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

Memorandum by Scott Hallewell & Co (PRF 47)



  1.  Long before placing Railtrack into Administration it was apparent that the present organisational arrangements within the railway industry, and relationships with the Government, were not working satisfactorily. Much discussion has taken place, particularly over the past year, following the Hatfield accident, as to whether changes to the railway industry should be wholesale and fundamental or more evolutionary. Having experienced numerous organisational changes in my lifetime in public transport I preferred an evolutionary approach. I came to this view because it appeared to be that the rail industry was trying hard to "get its house in order" and that wholesale restructuring would further delay the improvement of rail services that are so urgently wanted by all parties.

  2.  However, following Railtrack being placed in Administration there is an opportunity to restructure the rail industry in such a manner that the better elements of the present structure are retained, whilst the other elements are simplified and rationalised. This approach is the basis of my submission.


  3.  There are three fundamental weaknesses in the present organisation of the railways:

    Firstly: the separation of the wheel-rail interface whereby the train operators and the infrastructure providers are separated horizontally rather than being integrated vertically.

    Secondly: the key player—Railtrack—has no direct relationship or interface with the customers—the passengers and freight forwarders.

    Thirdly: there are too many "players" in the present rail industry and any future organisation must produce a simpler framework.

  Each of these weaknesses is addressed in subsequent paragraphs.


  4.  Of all modes of transport the unique feature of railways is the interface between the wheels of the rolling stock and the profile of the rails and tracks upon which they run. This close relationship exists in no other mode. This relationship, which is measured in millimetres, affects:

    —  the safety of operation;

    —  the speed of trains;

    —  the reliability of service;

    —  the life expectancy of the assets;

    —  the maintenance costs;

    —  the quality of ride.

  All of these features were highlighted in the Hatfield accident and the aftermath.

  5.  This interface must be under the direct control and responsibility of one organisation. This is a technical, engineering-led, issue and not one that can be allowed to rest on contractual relationships. Legal, financial and risk considerations must be devised around the correct technical and operational solution, not the other way round.


  6.  A fundamental tenet of any organisation is that the customer must have a direct interface with the person who provides the service or sells the goods. Only by such an arrangement can you ensure:

    (a)  that the users of the service get the service required;

    (b)  that the provider of the service is aware of what the customers want.

  This relationship does not exist in the present organisation of the rail industry.

  7.  Where this relationship exists, eg between passengers and the TOCs, and the freight industry and the rail freight operators, traffics have seen spectacular growth. Railtrack are remote from the actual users who pay their transport requirements. Railtrack's only customers are the TOCs and freight train operators. This has shown itself to be unsatisfactory in terms of:

    —  timetable planning;

    —  scheduling of major works;

    —  scheduling of large maintenance projects;

    —  developing the network (hence the creation of the SRA).


  8.  The main "players" in the rail industry at the present time are:

    The Government through DLGR and the Treasury.


    TOCs (25).

    Freight Operators (4+).




  The duplication of effort and the cost of this "organisation" is incredibly high. The industry is "held together" (if that is the correct expression) by legal agreements, which are themselves long, complex and costly to produce and manage. Each organisation adds its own profit margins or service charges. There are penalty clauses and termination payments at every juncture. The whole arrangement needs monitoring and managing, not to run a safe, reliable cost-effective railway, but to self-satisfy a complex and bureaucratic regime.


  9.  Whether in public or private ownership the Government has a role in the railway industry. Its job is to:

    (a)  provide the appropriate legal framework for the railway industry to operate in;

    (b)  ensure the safety of that system;

    (c)  provide funds by way of capital grants and revenue subsidies within the objects established in (a) above.

  10.  The industry itself then needs:

    (a)  Railway Companies to:

      —  operate trains;

      —  control their routes;

      —  secure the maintenance of their infrastructure.

    (b)  Contractors to:

      —  maintain the infrastructure;

      —  provide and maintain the rolling stock.

  11.  Such an arrangement needs an overall body which can take a strategic view of railways. I have called it the Rail Co-ordinating Council (to differentiate it from the SRA).

  Its principal tasks would be to:

    —  produce a Strategic Plan for the railway, developed "bottom up" from the needs and requirements of the operators;

    —  represent the rail industry to Government;

    —  award network operating franchises to train companies;

    —  carry out the role of the former Railway Clearing House or ATOC in the allocation of revenues;

    —  to oversee "Running Powers" (see para 15);

    —  to be the arbitrator for disputes in the industry;

    —  establishing common technical and operational standards.

  12.  The Rail Co-ordinating Council would have representatives from all train operators and would be, essentially, an operator's organisation. It is clear that the SRA "set off on the wrong foot" and has failed to work with the TOCs. It also failed in its relationship with the Government. ATOC has failed to develop any industry-wide "stature" and shown no leadership.


  13.  The top priority, outwith the span of this Submission, is to ensure a continuing safe railway during this period of uncertainty (inter-regnum) and to establish financial control. Thereafter the key thing is to transition the present TOCs into fully-fledged railway companies. To do this the TOC franchises need to be consolidated into some regional or area structure that reflects service provision and operating geography.

  14.  In this context it makes sense to consider sub-contracting operations to smaller, locally based organisations (mini-franchises, as has been done so effectively in Germany, Switzerland and Japan and, on the freight side, in North America). Such arrangements would also permit the involvement of local stakeholders, eg PTEs, County Councils or Regional bodies.

  15.  Typical companies, and their subdivisions, are set out in an Appendix to this Submission. In the context of railway organisation two issues have to be addressed:

    (a)  Running Powers: Railway companies would own and operate the track, but other operators (passenger and freight) would want to run over them to reach common traffic objectives, eg York or Birmingham or access other areas, eg the Trans-Pennine routes. The owning railway would provide "Running Powers" to such companies (as happened pre-Nationalisation).

    (b)  Penetrating Lines: Wherever boundaries are drawn in any railway organisation, there will always be the issue of major traffic or operating locations or routes being outside the area drawn, or lines from one area coming into another area. This cannot be avoided, but adoption of running powers or jointly owned lines can ease the situation.

  16.  The "drivers" in the proposed structure of the railway would be the new railway companies. Having been awarded a franchise to operate the network they now own, they would be responsible for everything. They would be expected to operate on commercial lines but to receive recompense for providing economic or socially necessary services required by national, local or regional government or PTEs.

  17.  There is no doubt that some TOCs eg GNER, are keen to be responsible for their own infrastructure. There are others, eg National Express Group, who are less keen. Clearly much development work, including risk analysis and funding, is necessary to evaluate these matters. The crucial point is that both the TOCs and freight operators have shown an ability to grow the market. This is crucial to the achievement of the Government's 10 Year Plan and the Local Transport Plans.

D Scott Hellewell

Independent Transport Consultant

25 October 2001

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