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

Further memorandum by the Railway Reform Group (PRF 9A)


  The Railway Reform Group welcomes the opportunity to present evidence, provided by this timely Inquiry by the Transport Sub-Committee. We particularly welcome the expansion of the Terms of Reference for this Inquiry to include the impact of Railtrack PLC being placed into Railway Administration on the Governments franchising policy together as well as considering the possible financial structure of Railtrack's successor. We also note that in the context of a wider potential re-structuring of the industry, the Committee will consider the relationship of Railtrack's successor to the TOCs and regulatory bodies and the allocation of risk between the new company and Government.

  As we said in our primary evidence to the Committee an independent non-judicial Inquiry into the current state of the industry, together with a clear set of recommendations attuned to both financial viability and practical delivery is something we have been attempting to persuade Government itself to undertake. We now understand that at the time of our discussions with the DTLR, they may have been a little diverted by the development of "Project Ariel". Any Inquiry into the wider reform of the industry beyond an immediate objective of denying a further, almost unquantifiable, outflow of public funding to Railtrack PLC would have been a "thought too far".

  In the unique circumstances in which Government and railway industry stakeholders now find themselves, it is particularly difficult to assess not only the impact of franchising policy but on all of the other areas of concern of the Committee. We say this as there seems to be an assumption on the part of many stakeholders of a plan, beyond the immediate action of placing Railtrack PLC into Railway Administration. Despite all our contact discussions with industry stakeholders at many levels, we have to admit to being unable to identify such an entity. In the light of this we can only reasonably assume that the greatest single impact on the Governments franchising policy will be to induce still further delay in the process, in addition to that brought about by the changes in franchising policy itself announced by the Secretary of State in July this year.

  There can however be little doubt that the action taken by the Government to place Railtrack PLC into Railway Administration presents an opportunity. We share the Secretary to State's optimism, expressed in his recent statement to the House:

    "Railtrack's demise offers a golden opportunity to recast the railway industry in our country and to create a railway industry that is fit for the 21st century, which simply is not the case at the moment." (Hansard)

and we welcome the indications given in the Secretary of State's statement of the 7th October when he said:

    "I also plan to legislate, when Parliamentary time allows, to rationalise the present regulatory structure 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. This will deliver clearer accountability and end perverse incentives".

  If we attribute to the Secretary of State the most generous interpretation of his statements wording possible it would appear, at long last, that The Railway Reform Group could justifiably lay claim to having its primary objective of "simplifying the complex contractual matrix of the Railways Act 1993 . . ." adopted as Government policy. There is however a qualification to that primary objective: it is "and placing the passenger and freight transport consumer at the heart of the industry".

  From these precepts we hope that the Committee will understand that we are as concerned with the "How to . . ." of the industry as the "What for . . .". As a result our work over the last ten years has dealt with providing a sound and equitable investment appraisal process for the industry, seeking to enhance the contribution made by the consumer to industry development, developing safety management and operational concepts which have been influential as well as continuing to both react to and contribute towards the development of policy in both railway and wider transport fields through a wide range of mechanisms.

  We thus feel reasonably confident in proposing for further debate, examination and (maybe) even adoption, a holistic view for future principles, structure and relationships which would result, in our view, in finally delivering that "railway industry that is fit for the 21st century, which simply is not the case at the moment".

  Our views are being set out in our forthcoming publication "Pulling Together—A National Network Railway" and although we do not wish to quote at length from a draft, it contains a number of identifiable "building blocks". These include:

    —  Company Limited by Guarantee (CLG) is not a "Resurrection of Railtrack" but enables compliance with EU Directives.

    —  "Ownership" of network remains with CLG (which can remain in administration or out of administration is largely dormant) but with high prospect of clearance of liabilities over time.

    —  Consortium/Alliance based franchise bids to include infrastructure maintenance Contractors, Train Operators at Franchisee level, Logistics and Consultancy expertise, Freight Group. Established as RailCos'.

    —  RailCos' may be either geographically or market segment based franchises but there would be significant reduction in numbers overall.

    —  CLG Regional/Zonal "people" assets are leased to Railco for Franchise term so that Railco is master in own house for operations but does not take additional risk from "ownership" of proportion/whole of infrastructure" assets.

    —  CLG will have 3 potential long-term income streams:

      —  Lease charges for physical assets to Railcos'

      —  Lease charges for "people assets" to Railcos'

      —  "Open Access" charges (published tariff or Open Book based)

    —  CLG Headquarters "people" assets (Leased to SRA) are "keepers of Graph" and devise/develop train plan on directions from SRA. Also systems "people" assets ensure continuing development and integration and the Asset Condition Register is held and maintained by the SRA.

    —  RailBank established: charged with delivering £30 billion + private sector funding contribution.

    —  RailBank administers Rail Modernisation Fund.

    —  RailBank utilises effective and innovative means to introduce capital support into the industry.

    —  RailBank addresses market failure to maximise capacity to raise private capital.

    —  RailBank operates at arms length from HMT (but under FSA supervision).

    —  RailBank empowered to use guarantees in line with SR 2002 et seq to obtain best market rates but conditional on similar arrangements to CTRL financing where no PSBR future liability created.

    —  Reflects to HMT, HSC, DTLR and industry regulators independent assessment of financial implications of regulatory decisions and draft/subsequent legislation.

    —  Propose realistic financing measures implied from regulatory decisions.

    —  RailBank liaison with NAO for Value for Money (VFM) audit throughout industry.

    —  A Rail "Senate" is established to act as:

      —  Supervising Board (on the lines of EU model) for CLG and as Industry Appeals Body.

      —  Economic Rail Regulator/International Rail Regulator.

      —  All Industry Stakeholders/Consultees inclusive of Consumer representation and Regional Assemblies & PTE's.

  If it is really the Governments intention to reduce:

    "the burdens of . . . a self-defeating system of penalties and compensation . . . and end perverse incentives".

we would propose that the existing Performance Regimes be scrapped for other than minimal interfaces of "through running" by third parties. This would have a beneficial effect in immediately releasing over three hundred staff within the industry with useful operational experience and understanding from the fruitless exchanges involved in delay attribution, compensation and possessions regimes. In addition the track access charging regime largely become redundant as the quality of infrastructure becomes a RailCo issue and we would expect very significant reductions in the level of such charges to reflect only the marginal costs.

  The effect on Freight operations of such proposals would take the achievement of the Ten Year Plan objectives out of the realms of the possible into that of the probable, although the reduction in network Trace Access charges would be offset to some extent by the necessity of bearing whole costs of maintenance on current freight only lines. This in itself would provide an incentive for further Joint Venture approaches to the re-opening of such lines for passenger services.

  The Railway Reform Group believes a structure along the lines of that which we propose will satisfy a comprehensive range of principles and will deliver these in a form which is recognisable as a Network. They will provide long term stability with both accountability and affordability. They provide an opportunity for a consumer responsive, reliable railway, which will be affordable to the passenger, the freight service consumer and the taxpayer. They are amenable to local, regional and national input in contributing to the quickly improving, safer railway to which we aspire.

  In outlining these proposals we have of necessity been brief but their potential significance is not related to the length of this evidence. We would be pleased to submit further evidence, either in writing or orally, should the Committee wish.

25 October 2001

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