Further memorandum by the National Union
of Rail, Maritime and Transport Workers (PRF 29A)
PASSENGER RAIL FRANCHISING
RMT have already submitted comments to the Transport
sub-committee in respect of the original enquiry into Passenger
Rail franchising. The committee will be aware that in this document
RMT stated that the existing structure of the industry was incapable
of delivering a first class railway due to its fragmented structure.
RMT expressed concern over the ability of the
industry to deliver the £60 billion of investment as originally
envisaged under the 10-year plan, especially given the deteriorating
financial position of Railtrack. Since this time the Secretary
of State has placed the company into administration and we desperately
hope that Government will now take the opportunity to fundamentally
reform the existing structure of the industry.
However we fear that this is not the Governments
intention. Whilst the conversion of Railtrack from a company subject
to the interests of shareholders to that limited by guarantee
is clearly a step in the right direction, reports in the press
indicate that the Secretary of State is to leave the existing
structure of the industry largely intact. This will be a major
mistake as this will mean there will still be no effective public
control over the rail industry.
The new company must be able to be identified
by those working in the industry, and of course the passengers,
as responsible for providing clear leadership. This should be
in the form of a planned program of investment, direct responsibility
for maintenance and renewals, and the promotion of network benefits.
We are surprised that Government are still promising
delivery of £60 billion of rail investment without any promises
of additional resources over and above the £26 billion of
public money already scheduled. Government have also indicated
that they wish to see upgrades of the network undertaken through
Special Purpose Vehicles (SPVs). RMT do not believe this is the
most cost effective way of delivering investment and we see little
prospect of the exclusive use of SPVs being able to modernise
the railway in the next 10 years.
Within our additional comments we will address
the questions raised by the committee. However we believe the
fundamental question that must be addressed is how the successor
to Railtrack will be configured/structured and financed. From
this flows the mechanism by which the industry is financed and
the relationship with the other constituent parts of the railway.
These include the SRA, the Rail Regulator and the passenger franchises,
comments on which have been requested by the committee.
Many of the current difficulties with the railway
stem from the fact that no one person is in overall control. The
union believes this can be resolved by taking the infrastructure
of the industry back into public ownership. Recent events have
clearly shown that it cannot work as a private sector business.
The railways are a national asset dependent upon billions of pounds
of investment and subsidies, and we must ensure that by some means
Government has effective control.
Many details of the precise structure of the
industry have yet to be resolved. Government have stated that
day-to-day maintenance of the railway will remain with the Company
Limited by Guarantee, (CLG). The Secretary of State has also stated
that he favours Special Purpose Vehicles (SPVs) for major enhancement
projects. Special Purpose Vehicles involve a group of companies
formed together to deliver an enhancement project for the railway.
The SRA is likely to be the channel for public money and will
be one partner within the SPV.
Reports also seem to suggest that Government
may consider mortgaging future revenue from the railway as a guarantee
to a private sector investor. For example if an investment bank
or private sector company makes available funds for an enhancement
program, such as the East Coast Main Line modernisation, they
will in return be guaranteed future revenue that flows from the
enhancement, so in this example it may be a proportion of track
access charges or fare revenue from the East Coast Main Line.
RMT believe that Government will be making a
grave error if they embark upon this course of action. Proceeding
this way will mean that on each occasion a major enhancement is
planned contracts will presumably be put out to tender for private
sector partners. Of course it goes without saying that the private
sector will not be interested in participating in projects without
RMT also believe that the taxpayer will pay
more for enhancement projects through SPVs. This is partly because
Government can borrow money more cheaply than the private sector.
However the number of different parties involved in SPVs will
we believe mean further delays and expense. Before investment
can begin to flow there will inevitably have to be a number of
contractual arrangements in place and these arrangements will
draw valuable human and financial resources a way from the railway.
Convoluted arrangements such as these will also mean that it will
be more difficult to exert overall control.
The railway desperately needs a steady flow
of investment that, in current circumstances, can only be delivered
by Government. The railway needs workers with sound railway knowledge
and personnel with project management experience. Unfortunately
SPVs will mean new companies, further fragmentation and an additional
set of contracts for investment purposes. This cannot be justified
when it is clear that this method of finance will see no greater
return on Government funding or additional passenger benefits.
We should also note that the SPVs will not only be subject to
contractual terms amongst themselves, they will also have to formulate
another set of agreements with Passenger and Freight Operators.
The cost of these arrangements will therefore
have to include provision for profit for the private sector partner,
and fees for lawyers to draw up all the contractual arrangements
between the SPV partners, and the companies in the railway industry
affected by the investment. This money could instead be spent
on improved services to passengers. The organisational structures
on the railway need to be simplified not made more complicated.
The most important criteria should be that passengers
can identify who is in charge of maintenance, renewals and all
passenger and freight operations. We believe this can be done
as long as the Secretary of State gives sufficient power to the
new network operator.
As we have stated RMT believe that new investment
can most simply be delivered by the CLG acting on behalf of the
Government. The company, or indeed a separate subsidiary of the
CLG, can through Government be granted a stable income stream
from track access charges, property income and any other railway
assets. In addition investment funds from the Government can also
be made available so that the new company limited by guarantee
is actually in charge of the whole network and therefore all investment
projects designed to improve existing capacity. Additional expertise
for particular enhancement projects can be recruited where necessary.
There is no reason why a number of methods should
not be used to finance the railway enhancements. Whilst grant
payments from the Department of Transport have been the traditional
method of finance, we would recommend that the new company be
given the freedom to borrow from a number of sources. This can
include borrowing from the city, for example through bonds. A
Government guarantee will ensure a high credit rating, so resolving
the difficulties of Government obtaining a sufficiently high capital
rating to raise finance at minimal interest rates. Again the important
issue at stake is central control and the ability of the Company
Limited by Guarantee to plan a timetable of investment that places
the needs of passengers first.
The emphasis on possible private investment
ignores the fact that the railways simply do not offer a commercial
rate of return. The increase in ticket office revenue from extra
investment is not enough to service the debt and provide a reasonable
rate of profit for the investor.
A SAFELY MAINTAINED
One of the first tasks of the new network operator
has to be to rebuild confidence in the existing network. The Transport
sub-committee has previously recommended that Railtrack directly
employ staff to renew and maintain the network. We cannot over
emphasise the importance of action on this matter.
At the current time a number of principal contractors,
together with many sub-contractors, undertake maintenance and
renewal work. Independent reports have testified to the declining
state of railway assets and this has resulted in tragic consequences,
most notably at Hatfield. The increased number of contractual
interfaces has given rise to additional safety risks that can
be easily removed.
Unfortunately despite the committees previous
recommendation the Casualisation of the industry has continued.
Latest figures from Railtrack show that there are now over 3,000
employers and 101,000 PTS card holders. Like major investment,
renewals and maintenance need to be carried out under central
command. As we have previously stated if this work was properly
planned the peaks and troughs in workload could be levelled out.
This will maximise the employment of permanent competent staff,
and reduce the reliance on less competent sub-contractors and
casual workers from agencies.
A common safety culture for staff directly employed
by the infrastructure owner is a number one priority that we sincerely
hope is not going to be by-passed given the present opportunity
for reforming the industry.
The committee has raised the issue of passenger
franchises. We have to get back to basics and remember that the
railway needs to be run for the benefit of passengers.
The network operator should be given wider powers
to promote an integrated railway with network benefits. The train
operating companies should be required to deliver these. The successor
to Railtrack will also need to be far more pro-active in facilitating
increased freight than has previously been the case with Railtrack.
The preference for RMT is to see a re-integration
of rail and wheel thereby bringing the passenger services back
into public ownership at the end of their contractual terms. However
at the very least the DTLR should renegotiate passenger franchises
on the basis of increased Passenger Service Requirements, commitments
to through ticketing and timetabling, and minimum levels of staff.
Some operators may not be happy with this but the maintenance
of a public service, not the generation of profits, is surely
the primary function of the railway.
Again the successor to Railtrack must be given
powers to promote network benefits and ultimately if train operating
companies do not wish to participate then the new company must
be able to run franchises. Many passenger operators are already
indicating that they have doubts about the viability of their
operations. The taxpayer surely cannot be expected to pay ever-increasing
subsidies to Train Operating Companies so that they can maintain
services that are run primarily on a commercial basis.
The future structure of the successor, and its
relationship to the other constituent parts of the railway, gets
to the very heart of the argument over public control and accountability
of the railway. At the current time no one on the railway can
take tough decisions as the fragmented structure of the industry
means that the interests of the different constituent parts of
the industry pull in different directions. The railway needs clear
leadership from the top to resolve the differing interests of
the various components that make up the network. In the days of
British Rail the Board sometimes made tough decisions that left
parts of the BR Group feeling aggrieved, but it was clear who
was in charge and the decisions were made for the benefit of the
RMT are not arguing for a reincarnation of British
Rail but for effective control over the network. The new company
should provide clear leadership and this can take the form of
a planned programme of investment, responsibility for the maintenance
and renewal of the track and the promotion of network benefits.
There is simply no need to have such a convoluted structure with
two regulators. Passengers should be able to identify who is in
charge and there would be no doubt under these proposals.
It is for these reasons that we reject the idea
of granting train operating companies control of the track. There
are many practical problems with this proposal, such as access
for freight and lines with multiple passenger operators. But even
more importantly this method will leave little scope for effective
public control of railway operations, maintenance or investment.
Earlier in this document RMT advised that investment
in the railway needs to be centrally co-ordinated so that it can
be delivered as quickly and efficiently as possible. The cost
of major enhancement has escalated in recent years to due to the
multiple operational and contractual interfaces in the fragmented
In a recent edition of the magazine, Modern
Railways, Roger Ford undertook a comparison of the cost of investment
under British Rail and the railway under privatisation. His analysis
illustrates how, on the basis of the new official estimated cost
of £6.3 billion for the West Coast Main Line (WCRM) route
modernisation, the cost per mile will be £15.75 million.
This compares with £4.9 million per mile when the line was
last modernised in 1966. The figures have been calculated at 2000/01
prices. If latest reports are correct it is also likely that the
cost of modernisation will have increased to at least £7
Other comparisons have been made and the findings
have been the same. For example the new line built by BR at Selby
in 1980 was £10 million per mile. Under today's railway phase
1 of the Channel Tunnel Rail Link will cost £39 million per
mile. Again these figures have been adjusted to reflect inflation
since the original BR project.
The conclusion to the study was that current
schemes are costing two to three times what BR would have paid
for the same project. The increased number of interfaces involved
clearly increases costs. For example the cost of Leeds remodelling
and signalling was estimated at £100 million, in line with
Newcastle remodelling under the East Coast Main Line electrification
in 1984. Railtrack gave approval for the scheme at a cost of £168
million, and it has since come in at £240 million. From that
figure there is at least £50 million in compensation payments
to Train Operating companies. There is a similar story with WCRM.
Costs have now increased by a further £500 million to £6.3
billion. Again £300 million of this £500 million is
due to increased compensation payments to Train Operating companies.
RMT believe that a publicly owned rail network
can deliver a better railway. The railway needs effective public
control and accountability over railway operations, maintenance
and investment. It is the lack of leadership and overall control
that continues to see the industry drift along.
Whilst we welcome the proposed conversion to
a not for profit company Government simply cannot leave the current
structure of the industry intact. The resources of the industry
have to be co-ordinated for investment, new passenger network
benefits and central command of maintenance and renewals.
The cost of keeping the current structure retains
all the problems with increased numbers of interfaces, contracts
and claims for compensation payments. It is vital that the industry
is reformed so that these extra costs are stripped out of the
railway. The status quo not only costs the taxpayer more but also
severely inhibits the ability of the network operator to effectively
maintain the track, centrally plan enhancement or co-ordinate
It is now clear to most observers of the railway
that the expenditure envisaged under the 10-year plan cannot be
delivered. Government have committed £26bn to the railway
but this money has now virtually all been accounted for. The ETCS
signalling (safety) scheme will cost £4bn, implementation
of the Disability Discrimination Act £1bn, the West Coast
Main Line at least £6.3bn. When this is added to the £11.3bn
subsidy to the Train Operators and £5bn for the Channel Tunnel
Rail Link there is no money left. This is before taking into account
the cost of Thameslink 2000, the East Coast Main Line modernisation,
Great Western electrification and a number of other schemes to
reduce congestion around the existing network.
RMT believe that the original targets for passenger
and freight growth as envisaged under the 10-year plan will need
to be reconsidered and additional money allocated accordingly.
Certainly if Government leave the existing structure of the industry
intact the money promised under the 10-year plan will deliver
less enhancement of the railway. The taxpayer currently spends
billions of pounds on the industry and we need to ensure that
far better value is obtained so that all resources go directly
into improved network services.