was an early example of franchise extension. Negotiations in 2000 secured an extension of the existing Midland Main Line franchise from 2006 to 2008 with more and faster services direct from Sheffield to London, station improvements, additional rolling stock and improved services between Leeds and Sheffield. All of these were key objectives of South Yorkshire. Whilst there remain issues to be resolved with Railtrack, this was perhaps one of the first examples of what was seen as a successful short-term extension. PTEG believes this is due to it being the re-negotiation of a franchise which still had six years to run.

GNER

  Whilst none of the PTEs are co-signatories to the GNER franchise, it has a significant impact on the local services provided in Tyne and Wear, West Yorkshire and South Yorkshire. It also plays a major part in the development of the economy of those three areas. The extension of the franchise by two years has been greeted with dismay in all three areas. It has also had the practical effect of slowing down other investment that was planned. For example, the Doncaster Interchange scheme is now being reduced in scope because of the difficulties in reaching agreement with the parties involved in the project and uncertainties over what is precisely the future of the East Coast Main Line. Substantial growth has been experienced in this franchise since privatisation and PTEs believe it is imperative that additional rolling stock is procured as soon as possible. A two year extension is not conducive to this process.

Chiltern Railways

  This provides services between London Marylebone Station and Birmingham. Although Centro is not a co-signatory to the Chiltern Railways franchise, the Strategic Rail Authority (SRA) fully involved Centro in the refranchising process. Centro involved the leadership of the West Midlands Passenger Transport Authority (WMPTA) in many of the discussions. A number of passenger benefits were achieved through the agreement to a long-term franchise. M40 Trains, the existing operator, was declared as the preferred bidder in August 2000. Centro and WMPTA were successful in encouraging M40 Trains to extend its services beyond Birmingham to Stourbridge and Kidderminster as part of a new franchise. This provides very welcome direct rail links between these towns and London. Although the SRA and M40 Trains signed Heads of Terms of an Agreement for the new franchise in August 2000, a new franchise agreement remains to be signed. However, agreement has been reached with M40 Trains to bring forward some of the passenger benefits, including extended services to Stourbridge and Kidderminster, through changes to the existing franchise agreement. Centro consider that this is a good example of innovative improvements in service that can be achieved through close working between a PTE, the SRA and operators competing to win longer term franchises.

Central Trains

  The SRA announced in March 2000 that it was including the refranchising of Central Trains in the second tranche of its franchise replacement process. This announcement was wholeheartedly supported by Centro and WMPTA. Central Trains provides most of the local train services in the West Midlands. The existing franchise was losing money and performing poorly. Centro regarded a new franchise as a means of addressing these problems, and an opportunity to obtain private sector funding contributions to assist capital investment to unblock congestion in the West Midlands rail network. The process began well with close working over a six month period between Centro and the SRA. National Express Group, the existing train operator, and a consortium led by Group 4 were pre-qualified and presented outline proposals for a new Central Trains franchise in July 2000. M40 Trains also provided, by invitation, proposals for running those Central Trains services running through Snow Hill Station in Birmingham.

  In February 2001, the SRA announced that it was halting the Central Trains franchise replacement process. The SRA originally cited the reason as being that neither the proposals from Group 4 nor National Express Group delivered the benefits passengers are looking for. In March 2001, Sir Alastair Morton also criticised the approach of Centro to the franchise replacement process, including their wish to retain existing train services and standards, as being contributory reasons for halting the franchise replacement process. Centro, WMPTA, the competing train companies and business community leaders in the West Midlands all expressed their concerns at the SRA's decision to halt the franchise replacement process. Centro and WMPTA believed there was a basis for taking the process through to the final bid stage. Much time, effort and money had been invested by Centro and train companies in progressing the franchise replacement process. This is a poor example of joint working to achieve local and national improvements to rail services. Centro believed at the time that the SRA halted the replacement process, that financial pressures and changing priorities affecting the SRA were other unstated reasons leading the SRA to halting its own process half way through.

SPECIFIC ISSUES

  6.  PTEG has looked carefully at the revised Draft Directions and Guidance and in general welcomes the principles behind them and the separate Draft Franchising Policy statement. The detailed objectives and targets and their linking for the SRA to those of the 10 Year Plan are broadly supported. However, there is a fundamental concern that the Directions and Guidance will inevitably force the SRA to focus on Inter-City and South East commuter routes to achieve its objectives. Given the need for revenue support inherent in the structure of the regional franchises, coupled with generally short passenger journeys, it is highly likely that the SRA will identify that the best "Value for Money" can always be achieved by investing in routes that give the best commercial return and are more likely to attract partnership funding. The Directions and Guidance, therefore, needs to be more explicit in the way it expects the SRA to address regional networks, recognising particularly the importance local commuter routes have in the overall transport matrix in the Metropolitan areas and the social and environmental benefits that accrue. The purpose of public sector funding of our railways needs to be restated. In our major conurbations, PTEs are quite clear that local rail services are essential to ensuring our major city centres do not choke their economic and financial viability through gridlock traffic conditions (eg a sixth of people coming into Birmingham at peak times are carried by rail services). We have demonstrated over many years how more and more people can be attracted onto rail from cars. The subsidy levels being paid to sustain local rail services are a small price to pay to avoid the economic and social costs of our city centres failing. In addition to PTE areas, the Social Railway in the Shire Counties must also be supported fully by the SRA.

  7.  PTEG also have a number of other concerns. These centre around:

    —  the conflict between the aim to improve services and secure investment and short-time franchise extension, particularly in the conurbations;

    —  ensuring that PTEs who are co-signatories to the franchises are fully involved in franchise development and management;

    —  the lack of comfort with regard to Ministerial commitments given in relation to the role of PTEs and the status of the Local Transport Plan.

  These points can be expanded in looking at the extent to which the Draft Directions and Guidance and Policy Statement will deal with the five key points that the Committee is examining.

ENSURE THAT RAPID IMPROVEMENTS IN THE SAFETY, PUNCTUALITY, RELIABILITY, COMFORT AND FREQUENCY OF SERVICES ARE ACHIEVED

  8.  Improvements in punctuality, reliability and comfort require investment in track and signalling, rolling stock and a co-ordinated approach to driver training. Improvements in frequency and service require additional rolling stock, drivers and investment in capacity. They all require significant investment. Rapid improvements require a climate of confidence in which the partners (Train Operating Companies, PTEs, ROSCOs, Railtrack and the SRA) can commit and in which they can see a return. There was evidence of this in the approach by bidders to the GNER, Central and Trans-Pennine franchise replacements. That process offered the prospect of both rapid and sustained improvement. The constraints on the speed of improvement were the ability of the SRA to make clear its offer and Railtrack to prepare sufficiently robust costings. By comparison, franchise extension will always be more costly and offer less value for money because of the strength of the negotiating position held by the incumbent operator (eg recent negotiations with Arriva and First Group).

  9.  The extension of the Arriva Trains Northern franchise was an attempt by the SRA to achieve rapid improvement in service delivery and resolve performance problems. There was sufficient funding within the franchise extension to deliver extra drivers and provide additional rolling stock. Difficulties in obtaining the rolling stock have thwarted Arriva's attempts to achieve this to date. The issue of driver shortage is more complex. This arises out of the need for the industry to take a more coherent and collective view of its requirements as well as individual train operators to produce more robust manpower plans and management systems. There should be a directive from the Secretary of State to ensure a robust training programme aimed at meeting the aims of the industry. This could take the form of an Industrial Training Board similar to that in place for the Construction and Engineering Industry. It would require TOCS to co-operate re resource planning. It would demand a contribution to a pool funding driver training. It would bring about co-operation, re-investing in new technology and training programmes and methodology which would aid both adherence to standards and more efficient training.

  10.  Improvements in the reliability and comfort of rolling stock require there to be a substantial refurbishment and replacement of rolling stock. Ageing diesel fleets are a particular problem in the Northern franchises. The requirement for the SRA to prepare a rolling stock strategy within the Directions and Guidance will assist this process but will be undermined by short-term franchise extensions. In the Midland Main Line franchise there was still a substantial amount of time to run on the existing franchise. In the case of those franchises due to expire in 2003-2004, it is insufficient lead in time to see that investment takes place and earns a return. Even in longer-term franchises such as Trans-Pennine it would have been four to five years into the franchise before new rolling stock came on stream.

SECURE INVESTMENT IN ADDITIONAL NETWORK CAPACITY AND OTHER IMPROVEMENTS TO MEET BOTH THE LONG AND SHORT-TERM NEEDS OF THE RAILWAYS AND WHETHER THE SUMS ALLOCATED TO RAIL INVESTMENT WERE INADEQUATE IN THE LIGHT OF EVENTS SINCE THE PUBLICATION OF THE GOVERNMENT'S 10 YEAR PLAN FOR TRANSPORT

  11.  This has already been referred to above and PTEG's view is unequivocal. The sums likely to be available for investment in the rail network in the next 10 years are no longer realistic. PTEG does not have access to all of the information to accurately establish the amount needed for both capital investment in infrastructure and rolling stock and for the continued support of rail franchises that deliver the objectives being set of the SRA. However, the delays to Trans-Pennine and the short-term extension to GNER would seem to confirm there is a problem. This must be a priority for the SRA's first November statement.

  PTEG gave evidence to this Committee on 15 November 2000 and subsequently, in response to a request from the Chairman, submitted written evidence comparing rail investment in the UK with investment by 10 European countries. The evidence suggested that the planned level of investment in the Government's 10 Year Plan would match that of the EU average. However, the profile failed to keep pace with economic growth projection and fell behind again towards the end of the plan period.

  Private sector and City interest in franchise replacement is now likely to be low. Hatfield, the costs sunk in abortive franchise bids and the prospect of short-term franchises or extensions (which allow no new entrants) will compound the problem.

  Given the uncertainty regarding the private sector investment shown in the plan PTEG believe it to be essential for the Secretary of State to clarify how this investment will be delivered. This level of investment is crucial if the Government's transport objectives are to be achieved which in turn are crucial to the UK's competitive position.

PROVIDE THE FRAMEWORK FOR MAJOR INFRASTRUCTURE, ENHANCE PROJECTS TO BE TAKEN FORWARD NOW THAT RAILTRACK IS TO FOCUS ON THE MAINTENANCE AND RENEWAL OF THE EXISTING NETWORK

  12.  It is PTEG's view that realistic planning for the improvements of track and signalling, and the extent needed to improve performance, cannot take place in the short-term. It requires 10 year or longer investment plans. Similarly, to improve the frequency of services in many of the conurbations, such as in Birmingham and Manchester, substantial investment is needed in additional capacity. The SRA have taken forward capacity studies in these key conurbations and earlier this year were optimistically talking about how franchise replacements, such as Trans-Pennine, Northern and Central would be a major part in determining the way forward. There is a related concern that the importance of local commuter rail services to reducing traffic congestion and the resultant economic burden not being given sufficient weight by the SRA and the Rail Regulator. For example, in the West Midlands longer distance trains on the Wolverhampton Birmingham Coventry line are being given preference over local train services. The real solution is to invest in major improvements to the line and stop trying to squeeze more and more trains onto a two-track railway. This is accepted in the findings of a study into West Midlands Rail Capacity needs. These findings are supported by the SRA, Centro, WMPTA and the rail industry. However, the SRA admits that it does not have the funding to do any further development work on these major investment proposals. This is despite the acknowledgement at the Government's Rail summit that New Street Station in Birmingham is the top priority bottleneck in the UK rail network. It is not at all clear now how those ambitious but essential investment plans will now be carried forward.

  13.  The SRA's Strategic Agenda signalled the ways in which single purpose vehicles may be developed for major investment. It is important that their creation does no contribute to the current hiatus in investment or preclude in regional, lesser attractive commercial areas. Again, it is difficult to be optimistic that the framework needed for major enhancement of the network is now in place.

TRANSFORM THE SRA'S LEADERSHIP OF THE INDUSTRY, ITS DAY TO DAY MANAGEMENT OF FRANCHISES AND THE WAY IN WHICH IT ASSESSES AND AWARDS NEW AND EXTENDED CONTRACTS FOR PASSENGER SERVICES

  14.  PTEG, as Members of this Committee will be aware, supported the establishment of the SRA and looked forward to it providing leadership in developing Britain's railways. Leadership should not be at the expense of key stakeholders involvement. PTEG was concerned that in moving forward the SRA worked closely with stake-holders such as the PTA/PTEs and drew on their experience in developing the rail network. The publication of the Strategic Rail Agenda was a helpful step in setting out how the SRA saw its role.

  15.  The Agenda also made unnecessarily negative remarks about the role of the PTA/PTEs in establishing franchises. However, since the publication of the Agenda PTEG has had productive discussions with the SRA about how franchise management and development should be taken forward. PTEG is concerned that the Policy Statement and Draft Instructions and Guidance do not give clarity to the role of the SRA. It also increases the involvement of the DTLR in most of its decisions. It also seems to understate the role of PTEs. The way in which the SRA awards new and extended franchises must be transparent. The offer for which they are bidding must also be clear to intending franchise applicants. PTEG has specific concerns about weaknesses in the present Directions and Guidance which, if amended, could strengthen the way in which new and extended franchises are awarded. These have been separately submitted to the DTLR.

  16.  In recent months the change of emphasis in the franchise programme, the financial decline of Railtrack and the issues of funding have created a vacuum at the heart of Britain's railway in which, however hard the SRA might try to provide leadership, it is impossible. Structurally it may be capable of doing so. However, it needs Government to give it the financial clarity to provide the leadership necessary.

IMPROVE THE POOR STATE OF INDUSTRIAL RELATIONS IN THE RAILWAYS

  17.  The uncertainty created by two year franchise extensions is not conducive to operators drawing up an adequate manpower plan beyond the expiry date. This can lead to potential industrial relations problems with operators relying on overtime and rest day working to keep services operating. As well as not being conducive to investment in rolling stock and infrastructure, two year franchises are also not conducive to investment in manpower. Lack of investment also leads to low morale.

CONCLUSION

  18.  Whatever the circumstances and history that have led to the present position there is consensus that the national rail network must be transformed over the next 20 to 25 years if the UK economy is to continue to develop its wider social and environmental objectives. Investment is critical to improving the performance of local rail services. Local railways will continue to require funding from the public sector reflecting the wider social and economic benefits such investment provides. There has to be agreement on how much the Government is prepared to pay towards this investment. Other sources can then be sought for additional funding. Optimum investment will be achieved through the confidence of a shared long-term vision and a stable climate. That may need a short-term focus on improving services to the customer whilst these issues are quickly resolved. The revised Draft Instructions and Guidance and Policy Statement are a step in the right direction. With the amendments, PTEG is suggesting and a clear funding strategy in place both the SRA and PTEs can effectively meet their statutory duties by the delivery of improved rail services for all.

September 2001


 
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