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


Memorandum by the Scottish National Party (PRF 52)

After Railtrack: SPRINT

The Case for a Scottish Public Rail Investment Trust

SUMMARY

  The demise of Railtrack PLC presents an opportunity to restructure the governance of Scotland's rail infrastructure. Scotland has consistently lost out in the funding of rail improvement within the UK and the opportunity must be taken for a distinct Scottish approach. The solution is a Scottish Public Rail Investment Trust (SPRINT), which, accompanied with the completion of the devolution of railway powers to the Scottish Parliament and Executive, would:

    —  Place Scottish railway needs at the top of agenda of the organisation running Scottish rail.

    —  Secure the future of the Scottish rail network by generating increased investment.

    —  Improve the public accountability of the rail system by making the Scottish Executive directly responsible for all railway and other transport in Scotland.

    —  Provide a mechanism for the expansion and good management of railways in Scotland focussed on the needs and requirements of the Scottish travelling public and of the Scottish economy.

BACKGROUND

  The form of rail privatisation implemented following the 1993 Railways Act vested the ownership of infrastructure assets (tracks, bridges, signalling and considerable associated railway property) in a separate track authority, Railtrack. Although Railtrack was subsequently privatised, its

    "position as a floated company which is dependent on Government paying around two thirds of its revenue was unique"[1].

  This public revenue was not paid directly to Railtrack: rather the government gave grants to the privatised passenger and freight Train Operating Companies (TOCs), who in turn paid Track Access Charges to Railtrack for the right to run trains on the rail network.

  With hindsight, this financial structure led to a significant deficiency in the management of the network:

    —  Railtrack had little incentive to invest in the maintenance and enhancement of its network. This is because its Track Access Charges were closely regulated by the Office of the Rail Regulator (ORR), a feature of privatisation designed to make Railtrack more appealing to potential investors by creating a guaranteed stream of income. Since the company received little extra revenue for allowing additional trains to run on its tracks, its best means of making money was to cut its costs, not increase its turnover [2].

THE DEMISE OF RAILTRACK

  At the same time as Railtrack was focusing on cost reduction as the best means to enhance its profits, criticism of the reliability and punctuality of the privatised rail system increased. Against this background, the

    "Regulator's emphasis on attaining short-term punctuality and reliability improvements ... arguably impacted upon safety considerations by encouraging Railtrack's managers to maximise their "take" from the incentive regime rather than maintain the infrastructure to a sufficiently high long-term standard" [3].

  The eventual outcome of this situation was the tragic accident at Hatfield on 17 October 2000. The subsequent HSE report identified track failure [4], at a site later acknowledged by Railtrack as being in need of repair, as the cause of the accident. Repercussions from Hatfield included:—

    —  The imposition of severe speed restrictions across the Railtrack network leading to across-the-board service cancellations and delays.

    —  Rail patronage fell by 40 per cent on some routes in the immediate period after Hatfield [5], placing several TOCs in financial difficulty.

    —  Railtrack's share price collapsed, with the company falling out of the FTSE 100 index in June 2001 following reviews of its credit worthiness [6].

    —  The government directed additional public funding to Railtrack. In addition to its agreed £15 billion grant for network management for the period 2001-06, in April 2001, the government agreed to pay the company an additional £2 billion to sustain its operations [1].

    —  During summer 2001, the board of Railtrack requested that the company be given an "open-ended commitment" of public money by the government [1]. On 7 October 2001, the government refused this request and successfully petitioned the High Court for the company to be placed in administration.

  The root causes of Railtrack's financial crisis were two-fold:

    —  The huge investment needed to regain basic engineering and safety standards across the network in the light of the Hatfield crash, estimated at around £700 million.

    —  The company's inability to control the costs of major network enhancement such as the West Coast Main Line upgrade, the estimated cost of which had risen from an original estimate of £2.4 billion to £6.3 billion by summer 2001 [7].

  The outcome is that the UK Secretary of State for Transport, Local Government and the Regions is proposing to re-formulate Railtrack as a not-for-profit trust, with a board of directors drawn from rail industry stakeholders:

    "Stephen Byers said he believed that the public interest obligations of the rail network operator would, after the administration, be better achieved through a private company without shareholders—a private sector "company limited by guarantee". This would have the interests of the travelling public as its priority, not the need to increase shareholder value. It would invest any operating surpluses directly into the network" [1].

  It is this decision by the UK Secretary of State that provides the opportunity to restructure the governance of Scotland's rail infrastructure.

CURRENT GOVERNANCE OF THE RAIL NETWORK IN SCOTLAND

  Current key features in the governance of the rail system in Scotland are:—

    —  Scotland has a relatively simple rail industry structure. There is a single Railtrack zone for Scotland, and one infrastructure engineering company, First Engineering. ScotRail provides 95 per cent of train services in Scotland, and professional staff from all three companies co-operate closely in the national "unifield rail control" centre

    —  However, devolution of railway powers to the Scottish Parliament and Executive is partial and confusing. Although the Scottish Parliament will finance and administer the next ScotRail franchise, strategic control over the development of the rail network rests with the Strategic Rail Authority (SRA) in London.

    —  The SRA remains a single unified body headquartered in London. Scottish Ministers have no powers to direct the SRA to pursue specific investments in Scotland from its GB budget, they can only advise.

    —  Financial transfers between Scotland and the rest of GB are unclear. At present, there is no mechanism to ensure that Track Access Charges raised in Scotland are re-invested by Railtrack in Scotland.

    —  Higher passenger flows in London and the South East mean that the SRA/proposed GB rail network trust is likely to focus its strategic investment there if it is obliged to maximise its return to capital rather than ensuring an equitable distribution of infrastructure spending across GB.

    —  Scotland set to lose out: The UK Government's £7 billion Rail Modernisation Fund [8] is not subject to the Barnett formula, so Scotland is not automatically entitled to any of this money [9]. The pressure to focus on schemes with the best short term return to capital reinforces the likelihood that this money will be directed to London and the South East, or other major urban pinchpoints in England such as Birmingham [10].

    —  In effect, responsibility for rail network governance has been devolved to the Scottish Parliament, but it lacks the power to fully control development and investment of the Scottish rail network. Moreover the transport portfolio lacks integration because the Executive have the power and financial competence to invest in major road development but are dependent on UK decisions for rail investment.

ENSURING BETTER TRANSPORT GOVERNANCE FOR SCOTLANDTHE ADVANTAGES OF SPRINT

  The creation of a distinct Scottish Public Rail Investment Trust (SPRINT), along with the transfer of the SRA's powers in Scotland to the Scottish Parliament, would deliver a number of advantages for the development of integrated transport in Scotland:

    —  Improved availability of funds for Scottish railways. Scotland will never be prioritised in the plans of the SRA or a UK railway trust. SPRINT's focus will be to secure funding and investment in Scotland's railways. As part of this in the short term Scotland must receive its full Barnett share of public spending on rail elsewhere in the UK.

    —  Complete the devolution of railway powers, ending the current unnecessary complexity and confusion.

    —  Crucially, such a structure would permit the creation of a "level playing field" for all land transport infrastructure investment in Scotland. Currently, such a situation does not exist, with the Scottish Executive more likely to pursue roads projects simply because it has complete control over roads finance and investment [10]. Evaluation of the relative benefits of road and rail schemes would be made simpler and more transparent.

    —  Consistent devolution of powers over road and rail would make the Scottish Executive and Parliament more accountable to transport consumers, leading to better, more coherent transport investment decisions.

    —  A separate Scottish Rail Trust would maximise the potential for the Scottish financial sector, a key stakeholder in the Scottish economy directly affected by the performance of our transport system, to become involved in the finance of network enhancements.

CROSS BORDER ISSUES

  While 95 per cent of rail traffic in Scotland is solely domestic, there is no reason why the establishment of a fully autonomous system of rail governance in Scotland should affect the continued development of Anglo-Scottish rail services.

  International rail services operate successfully in continental Europe with each country relating to its own national rail infrastructure provider. Future re-franchising of Anglo-Scottish services would involve the Scottish and English and Welsh rail trusts acting in partnership, in much the same way as international services in Europe are secured.

  Finance for any future high speed link between England and Scotland would also be developed in partnership, in the same way as the French, Belgian and Dutch governments implemented a plan to create a high speed link from Paris to Amsterdam with through international trains.

  The key difference in such a partnership would be that for the first time Scotland would have an organisation charged directly with arguing the Scottish case.

STRUCTURE OF THE TRUST

  SPRINT would operate along the same principles and structure as the proposed Scottish Trust for Public Investment [11].

  It would retain ownership of Scottish rail infrastructure assets, and develop the co-operation between rail industry partners in Scotland. It would work in partnership with all the stakeholders in Scottish railways to deliver the objectives set down by the Scottish Executive and Parliament. Operating outside the public sector but on a not for profit basis it would be well placed to secure the lowest cost investment required to transform Scottish transport.

  Full devolution of railway powers to the Scottish Parliament would build upon the powers to define the ScotRail franchise due to be afforded to ministers. In addition to defining the routes, services and fares structures, the Executive and Parliament would decide on the scale and location of rail infrastructure investment to be pursued in light of the needs of the Scottish economy.

  Decisions on developing the rail network would be fully integrated with the overall strategic plan for Scottish transport. It would then be possible to develop a genuinely "level playing field" for the assessment and prioritisation of spending across transport modes. The position of Strathclyde Passenger Transport (SPT), which defines the rail service to be provided within its area, would be unaffected, although its expertise could be of key assistance in the composition of the new organisation.

POSSIBLE SCOTTISH SOLUTIONS

  New options for a distinct Scottish approach would open up with SPRINT.

  With these powers, the Scottish Parliament might also wish to replace the current system of Track Access Payments. By giving SPRINT direct capital grant to maintain and develop the rail network, it would be possible to move to a system of marginal cost tendering for the provision of ScotRail services.

  Rather then re-cycling public money through Track Access Payments, the franchise holder would simply receive government grant to operate the network as defined by Parliament. This has the potential to reduce transaction costs, releasing additional resources to be re-invested in rail services. A similar system operates in Sweden, where the public rail infrastructure provider Banverket maintains and develops the network, with Swedish Passenger Railways (SJ) operating passenger rail services defined by the government's National Public Transport Agency [12].

  Another possible approach might be to build on the existing close relationship of track management and maintenance in Scotland in order to re-introduce a degree of "vertical integration" to the system. SPRINT could invite the ScotRail franchise holder to assume responsibility for maintaining the network, whilst maintaining ownership of the rail network in trust.

CONCLUSION

  The creation of SPRINT and the associated full devolution of railway powers to the Scottish Parliament provides the opportunity to create a publicly accountable railway system fully integrated with other transport modes in Scotland. This will lead to better decision making and increased investment in Scotland's railway network.

Dr Iain Docherty, University of Glasgow

Dr Jon Shaw, University of Aberdeen

Andrew Wilson MSP—Shadow Minister for Economy and Transport

REFERENCES

  [1]  DTLR (2001) News release 416, "Railtrack placed in administration", 7 October.

  [2]  Begg, D and Shaw, J (2001) "A rational approach to rationalisation: developing future rail policy in Great Britain", Centre for Transport Policy Paper no 6, page 7.

  [3]  Begg, D and Shaw, J (2001) "A rational approach to rationalisation: developing future rail policy in Great Britain", Centre for Transport Policy Paper no 6, page 8.

  [4]  Health and Safety Executive (2001) "Train derailment at Hatfield 17 October 2000: Second HSE interim report", 23 January.

  [5]  CfIT (2001), "Fact Sheet no 1: The impact of post-Hatfield Rail disruption", 2 January.

  [6]  http://news.bbc.co.uk/hi/english/business/newsid 1370000/1370914.stm

  [7]  The Scotsman, "Railways facing trouble on line", 2 July, page 7.

  [8]  DETR (2000) "Transport 2010, the 10 year plan", 20 July.

  [9]  Docherty, I (2001), "To have a rail industry, we need political courage", The Scotsman 2 July, page 7.

  [10]  Begg, D (2001) "We need cash to get back on rails", Scotland on Sunday 7 October, page 5 (business).

  [11]  Wilson, A: The Scottish Trust for Public Investment: Scottish National Party, January 2001.

  [12]  SJ (Swedish State Railways) (2000) "A journey through time—the history of SJ", page 20.


 
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