UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 329-iii

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Transport Committee

Rail 2020

Tuesday 10 July 2012

Mike Hewitson, David Mapp, Stephen Joseph OBE and David Watkin

Steve Howes, Howard Smith and Shashi Verma

Geoff Inskip, Councillor Shona Johnstone, Neil Buxton and Professor Chris Nash

Evidence heard in Public Questions 235 - 339

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Oral Evidence

Taken before the Transport Committee

on Tuesday 10 July 2012

Members present:

Mrs Louise Ellman (Chair)

Steve Baker

Jim Dobbin

Julie Hilling

Kwasi Kwarteng

Mr John Leech

Paul Maynard

Iain Stewart

Graham Stringer

________________

Examination of Witnesses

Witnesses: Mike Hewitson, Head of Passenger Issues, Passenger Focus, David Mapp, Commercial Director, Association of Train Operating Companies, Stephen Joseph OBE, Chief Executive, Campaign for Better Transport, and David Watkin, Commercial Director, CrossCountry Trains, gave evidence.

Q235 Chair: Good morning, gentlemen, and welcome to the Transport Select Committee. Could you give your name and organisation to help with our records?

Stephen Joseph: I am Stephen Joseph. I am the Chief Executive of the Campaign for Better Transport.

Mike Hewitson: I am Mike Hewitson, Head of Passenger Issues at Passenger Focus.

David Mapp: I am David Mapp, the Commercial Director at ATOC.

David Watkin: I am David Watkin, Commercial Director of CrossCountry Trains.

Q236 Chair: Thank you very much. Would you say that the current fares structure is fit for purpose?

David Mapp: We would agree that there are certainly aspects of the fares structure that could be improved, but we don’t think the system is fundamentally broken by any means. Perhaps a compelling piece of evidence in that context is the fact that, over the last 15 years, we have seen roughly an 85% increase in the number of people that use the rail network. That growth is continuing into this year. It does suggest that we have a fares system that allows people, in increasing numbers, to find a good-value fare for their rail journey. We would certainly agree that there are aspects that could be improved. Indeed, we have a programme of initiatives to make improvements, particularly with regard to making sure that people are provided with simple and clear information about the choice of fares open to them. We would not regard the system as being fundamentally broken.

Q237 Chair: Are there any other views? Does anyone think that the system is fundamentally broken or a little bit broken?

Stephen Joseph: We think that the current fares system and the way fares are regulated needs fundamental reform. The way in which fares have been built up has added incentives, with privatisation for individual train operators, on to an existing structure set by British Rail without any fundamental reform. In particular, there are groups of people who are not well served by the current system, such as part-time workers who find themselves either paying for a full week’s season or having to buy tickets on the day. Their costs are significantly higher for travel than people working full time. There are problems for them.

There are also problems on some of the intercity routes in the way in which advance tickets are sold. We have been arguing for a pay-the-difference rather than start-again for passengers that get on the wrong train with an advance train-specific ticket.

Those are examples of the kinds of issues. Fundamentally, what we need is a system that is simpler, fairer and also cheaper given that, as Passenger Focus’s research has shown, we have some of the highest fares in Europe. Passengers in the south-east pay about 30% more than the European average.

Q238 Chair: Mr Hewitson, Passenger Focus has conducted a lot of work on fares among the travelling public, and you have reported a lot of dissatisfaction. Could you tell us the main findings of your research?

Mike Hewitson: On dissatisfaction, the main one relevant to fares and tickets is value for money. We ask about value for money rather than the cost of fares because if you ask a passenger whether they would like their fare to go down the answer is yes. We look at value for money, which brings in cost but also what you get, and we have seen that decrease. It is 40% at the moment. It goes a lot lower for commuters in the sense that they are not getting value for money. That is what comes through.

I would go back to one point that you were making earlier about the structure. We do think there are problems with the structure, but there is also a problem in that passengers don’t trust the structure. It is the perception as well as the reality. Both need to be addressed. If you ask passengers, they are just not sure that they have been sold the right ticket. They are not confident. The cost of getting it wrong now-being on the wrong train with the wrong ticket-can be huge. So there is a big perception element in there as well.

Q239 Chair: Where is passenger dissatisfaction the highest? Is it to do with being able to access the best-value tickets or is it to do with the actual prices?

Mike Hewitson: It is mainly around the sense of value for money: "What am I paying?" and "What am I getting?" The "What am I getting?" part is linked with punctuality and getting a seat. It is very much a core focus and a core product: "Does the train turn up when I want it to?", "Do I get a seat?" and "Does it get me there on time?" That is what you weigh up against the cost of the ticket.

The other thing that comes through is the cost of flexibility. There is a real concern among passengers in the research we do about, "How much does it cost me if I can’t book ahead 12 weeks in advance for this train only?", "What happens if my meeting overruns?", and "What happens if I need another half an hour somewhere? Do I rip up my old ticket and have to buy a brand new ticket?" That comes through quite strongly as well. That takes us back to Stephen’s point about upgrading tickets.

Q240 Chair: Mr Mapp, you have heard Mr Joseph talk about the high cost of fares. Why should fares cost people so much? Is it because the train companies are pocketing the money?

David Mapp: If you look at the average fare paid by customers over the past 10 years in real terms after allowing for inflation, the average cost of a rail journey has remained roughly stable. In terms of the tickets that people are buying, the cost hasn’t risen.

Q241 Chair: Mr Mapp, I don’t think you can talk about averages in that sense. If somebody goes on a train and their fare increase is 10% or 11%, which is what it could well be and has been in the past, they are not interested in talk of some spurious average, are they? They just know they have to pay more.

David Mapp: What has happened is that there is much better information about fares now than there used to be. In the past, getting information about fares was really a matter of going to the booking office and asking questions. Now, of course, information about fares is very widely available on the internet. There are all sorts of internet sites that provide comprehensive information on rail fares. That seems to allow people to make a much better and more informed choice about the best-value fare for their journey. Typically, we have seen large increases in the number of people who buy advance fares, for instance, which offer the cheapest deals on longer-distance routes. We have also seen increases in the number of people who buy fares that are discounted with a railcard. So there has been a switch in the market from people simply buying the first ticket that they were offered to choosing in a better informed way than previously, and very often choosing to go for a cheaper and better-value ticket.

Q242 Chair: Mr Watkin, did you want to comment on this?

David Watkin: Yes. As Stephen and Mike said, the explosion in the sales of advance tickets recently is a good thing because it enables us to manage demand where we have capacity. As they both said, we need to work harder to look at different ways of making advance purchase tickets available much closer to departure. At the moment the cut-off is the day before, which is very much an historic legacy of the time it took to print a reservation label and stick it to the back of the seat. Those days are gone. Many of us have electronic reservations now or-you don’t actually need a reservation on a train-you can have what we call a counted place. My train company is working on technology to enable advance tickets to be available up to 10 minutes before the customer boards the train. We are certainly not guaranteeing that they will pay a much cheaper fare, but they will pay the fare that we can offer at the best possible price, given available capacity. I would agree with Stephen and Mike that we need to do more work to make advance fares easier to use, easier to buy and more available.

Q243 Iain Stewart: I would like to pick up on Mr Joseph’s point about moving to a pay-the-difference situation rather than a start-again one if someone misses their booked train. We had an away day last week and we heard from one operator where the train managers already have a reasonable degree of discretion and can judge between those who have missed their train or connection for a genuine reason and those who have deliberately bought the cheapest ticket and then tried their luck on a more expensive train. That was just one operator. Do you not think that is a fair point across the network, that discretion is already available?

Stephen Joseph: The problem is, first, that the discretion is there and is applied very differently across the system, so that some companies seem to crack down much harder than others. Secondly, it gives no transparency or expectations for people when travelling. It produces a level of fear that if you get on the wrong train or your connecting train is delayed you will have to pay the difference. Pleading with the guard is not something that everybody wants to do. As Mike has said, what we need to get is a level of transparency and trust into the fares system so that people know roughly what they are going to be paying and have some clear expectations of what will happen. Apart from anything else, leaving it up to staff on the frontline is poor management practice and lays staff open to verbal and sometimes physical abuse in that situation. I do not think it is an appropriate way of setting the fares policy in general. We would like to see a proper system in place.

Q244 Iain Stewart: Let me play devil’s advocate. If you move to a pay-the-difference regime, is there a danger that everyone would book the cheapest ticket possible and then, on the day, decide that they wanted to move on to a different train and upgrade? The original train would then be full of reservations for people who will not travel. Is that not going to lead to inefficiencies in operating services?

Stephen Joseph: To an extent that happens now where you have lost some tickets. People just book trains and then use the next one, particularly where you have, as on the West Coast Main Line, an almost turn-up-and-go service on some of the intercity routes. In practice, as David has said, the difference between some of the advance fares and some of the walk-on fares is such that people won’t want to play those kinds of games. This is about having a clear set of rules that don’t feel like people are being criminalised. I don’t think that any other business doing retail, which is roughly what the railways are doing, would treat customers as potential criminals or put staff in a position where they have to do that. That is the way it often comes over if you listen, particularly as I have, to conversations on trains with people who have genuinely got the wrong ticket.

Q245 Chair: Mr Hewitson, would you agree with the comment that has just been made, that train companies treat people like potential criminals?

Mike Hewitson: At times, yes. A recent report from us on ticketless travel-this is from complaints we get-found too many instances of passengers who have made an innocent mistake being scooped up into this net. Intent didn’t matter: it was a black and white issue. "Did you have the right ticket?" "Yes. Fine." "No. Pay this much or risk prosecution." That was black and white and quite stark. It could be, as Stephen says, just down to individuals on the train taking a hard line. Somewhere else they could take a softer line.

To take the point about advance tickets and upgrades, there is also a big element here of passengers not understanding the terms and conditions of advance tickets. The Rail Regulator did some research recently and found that something like 37% of passengers-I will come back with the right number-with the advance fare did not realise that they had to travel on that train and that train only. That is quite a high proportion of people who have bought a ticket not knowing the conditions. That instantly puts them in an awkward position. As Stephen says, it goes back to the guard on the train having to make a snap judgment about "Do I trust you or don’t I?" That can be a very unfair position.

Q246 Kwasi Kwarteng: In relation to fares-we have all had experience of this-they are very complicated now. Do you think there is any way in which we could make the system simpler while, at the same time, keeping the price discrimination aspect?

Mike Hewitson: Yes, I think so. There are some things that would instantly do that. For instance, the single being £1 cheaper than the return looks odd to passengers. If you could have a single leg pricing system whereby a single is half the price of a return, it looks right. It allows me to book an advance fare going out and have some more flexibility coming back without looking like I am buying a return. You can do things like that. You can bring in new products to simplify it as well, such as carnet-style tickets for people who are under that season ticket threshold. You can certainly simplify the provision of information and take me through the fare-buying process so I end up with confidence that I have the right ticket rather than, as at the moment, "I will have that one and I’ll hope."

Q247 Kwasi Kwarteng: Why is it so complicated in Britain? I have had experience of travelling on the continent and a single ticket is, as you say, half the price of a return ticket. It seems much more transparent and makes more sense. Why do we have this rather bizarre system?

Stephen Joseph: It is partly to do with the structure of the railways, in that individual companies get to keep the bulk of the revenue from the fares that they set. That has two consequences. First, there are some incentives for game playing the system. You will hear from the Rail Settlement Plan director later on and you might ask him about that. That adds to the complexities on the system. In some cases it might lead to sub-optimal use of firm capacity because operators will price up particular trains in order to get a share of the revenue for later on in the journey from a particular station.

The second consequence of the structure is that the system becomes very complex in general and is completely untransparent for the passenger, as we have said.

Q248 Paul Maynard: Train companies tell me that, on average, they make about 3% profit from their revenue. Do you accept that figure?

Stephen Joseph: We do. The railways are not something you would go into if you wanted super-normal profits. What we have argued, though, is that there are ways in which Government can adjust the fares system. This is down to Government regulation. I should have said that one of the other consequences of the system is that it is much more difficult, with a number of different train companies, for David and his colleagues at the Association of Train Operating Companies to get an agreed view on simplifying the systems. I think that is down to Government.

We have welcomed the recent fares and ticketing review, but our argument is that simpler, fairer and cheaper tickets can generate more revenue. You will hear later from Transport for London that the evidence from adding National Rail to the Oyster card has been a growth in revenue because the system has become more transparent and simpler to the travelling public.

Q249 Paul Maynard: I have read your 13-point Fair Fares Charter which I note was endorsed by virtually every major transport union. What is the overall cost to the taxpayer of your proposals?

Stephen Joseph: We think that there will not be a cost to the taxpayer because a lot of the things we have in here are about simplifying revenue and the ticketing system. We have made the point that the share of the taxpayer contribution to the railway is falling and has been falling for the last five years, even through the recession. That has not happened before. In previous recessions the taxpayer contribution to the railway has risen. As we have said in our evidence to the Committee, the Government is on course for meeting a target set by the previous Government where the taxpayer contribution will be 25% of total railway costs by 2014.

We have also made the point, by the way, that 85% of that subsidy goes to Network Rail rather than the train operators. We do not believe that there are large taxpayer contributions involved in this. We do think, though, that there is a case for not moving towards RPI plus 3% as the Government is currently committed to. We believe that, in practice, the evidence from, among other things, studies done for the McNulty Review suggest that will not generate lots of revenue and that moving to RPI plus 1% or less will actually generate revenue.

Q250 Paul Maynard: You are proposing RPI minus 1%.

Stephen Joseph: We have been.

Q251 Paul Maynard: Are you not now?

Stephen Joseph: We are.

Q252 Paul Maynard: You are suggesting that will be met by revenue savings arising out of McNulty and the imposition of fuel duty on domestic aviation. In your document you don’t state what you estimate is the balance between the two. What do you believe will be the impact on domestic aviation fares of your proposals?

Stephen Joseph: We did some research on this a few years ago-I can let the Committee have that-which goes into some detail about what the impacts might be. Currently domestic aviation pays no fuel duty. We had some work done which calculated what the revenue would be from imposing a fuel tax at the normal rate used for cars. Our argument was that it was a way of rebalancing domestic transport so that the greenest and most efficient mode of transport, which is rail, should be the cheapest.

Q253 Paul Maynard: Finally in this batch of questions, you have placed great emphasis on how your proposals will address the issue of peak overcrowding, yet I feel it is the area where your proposals are perhaps the weakest. I cannot, for the life of me, understand properly how you are pricing in dwell times on suburban platforms, for example. You are calling for greater investment in carriages with no indication of where the capacity on the track will appear to accommodate those extra carriages, or indeed extra trains. Can you explain a bit more about how you are going to magic, out of thin air, peak hour services?

Stephen Joseph: I think that some of this is line-specific. In some cases the overcrowding-for example, outside London and the south-east-could be met by longer trains. There is a problem with the availability of rolling stock for those longer trains, but certainly in places like Manchester and Leeds it is possible to run longer trains without having large-scale extra capacity. As we know, in Manchester there is a case being put for the Northern Hub which will provide that capacity.

It is fair to say that the railway industry’s proposals in the Initial Industry Plan will address this. We await the Government’s response to the high-level output specification which is due some time before the recess. The industry has clearly set out where the overcrowding is and the ways of dealing with it. It is case-specific.

In the longer term, we have supported the case for High Speed 2, not on speed grounds, which everybody talks about, or indeed the way the Department for Transport calculates the stuff in relation to timescales, but on the basis of capacity and the need to provide capacity-both for passengers and freight on the classic line-to serve, among others, Mr Stewart’s constituency because we believe, as we have said in our paper, that the railway is growing as a share of total transport in this country.

Q254 Graham Stringer: Looking at headline figures for public expenditure on transport-you are in favour of better transport all round-do you think the balance between the subsidy to rail passengers and the subsidy to bus passengers is right?

Stephen Joseph: We have argued for more funding for buses, and against some of the reductions that have been made, on the grounds that bus passengers are some of the poorest in society and need the bus services that are available. We have seen, today, a report from the Joseph Rowntree Foundation pointing out that it is generally thought that people outside London should have a car if they are going to be able to participate in society. It is the first time that survey has found that. That is because of the decline in public transport outside London. A lot of that is down to bus. In other evidence to this Committee, we have talked about the importance of buses.

We think that railways are a different case. The functioning of the major cities in this country requires good rail transport and the functioning of labour markets in those cities requires that transport to be affordable. As I have said, the price of rail travel in London and the south-east is already 30% above the European average. If the Government’s current plans for increases at RPI plus 3% are implemented over the next couple of years, rail travel for people commuting into London will be significantly more expensive than the cities that London competes with in Europe. There is a competitiveness issue about this because no other country makes its rail systems run at a profit, and it is accepted that there are wider benefits.

Q255 Chair: Mr Hewitson, does Passenger Focus have a view on this?

Mike Hewitson: We don’t necessarily see the funding for rail and buses as being competitive. We would like money going into both. Bus passengers’ views are largely similar: they want punctuality, reliability and seats, and the more the better.

Q256 Graham Stringer: Precisely. That was Stephen’s answer as well. It was not really an answer to the question as to whether the balance is right. He was saying, "We would like lots more money." We all would, but in the real world there is a limited budget. I was asking a very simple question. Is the balance right where rail passengers are subsidised at considerably higher rates than bus passengers and, by and large, rail passengers are more affluent? Is that balance right?

Stephen Joseph: No, I don’t think it is right, but the way we address that balance is for more funding for buses and-

Q257 Graham Stringer: That comes back to the "more" answer, doesn’t it?

Stephen Joseph: If I may say so, it is finding new sources of revenue for rail. Previous Transport Secretaries have talked about a choice between the taxpayer and fare payer. Those are the only sources of revenue for the railway. It is already the case that 10% of railway revenues come from neither of those sources but from, for example, station developments. We have done some work on this and that proportion could increase significantly. If the Government is looking to get institutional investors to invest in transport, we think that railway stations-which, after all, don’t have a revenue stream-would be an appropriate and attractive form of investment. It would provide a lot of the investment that, currently, has to come from both taxpayers and fare payers. There are options that the Government have not looked at yet in terms of finding new sources of revenue for the railway.

Q258 Graham Stringer: The overall money going into rail is a very large figure-nearly £4 billion a year. Do you think we are getting value for money for that? It is a lot more than went into railways pre-privatisation. As we have all these extra passengers using the railways, do you think we use the right assessment methodology and criteria for investing in new rail?

Stephen Joseph: No, I don’t. We have said in our evidence that, of the £4 billion going into rail at the moment, £3.4 billion is going to Network Rail for investment and maintenance of the infrastructure. At least some of that is just to catch up. In the 1980s rail got below 30% compared with road in terms of investment. That led to significant under-spend on basic maintenance and the slimming out to single lines and things like that in places that clearly, with a growing railway, need investment. At least some of that investment is genuine investment in the maintenance of the system, as is the spending in the Highways Agency and things like that.

In relation to investment appraisal, we have done a lot of work on this. We think there are areas where the benefits of rail investment are not fully taken into account and the forecasting methodology used by the rail industry is not appropriate for new stations and lines. It is the case that, of the re-openings of stations and lines in the last 15 or 20 years, all of them have performed above forecast-some substantially. In your own part of the world we argued that the reconnection of the Todmorden Curve, which did get regional growth funding, was justified on the basis of the economic benefits to Burnley and the connection to that. None of that is in the current Department for Transport appraisal framework. I know that the Greater Manchester authorities have argued for a different approach to appraisal based on gross value added in terms of investment. We think there is quite a lot in that.

Q259 Chair: Mr Watkin, do you have any view on where the money goes and where the investment is?

David Watkin: I can really only speak for my train company. We don’t own stations. We do not operate any stations. We pay the station operators for accessing those stations. The investment in my company is more in the technology side of things. Certainly, in terms of fare systems and ticket delivery systems, it is very simple to prove a return on investment from those areas. From my company’s point of view, that is a private investment. That is my company investing in its own systems as opposed to Government investment. As I say, I can only comment on my company’s experiences.

Q260 Chair: Mr Mapp, do you have any comments on that?

David Mapp: It is worth going back to the McNulty Report itself, which gives some interesting conclusions on what industry strategy should be focused on. The very clear conclusion was that industry costs should be reduced. If you look at the Initial Industry Plan that we published a little while ago, there is a target of reducing costs from there of £1.3 billion by 2018-19. That provides options to Government. Having a lower level of cost means the Government can choose to reduce subsidy. It can choose to reduce the amount of taxpayer support for the industry. It can choose to invest more, if it frees up funds for investment in rolling stock and infrastructure of the kind that Stephen has described. It also allows the Government to choose to increase regulated fares by less than it would do otherwise. The McNulty Report and its essential conclusion, which is that industry costs are currently too high and could be reduced, is an interesting approach in terms of the future. It would provide funding for a range of policy alternatives, all of which we have debated to an extent already.

Q261 Jim Dobbin: Are we seeing the demise of the ticket office?

Stephen Joseph: I think there is a danger that we are going to see the demise of the ticket office. There are already proposals by some train companies to take out staff at stations. London Midland, for example, has done this. There is a danger that the overall conclusions from the McNulty Review that costs on the railways can be cut get translated not into greater efficiencies within how the railways operate but on to the passenger-facing parts of the railway such as ticket offices.

Our argument, following the previous discussions about the complexity of the fares and the lack of transparency in some cases, is that we need ticket offices. Until we have ticket machines that are more sophisticated or fares are simplified so that you can sell a less complicated range of tickets through those machines at stations, we will continue to need the ticket office or at least staff at stations to provide support, as they do now. The problem we are getting is not that ticket office staff are being moved to other duties but they are just being taken away. Increasingly you find completely unstaffed stations which have implications for safety and security, people’s feelings of safety and security on the stations and customer care and support.

Q262 Chair: Mr Hewitson, you have done quite a bit of work on this, haven’t you?

Mike Hewitson: We have indeed.

Q263 Chair: Is it that people want the ticket offices or is it that they want somebody there to reassure them and give them information?

Mike Hewitson: It is the presence of a member of staff. Certainly, if you have a complicated ticket purchase you want someone who can help you with it, but it doesn’t have to be behind the perspex. It could be someone up front walking you through the ticket machine, for instance. It is the human presence which adds value, not only in ticketing but in provision of information and all-round reassurance. When we ask people about what makes them feel insecure on the railway, it is always lower-level antisocial behaviour. If you ask people what makes them feel more secure, it is the presence of a uniformed member of staff. A lot of the debate around ticket offices gets wrapped up in the fact that it is virtually the only regulated staffing on the station. If you take the ticket office staff out, you take staff away completely. That is probably more of a risk at the smaller to medium stations than the larger ones. I think there is a real danger with the McNulty conclusions about cost in that it looks purely at the cost of retailing. It does not take into account the benefits of their physical presence.

Q264 Jim Dobbin: Are there more passengers obtaining tickets from the machines or online?

Mike Hewitson: David has the numbers on that one. Certainly ticket machines have a role.

David Mapp: There has been a very significant change in the way passengers buy tickets over the last 10 years, in particular. There is a very strong migration away from ticket offices to the internet, self-service ticket machines and, in London, to Oyster pay as you go. As Stephen mentioned earlier, that has been very successful and does not require you to buy a ticket at all. The result is that the number of physical tickets issued through stations has decreased by 25% over the last 12 years since 2000, which was its peak, and that trend is continuing very strongly. Passengers are voting with their feet. Many of them find it easier to choose their ticket from the comfort of their own home or their office and, if they are making a quick, simple journey, to buy from a self-service ticket machine.

Q265 Julie Hilling: I would like to follow up on that, and I ought to declare that I am a member of TSSA, which represents booking office staff. When you talk about people using machines, and I am thinking particularly about people with disabilities and older people, how are they accessing their tickets now and how do you expect them to continue to access their tickets?

David Mapp: Of course, many disabled and elderly people are able to use our ticket machines and indeed buy on the internet. In many cases that is their preferred way of buying a rail ticket. Going forward, we are aware of concerns in terms of those particular passenger groups. We are looking, for instance, at extending ticket retailing to post offices which would provide people with a way of buying tickets in their high street. We are also looking at guaranteeing telephone selling for the foreseeable future. Almost all disabled and elderly people have access to a telephone so it will enable them to purchase our tickets by telephone if they wish to do that. We are very conscious about the concerns as to those groups and we are taking steps to address those concerns.

Q266 Julie Hilling: Are your members going to close as many ticket offices as McNulty suggested?

David Mapp: No. I can categorically deny, on the record, that there is any kind of hit list of ticket offices. That simply isn’t the case. What we have argued for is a degree of reform of regulation that would give train companies greater freedom, either to change booking office opening hours or, in some cases, to close booking offices.

Q267 Chair: Mr Mapp, doesn’t this amount to the same thing? You say you do not have a hit list but you want the freedom to close offices as you wish.

David Mapp: The reform that we have argued for would allow individual train companies to review ticket offices on a case-by-case basis and take decisions based on what they felt was the best outcome from a passenger point of view. In my view, that doesn’t amount to any kind of list of stations where we would like to restrict opening hours or close ticket offices. It does provide some freedom to allow train companies to begin to change their retailing in a way that better meets passenger needs moving into the future.

Q268 Chair: Mr Mapp, do you think that the train companies should decide that, or the Department or somebody else?

David Mapp: We have been discussing proposals with the Department for Transport. Our proposals entail, for any major changes, consultation with Passenger Focus, London TravelWatch and PTEs, so there would be a degree of consultation involved in any significant changes.

Q269 Julie Hilling: Do you have an estimate of how many stations that are currently staffed will become unstaffed in the future?

David Mapp: No. It is worth going back on the point that Stephen and Mike have made about having a staff presence on the station. Even in the circumstances where booking office hours are reduced or, in some cases, closed, some of those staff at least would be redeployed on to other customer-facing duties on the station.

Q270 Iain Stewart: I would like to go back to the issue of peak time travel and the possibility of incentivising some people to travel on less crowded peak services. I have asked this question to previous witnesses and I have not had a clear answer. I don’t know whether that is because the information is not there or they just don’t want to say. What proportion of commuters into big cities, who travel daily or four times a week, have to travel at that time because of their work commitments or getting kids to school first? What percentage has to travel at that time and what percentage could be incentivised? Have you done any work on that?

Mike Hewitson: We haven’t, but the McNulty Report looked at how much you would have to put fares up to see how much demand you can shift. It was looking at a 40% increase in peak fares to shift 10% of demand. That gives you a sense of how drastic it is. I suspect you can incentivise people at the margins. If you get into work at nine o’clock you might have some scope to get in at 9.30. But I expect that, for a lot of people, if your boss tells you to be at your desk by 8.30 then that is when you get to your desk.

It is not just a question of changing times for work. Everything is tied into it. There are school pick-ups, drop-offs and such like. It is a quite big cultural work shift rather than a railway shift. The closest I can get to answering you is that it is a 40% price hike for a 10% shift.

Q271 Iain Stewart: But that is about penalising, in some sense, people who have to travel at that time rather than-looking at it in a completely different way-giving them the incentive, by a cheaper ticket, to travel differently?

Mike Hewitson: There might be some scope for the numbers of people who work four days a week, in particular. If you had a ticketing system that said if you don’t use that fifth ticket in the week you can use it the next week-you can roll it on, it is not time expired-that might encourage a few more people. But at the moment if I have bought an annual season ticket I might as well travel, although I get benefits from staying and working at home. I suspect you could bring some of those people into it but I don’t have any numbers.

David Watkin: I should say that the increasing adoption of smartcard technology, which the rail industry is starting to adopt and roll out, would make such differential pricing far easier. The current fares system and regulation, as it is structured, makes it rather more difficult. One of the questions issued in the recent Command Paper that we responded to was asking how we would use smartcard technology to price differentially in the peak. It is an issue we are certainly open to.

Q272 Paul Maynard: You just said that you are starting to adopt smartcard technology. You were starting to adopt it about four years ago. We have not seen much progress outside of Greater London on the better use of smartcard technology. CrossCountry showed us all sorts of fancy whizz-bang stuff on your mobile phone, on the day that we travelled with you, that looked wonderful. Why isn’t ATOC trying to spread that sort of best practice out faster and more widely? Clearly the technology is there. Why are you holding back? I don’t get it.

Chair: Mr Mapp, why aren’t you doing more?

David Mapp: We strongly support the roll-out of new technology. Quite a number of train companies are trying things like bar codes on mobile phones and print-at-home ticketing with bar codes. We welcomed, in particular, the £45 million worth of funding for the extension of smart ticketing into the wider London and south-east area that the Government announced a few months ago. That latter investment is providing the opportunity to investigate the new sorts of commuting products that Mike and Stephen referred to. We are fully supportive of that. At the moment there is a lot of work under way to investigate how we can use that additional £45 million worth of funding and the smart enablement that it provides to trial things like carnet products, where you would be able to travel for three or four days a week. You could also trial things like off-peak season tickets as well.

Paul Maynard: On my Virgin West Coast Main Line train you can sell me a hard ticket for the underground for the day, but you can’t top my Oyster up. It does seem rather bizarre.

Q273 Chair: Should ATOC and the train companies have been doing a lot more on this?

David Mapp: What we proposed to the Government is that there needs to be an overarching strategy for the rail industry as far as ticketing and technology is concerned. It is an area where having a network-wide strategy with technical standards that support that strategy would facilitate a much quicker and wider roll-out of new technology. We would very much like to work with the Department over the next few months to put that strategy in place so that we can roll out more quickly things like print-at-home tickets, bar codes on mobiles and also smartcards into other areas of the country as well.

Chair: We are going to explore this issue more with our next set of witnesses. Thank you very much, everybody, for coming and answering our questions.

Examination of Witnesses

Witnesses: Steve Howes, Managing Director, Rail Settlement Plan, Association of Train Operating Companies, Howard Smith, Chief Operating Officer, London Rail, Transport for London, and Shashi Verma, Director of Customer Experience, Transport for London, gave evidence.

Q274 Chair: Good morning, gentlemen, and welcome to the Transport Select Committee. Could you give your name and organisation to help our records?

Shashi Verma: My name is Shashi Verma. I am Director of Customer Experience for Transport for London.

Howard Smith: My name is Howard Smith. I am Chief Operating Officer for the London Rail division of Transport for London.

Steve Howes: My name is Steve Howes. I am Managing Director for Rail Settlement Plan within the Association of Train Operating Companies.

Q275 Chair: Thank you very much. What is the case for introducing smartcards more widely on the rail network? What can they achieve?

Steve Howes: It follows on from the conversation we were just having. It provides an opportunity to introduce some more flexible products. As David Mapp was just talking about, the so-called south-east flexible ticketing programme in particular, which will extend to quite a wide area of the south-east-from north of Milton Keynes in the north to Brighton in the south and from Newbury in the west to the Kent coast-will enable the introduction of flexible season products.

Q276 Chair: Would anybody else like to add anything? What are the benefits of smartcards?

Shashi Verma: If I could go back to why we introduced Oyster, which is probably the best experience of anyone around the world on this, there are three reasons. One was the speed of access to train services. Passing through the gates becomes faster. Had we not done that, we would not have been able to operate the stations that we operate today. Many of them are carrying two and a half times the traffic we carried 30 years ago. Passing through the gates becomes faster with Oyster.

The second reason is a reduction in what we would call travelling without a ticket, which may be fraud but sometimes people travel without a ticket because ticket buying is too difficult.

The third reason is reducing the number of times that people have to interact with the ticketing system. No one wakes up in the morning wanting to buy a ticket. People want to get to work. Every single transport system around the world forces people to buy a ticket. We realised a long time ago that we wanted to make people’s lives easier. That is where things like Oyster pay as you go have come in. People top up once and they travel five times or 10 times with that one top-up. All three of those things have been very successful in the roll-out of Oyster.

Q277 Chair: Why has ATOC been so slow in developing smartcards?

Steve Howes: New ticketing has progressively emerged on the rail network over the last few years. Ticket on departure, which is where you can pick up your ticket at the station having bought it online, print-at-home tickets and Oyster pay as you go are all examples of where we have introduced new ticketing on to the railway. Print-at-home, in particular, has been hugely successful. It is well liked by our passengers and something like 20% of advance purchase tickets are now fulfilled by print-at-home rather than by the conventional rail tickets.

Moving into smart, the essential difference between smart ticketing and other forms of ticketing is that a smart ticket has an individual identity. That does enable some of the things that Shashi was describing.

Q278 Chair: But why has ATOC been so slow? We heard a little while ago that ATOC thought there should be a DfT strategy, but there doesn’t seem to have been much innovation coming from the train companies themselves in this area.

Steve Howes: I think there has been quite a bit of innovation on the railway in terms of ticketing and many customers are now using different forms of ticket than they have historically. The widespread adoption of smartcard ticketing has been slow, but a lot of work has been done over recent years in developing the technology to a position where it is good to go on the railway. The ITSO technology, in particular, that the Government is encouraging us to use has required an awful lot of work over the last few years by ATOC, working with our members, to make it fit for purpose for use on the railway. It is in that position. The supply chain for ITSO equipment was not mature five years ago. It is now mature and the rail industry has experience of rolling out and using this kind of technology. Progress over the last few years has been slow but we are entering a period where that will rapidly accelerate.

Q279 Paul Maynard: I am pleased to hear you accept that it has been a bit slow. Would I be right in saying that the arguments over what is the best system, be it ITSO or Oyster, have been one of the main drags on development-that the industry had not been able to agree on a particular standard?

Steve Howes: The adoption of ITSO as the preferred technology for smartcard ticketing on the railways has essentially been driven by the Department for Transport. The train companies themselves have been exploring other forms of ticketing technology. As I mentioned, there is print-at-home and the equivalent of print-at-home on a mobile phone, where you have your ticket fulfilled on a mobile phone. Four or five years ago, as I say, ITSO, itself, was an immature technology in terms of application on the railway. It has taken us time to develop it into its current form where it is fit for purpose and where it is now ready to have a more widespread roll-out.

Q280 Paul Maynard: So the Government has foisted ITSO on the industry when you might rather have gone down a different technological path that would have got us out a bit sooner perhaps?

Steve Howes: A technology has to be selected to enable the level of interoperability that our passengers are used to on the railway. From our point of view, ITSO is good to go. Other technologies are around-EMV-based systems and bank card wave-and-pay type technology-which TfL are more than exploring; they are approaching the point of rolling out. It is something we are watching very carefully. The fact is that, today, ITSO does have an established supply chain, and there are suppliers where we can go to buy accredited equipment. We can now move quite quickly.

Q281 Paul Maynard: Is ITSO going to be compliant with Oyster or are we going to have tremendous problems?

Steve Howes: "Compliant", perhaps, isn’t the word. Certainly in London, within a short period of time, ITSO and Oyster will co-exist. Rail passengers with an ITSO ticket coming from outside London into London will be able to have, on their ITSO card, a Travelcard which will enable them to travel round London on tubes and buses. It will be a fully integrated experience for rail travellers coming into London using ITSO.

Q282 Steve Baker: Is the Department right to mandate ticket gates as the preferred strategy for revenue protection?

Steve Howes: I am not sure that they do mandate gates as their preferred strategy for revenue protection. Train operators are encouraged to install gates where there is a de facto case for having gates. Clearly they are an effective means of revenue protection, and most typically in inner and outer suburban commuter markets. For long distance, revenue inspection on-train obviously remains an important part of the overall revenue protection mix and I think that will remain the case.

Q283 Steve Baker: I understood that barriers had been mandated on the Gatwick Express and other non-commuter journeys.

Steve Howes: For services of certain sorts where there is high density and high throughput, yes, gates are absolutely the best solution.

Q284 Steve Baker: Whose responsibility do you see it being to protect revenue? Is it the responsibility of the Government or the train operating companies?

Steve Howes: Absolutely the train operators. They have the primary responsibility for protecting revenue.

Q285 Steve Baker: Given the emerging technologies, things like print-at-home, how do you see barriers fitting in?

Steve Howes: The print-at-home proposition today is only available for advance purchase tickets associated with a seat reservation. That is obviously because you can fairly easily duplicate a print-at-home ticket. We are hopeful and are exploring ways in which we can extend the print-at-home proposition to other forms of ticket, and open tickets particularly, which are not associated with a specific seat reservation. That would require some level of on-journey validation so that the revenue protection inspector could check that it is a valid ticket.

Q286 Steve Baker: Earlier, Mr Verma talked about Oyster as a technology that has allowed greater throughput. Do you see further technological changes in barriers enabling even greater step changes in throughput, perhaps to go and get on longer trains, high speed or whatever?

Shashi Verma: In our experience we have reached the physical limits of how fast the gates can be. They are no longer constrained by the technology but by how fast people walk. That is not about to change. The effort that Transport for London has been putting into ticketing has all been about making it easier for people to travel-not having to buy a ticket and not having to equip themselves with an Oyster card.

We have to understand that the transport experience of buying something is very different from the experience of buying practically anything else. You don’t need to equip yourself with something special to walk into a grocery store, into a coffee shop or indeed into any other retail outlet. Why is it that transport is different? That is the question that we have been trying to address. Out of all that, our research and development work has led us to a place where, later on this year, we will be launching the acceptance of contactless bank cards on buses. We intend to do the same thing on the rail network within London next year. That will allow people to travel with whatever is in their pocket already rather than having to equip themselves with an Oyster card at the first point when they arrive at the transport network.

Q287 Kwasi Kwarteng: I have a question specifically on the Oyster card. This is something that is very pertinent to people in my constituency. Do you envisage any extension of the Oyster card service? For example, when I am going back to my constituency I get off at Staines. If I go to Feltham I can use the Oyster card but at Staines I have to have bought a ticket at Waterloo to be able to get out. This is a big issue for lots of commuters in the south-east generally.

Shashi Verma: It is. We have solved one part of that issue by putting Oyster out on national rail within London. That was something that took a lot of effort over a long period of time. The structure of the industry and the debate between Oyster and ITSO did not help that at all. It was only after many years’ effort that we launched on national rail in January 2010. The DfT’s policy right now is that, for the rest of the country, the technology is ITSO. We are not permitted to expand Oyster any further beyond London.

Q288 Kwasi Kwarteng: So you are quite happy to say on record that there is no chance that Oyster will be extended further than it is-beyond Greater London?

Shashi Verma: We would be very keen to extend Oyster beyond London. It would not be everywhere because Oyster was built as a technology for London and it would clearly need to be adapted to do anything different from that. But the London commuting zone is not defined by the geographical boundaries of Greater London.

Q289 Chair: How will the harmonisation of fares be taken forward in the wider London region?

Shashi Verma: The first thing to say is that fares in London are already probably the most harmonised you will find anywhere in the country. We have products like the Travelcard which is one ticket that allows people to travel on all modes of transport within the Greater London area. We have Oyster pay as you go which allows the same thing, albeit with slightly different fare structures. I must say that the slightly different fare structures within Oyster pay as you go have not caused customer complaint. It is a system that people understand and it is a system that people use. The effect of the simplicity of Oyster pay as you go is what has led to the increase in demand on the rail network. There is clearly a case for more harmonisation, particularly with Oyster pay as you go, but it is not something that is causing a lot of problems right now, certainly not in the commuting market. All the complaints about the harmonisation and complexity of rail fares come from longer-distance travel.

Q290 Chair: How can that be addressed?

Shashi Verma: In introducing Oyster, we simplified the fare structure a lot in London. There were many different ticketing products which we took away. There was some difficulty because people who buy those products were beholden to them but, through a very painful process, we did simplify the fare structure in London. The same thing needs to happen on National Rail. It is very easy to talk about peak pricing and introducing more flexibility in pricing, but flexibility is also complexity. Before we introduce more complexity, I would suggest that we should simplify the fare structure.

Q291 Chair: How do you think those problems can be addressed?

Shashi Verma: It is a question for the DfT and the train companies. Fare complexity is something that can be removed by reducing the number of ticket products and harmonising the rules as to what tickets are accepted where. They are things that can be done and we have done that in London.

Q292 Jim Dobbin: On the issue of differential fares and charging passengers for printed tickets, why should they be more expensive than the smartcards that underground users have? Why is there the big difference?

Shashi Verma: The difference is there because it is more expensive to sell a printed ticket. It is not just more expensive but a printed ticket will usually buy you only one journey so you need to keep making repeated transactions. We have produced a technology that is accessible to all. An Oyster card is available from 5,000 outlets in London. It is not a question of accessibility. Anyone can get one and anyone can get access to the cheaper fares. Somehow we need to provide an incentive for people to use the system efficiently, which is what the differential fare pricing is doing.

Q293 Jim Dobbin: But the difference is nearly twice as much.

Shashi Verma: It is. That is what it took to drive people towards the use of Oyster pay as you go in London.

Q294 Julie Hilling: I want to follow up on that point. That is fine when you live in London-you learn very quickly that you need an Oyster card-but when you are an occasional visitor to London it is not so easy to know where to purchase that. Do you think Transport for London should do more to make Oyster available to the occasional users?

Shashi Verma: We do make Oyster very accessible to occasional users. As I said, we have 5,000 retail outlets in London. This is the biggest retail network that anyone operates in London.

Q295 Julie Hilling: But how well advertised is that?

Shashi Verma: It is very well advertised and every gateway station, whether that is Heathrow, Euston, Paddington or King’s Cross, has extensive retailing facilities. Having said that-and I will accept your point-the fact is that people still need to equip themselves with something special when they arrive in London. That is what we are trying to address by adopting bank cards because people arriving from other parts of the country into London will probably already have a bank card in their pocket-not everyone, but a large majority of them will. What we want to take away from the occasional visitor is this need to equip themselves with something special as soon as they arrive in London.

Q296 Julie Hilling: I am particularly thinking about older people coming into the City. Would you accept that there needs to be more done to explain to them how to use the technology?

Shashi Verma: We do a lot already. We are quite happy to look at what more we could do. There is a special plan being drawn up right now in advance of the Olympics at all of the gateway stations. This is one of the most difficult markets for us to serve. We understand that and that is why we have put special effort into explaining Oyster to people who are coming in from outside London. That is why we are expanding the retailing facilities at each of these gateway stations. There is a lot that we already do and I would fully accept that it still remains a difficult market.

Q297 Julie Hilling: Do booking office staff, for instance, advise people to get an Oyster rather than buy a ticket?

Shashi Verma: Yes, they do.

Q298 Julie Hilling: How is that going to work on trains if that technology is brought in? Are people going to be disadvantaged if they don’t use the technology? Is there going to be a big differential in tickets?

Steve Howes: With regard to the introduction of smart tickets on railway outside London, the focus is on using the technology, in the first instance, to introduce newer forms of particularly season tickets for the reasons that were discussed earlier this morning. There are particular carnet-type products which are good for people who are not working five days a week and there are tickets that provide an incentive, via a discount, for travelling outside the morning peak. The focus is on introducing those kinds of new products rather than simply introducing a differential between similar products, whether it is fulfilled on a smartcard or paper. We have no plans to do that at present.

Q299 Chair: What are the main advantages of the London Overground being a devolved network run by TfL? Mr Smith, can you tell us?

Howard Smith: Yes. I will say a little bit on the background of the Overground. Essentially, what we did five years ago was to take over the old Silverlink Metro franchise. By most measures it was the least popular railway in the country but, to be fair to the management, it was also underinvested. It existed entirely within the boundaries of London so it was an easy devolution to TfL. What we have done, since then, is to change the method of contracting. The contractor to us now-the concessionaire, as we call it-gets paid on the basis of their train performance and not on the basis of revenue risk and effectively betting on central London employment.

We introduced Oyster on day one. That was very well received. We have smartened up stations which, traditionally, have been a very difficult area for National Rail. They fall between a franchisee that has a short-term horizon and Network Rail who are only interested in the very big stations. We have invested in more trains and increased services on a 30-year horizon rather than on a seven-year horizon. The result of that has been a pretty spectacular success in terms of ridership. It has grown by over 100% in terms of the network that existed in 2007 and, including the new bits we have added, it has grown by about 300%. Customer satisfaction has risen to almost record levels and the number of late trains has been effectively halved. That is the story of the Overground, if I can introduce it in that way.

Q300 Chair: What further advantages do you see coming?

Howard Smith: In terms of what is now being proposed, we have taken a look, as TfL, at the franchises coming up in the near future. The market failure is in inner suburban services. We have looked at those where the traditional franchise mechanism does not reward anybody for doing the right thing; it effectively pays you for bidding on a view, as I say, of central London employment and then delivering the minimum. What we have said is that it is possible for south-east trains and for parts of the current Greater Anglia services, in particular, to separate those out and let those as contracts in the same way as we have done the Overground, based on a higher quality and a specification where the contractor gets paid on performance, not on revenue risk. That is what we are proposing at the moment for those distinct areas.

Q301 Chair: How would you resolve disputes about who had priority on the track for different services?

Howard Smith: Absolutely honestly, we do not see that as an issue. The things I identify in respect of that are that TfL has long experience of operating beyond the London boundary. The Metropolitan line bus services and London Overground itself runs into Hertfordshire. There is no history of pulling each way. Even if our motivations were doubted, track access and the ability to put on trains and block trains from further out is controlled by the ORR and not by us. There is no question of us being able to block out trains by filling the lines with inner suburban trains. Fares and operators for the outer suburban area would continue as is. Their stopping patterns would be dictated by the DfT specification. Fares would be set by the current mechanism.

Q302 Chair: So you don’t see any issue there?

Howard Smith: No. I could point to both motivation and our ability to do things wrong, even if we were motivated malevolently, and say that, no, there is not an issue there.

Q303 Paul Maynard: Clearly the Mayor of London has great ambitions for taking over yet more rail services. Would any of these be outside Greater London or will they all be within Greater London?

Howard Smith: What we have looked at are services that are almost exclusively within Greater London. That is because most suburban services almost naturally split into that. The fit isn’t perfect but we fundamentally believe that our method of contracting brings the biggest benefits to those inner suburban services. For the longer-distance services, there is an element of market pressure on the contractors to do the right thing. For the inner suburban services, they have very low average fares-around £2 or £2.50-and therefore the incentive is particularly difficult. What that results in is, as I say, effectively minimum levels of service, staffing and station facilities.

Q304 Paul Maynard: But there is no danger of, say, commuters from Guildford suddenly finding Boris driving their trains into Waterloo, as it were. I know we have him on loud speaker every five minutes, at the moment, but we don’t want him running the trains as well.

Howard Smith: The London Overground services presently tip over about two stops into Hertfordshire as far as Watford Junction because that is the logical place. Looking at the areas we have identified in the short term, south-east trains would go one stop over to Dartford. They may go as far as Sevenoaks-two stops outside the London boundary-but you could, with a small change to the train service, cut it at Orpington so it stays entirely within.

Q305 Paul Maynard: What would the impact on those franchises be for what remained outside the Greater London boundary? Would that then be the poor man’s pickings?

Howard Smith: No, I don’t believe so. Dare I say it could be almost the opposite: those would remain the commercially lucrative parts of the franchise-quite big, with the majority of the revenue remaining with them-because they are longer-distance journeys?

Chair: Thank you very much for coming and answering our questions.

Examination of Witnesses

Witnesses: Geoff Inskip, Chair, pteg, Councillor Shona Johnstone, Vice-Chair of Economy and Transport Board, Local Government Association, Neil Buxton, General Manager, Association of Community Rail Partnerships, and Professor Chris Nash, Research Professor, Institute for Transport Studies, University of Leeds, gave evidence.

Q306 Chair: Good morning and welcome to the Transport Select Committee. Could you give your name and the organisation you are representing to help our records?

Geoff Inskip: I am Geoff Inskip, representing pteg.

Professor Nash: I am Chris Nash, a Research Professor at the University of Leeds.

Councillor Johnstone: I am Shona Johnstone, a County Councillor in Cambridgeshire but representing the Local Government Association as Vice-Chair of the Economy and Transport Programme Board.

Neil Buxton: I am Neil Buxton, General Manager of the Association of Community Rail Partnerships.

Q307 Chair: There has been a lot of discussion about the decentralisation of rail services, as proposed in the Government consultation papers. Could you tell us what you see as the good aspects of this and what you see as the possible problems?

Geoff Inskip: If you look at the rationale for why we want devolution, it is all linked to what I would call "the prize" at the end of the day: what do we see will happen as a consequence of rail devolution? There are a number of aspects. We see increased economic performance as we put together our transport strategies and our economic and growth strategies as a single, joined-up approach in our regions; we see a better customer offer, being a railway more responsive to local needs; and we see, also, the opportunity to integrate rail with other modes.

We think that under rail devolution the introduction of new services and new stations will be much more straightforward, and we will get a much more balanced view across modes; for example, the introduction of tram conversions and tram train. The big opportunities for us are that we will see reduced carbon through modal shift and, importantly, better performance by the infrastructure owners and operators as well as improved passenger satisfaction as a result of scrutiny by local politicians.

Q308 Chair: Would anyone like to add to that or to disagree with it?

Councillor Johnstone: I think Mr Inskip has summed up very well local government’s view too. What is important is the evidence that came out of the Local Government Association’s local growth campaign, which we launched at the LGA conference a couple of weeks ago, that local councils are embracing the localism agenda in terms of economic growth and delivery. Devolution of rail would add to that and ensure that local councils can be more responsive to local need. The evidence of the local growth campaign is that we know our areas well and we know what people want in terms of travel to work areas. As Mr Inskip says, there are wider benefits in terms of local economic development, but it also links into wider Government agendas in terms of health and well-being. Greater rail devolution means more people on rail, less congestion and less pollution, and that is an improvement in people’s health. We need to look at the very wide benefits, not just at the narrow farebox implications of greater devolution.

Q309 Chair: But what is it that should be devolved? Can anyone explain that to me?

Councillor Johnstone: It has to be flexible according to the local area. In terms of the PTEs, it may be a complete system. In other areas, it may be about more influence and running additional services to the specification or micro-franchises. The options that are set out in this transport paper, from a local government perspective, would support all five options because it is about local flexibility and need.

Neil Buxton: I would add that, in a broad sense, Community Rail Partnerships would support devolved control of railway services but we want to make sure that the devolved body still works with Community Rail Partnerships under the Government’s Community Rail Development strategy. That has to be written in because we are a little concerned that the community railways will be on the outskirts of these devolved areas.

Q310 Chair: Professor Nash, do you have any ideas of what should be devolved or do you see any dangers in this situation?

Professor Nash: There are some dangers and some problems. I have looked at the experience in a number of European countries which have devolved services to the regions and, broadly, it supports what has been said: that the regions have invested and improved services and co-ordinated them much better with bus services and land use planning. So, by and large, I am a supporter of devolution.

But there are one or two warnings. In Germany, the entire network of inter-regional services disappeared because the regions didn’t work together to keep them running. Clearly, we need arrangements which guard against that. The fact that we don’t have regional institutions that map neatly on to the network of services is an issue. In every case abroad there has been adequate finance from central Government. That is clearly crucial. Also, the whole question of how access to the infrastructure is charged for becomes important when planning is devolved to a lot of different organisations. On the one hand you need a charging system which encourages the use of capacity that is there but, equally, a system which charges appropriately where capacity is scarce.

Q311 Kwasi Kwarteng: Specifically on this point about devolution, it seems to be a widely held assumption that devolution will benefit the passenger. If I were a passenger what will I see differently? How will I benefit directly from the devolved control of transport?

Geoff Inskip: There are probably two areas specifically that I can give examples of. One is in terms of improved integrated ticketing. If we have a devolved railway and one that we look after ourselves, together with arrangements we currently have in place with our bus and train operators, you will see much greater integrated ticketing and smartcard ticketing which is much easier to implement. The other area, as you have seen in places like Merseytravel and London and LOROL, is a much better delivery of the actual service itself. You are getting an increased and improved performance on the railway. As a passenger you will see a much better performance on, say, Merseyrail and on LOROL, for example, which is running at something like 96% of trains within five minutes of time. That is a vast improvement from where we are now.

You will also see a commitment to quality improvements locally. For example, a more specific one for the West Midlands is that, at the moment, we have a fragmentation on stations between the train operating company, Network Rail and ourselves who own all the car parks. That is just not joined up in terms of any policy directive in terms of fares and car parking charges and so on.

Councillor Johnstone: I would give you two examples of where we have already demonstrated benefits. In terms of more devolution, it gives local authorities greater opportunity for better integration between the different modes. If I give you an example in Cambridgeshire of an aspiration that we have for a new station just to the north of Cambridge, that will combine rail, the guided busway plus a park and ride. It integrates all modes. Allowing devolution to the local authority would allow us to deliver that.

The other example I would give is what has happened in Cornwall. They are one of the largest investors in rail from a local authority perspective. They have invested £36 million in the last 10 years. What we have seen in Cornwall is that rail use has grown by 8% in the county as opposed to 3% nationally. Where local authorities have invested and have seen the benefits, it has really paid off.

Q312 Paul Maynard: Can I ask Mr Inskip to give an update on the rail in the north executive proposals? Where are they and what is happening?

Geoff Inskip: There is an expression of interest that went into Government on 28 June. It is a very robust proposal. It puts proposals for Manchester and for the Yorkshires together to look after and take over the franchise responsibilities for both Northern and TPE. As part of that proposal, we are looking at options for taking some of the railway and devolving it directly into Merseytravel and also into Nexus in the north-east.

Q313 Paul Maynard: How are you going to deal with the very real fears that I have been hearing in the shires that, if this proposal goes ahead, it will skew provision in favour of ITA areas because that is where you have the democratic accountability? Are you proposing to put Blackpool councillors on Transport for Greater Manchester? How can I guarantee to my constituents that this proposal won’t see worse rail services because we are not fortunate enough to be in an ITA area?

Geoff Inskip: Both in the West Midlands and in Northern we have dealt with this in the expression of interest. I will leave the expression of interest with the Committee Clerk for the record, but I will briefly explain it as well. In the West Midlands area, it is fairly simple. We will be setting up a West Midlands Rail Board. That Rail Board will include everybody from around the shire area who is taking responsibility for the London Midland franchise, as it will be in the future, as it were. For the Northern area, we accept that it is a much wider and larger area and there are many authorities involved. We have to acknowledge that some authorities will be real decision-makers in terms of risk and in terms of the franchise and other authorities may have a lower profile in terms of risk and operational performance but will still want to have a say. Therefore, within the expression of interest, the proposal is that a decision review panel would be taken up. It still needs to have some shaping, but everybody would be involved in that particular decision review panel. If there was an argument over a particular service then it would go to the decision review panel for arbitration.

Q314 Chair: Councillor Johnstone, would you comment on the other point that Mr Maynard made in relation to local authorities that aren’t part of integrated transport authorities and don’t have a PTE? Does the LGA have a view about how they would be placed on a system of devolution that goes to the ITAs, possibly to the disadvantage of other authorities?

Councillor Johnstone: It is the case at the moment that most of the country is not covered by ITAs and PTEs and doesn’t have that say in how local services work in their area. The governance structures will be very important as we go into more devolution, but I think it offers an opportunity, in areas like yours, for greater involvement in how your services are run than at present. So I think there are some real advantages.

If I could quote another example, that of Oxford to Cambridge rail, East West Rail, local authorities are working together to deliver better services for their areas and economic growth.

Q315 Paul Maynard: Has pteg had any discussions with councils such as Blackpool over these proposals?

Geoff Inskip: It is intended that there will be a wide consultation over all of this. The proposal is very inclusive.

Q316 Paul Maynard: You put the proposal into the Department before speaking to the councils.

Geoff Inskip: No. There have been quite a number of discussions locally as well by Northern. I will ask Kieran Preston, who is leading on this, to give you some details of what consultations have taken place in Manchester and across Leeds, but they have been consulting around the wider regions so there is an awareness about what the proposal is. Remember that what we are setting up here is a brand new body. This is not going to be the existing ITAs taking responsibility for it. They will take responsibility through a new special purpose vehicle which we have created to run the Northern railway.

Chair: We would like to be kept informed of what is happening with that.

Q317 Iain Stewart: I want to follow on from that discussion and pick up Professor Nash’s point about the possibility of a conflict between regional and inter-regional rail services. I will use the example of the TransPennine Express but there are other examples. A large part of TransPennine’s customers is commuter services to some of the big cities along the route. Another large part is longer-distance ones. Is there not a danger that there will be a greater focus on the commuter services-the short-distance journeys-to the detriment of the longer-distance inter-regional ones? Is that a real risk or will the structure deal with it?

Professor Nash: I think it is a real risk. That is exactly the sort of case I was pointing to from the German experience. Clearly, to the extent that Northern Rail franchising would be handled by a joint body representing all the authorities along the route, that risk is minimised. Even so, it may be that individual authorities collectively are more concerned with local commuter services in their area than with the national network. That is why there is a question about how far devolution should go. Where you can define a set of commuter services into a city then there is a very strong case for the longer-distance inter-regional services. It is more difficult and a bit less certain whether there would be benefits in devolving those.

Q318 Iain Stewart: In your opinion should the DfT retain a "watching brief" or an ability to intervene if they felt that that inter-regional capacity was being diminished?

Professor Nash: That is one solution. Another solution is to keep the longer-distance services in separate franchises and leave complete responsibility for those with DfT. I can see some disadvantages with that as well in terms of integration of the network. I am not too sure, but I would certainly start with devolution where it is easier, with networks of commuter services, and then see where we go.

Q319 Iain Stewart: Mr Inskip, do you want the right of reply?

Geoff Inskip: I understand the issue that you raise. This has been widely discussed. Life isn’t risk-free and we don’t know what the future looks like, to be honest with you. I do think we have come up with a governance structure in both West Midlands and Northern that is robust enough to have that proper mature debate should those circumstances arise and where we find ourselves in need of having to make cuts. Who knows what the future might hold? Remember that the starting point for this is an agenda for growth, not for cuts.

The other point is that we are expecting that in relation to the growth agenda the baseline specification for the franchise will have current services plus growth in it with the right financial parameters to secure it going forward. That is also very important. This deal is not done. We are not saying devolution at any cost. We are saying devolution provided the right financial circumstances can be negotiated with the Government.

Q320 Chair: How concerned are you that that financial deal won’t be done? Do you have any concern that the Government might be trying to offload the risk on to you?

Geoff Inskip: No, I don’t believe that is the case. I do not think that is the debate or the discussion we have been having with the DfT at all. The discussion we have been having with the DfT is looking at the base level specification. They know, for example, that if they were managing Northern on their own, for example, with TPE they would have to put in investment on rolling stock. We cannot manage on the existing rolling stock. The investment has to go in somewhere and that investment will be made. The baseline specification is also proving the value for that, but of course we are expecting there to be a reduction in rail costs going forward. You have heard the evidence from both David Higgins and McNulty that we are expecting £3.5 billion of savings to be managed on the railway through Network Rail. Part of the prize for us is having those savings delivered locally to Northern and to the West Midlands so that we can decide on how to make that investment going forward.

Councillor Johnstone: It is a concern of the LGA that insufficient funding will be made available to local authorities and that, therefore, the risk will be transferred to us and we will be left with inadequate funds to maintain an acceptable level of service. Obviously, that would not be good for local authorities or for the travelling public. What we would like to see, accepting that there are efficiencies that can be made, is some sort of incentive so that if local authorities deliver the savings, clearly central Government would be expected to have a share of it but so would local authorities. They can then reinvest those savings in further services.

Q321 Graham Stringer: Mr Inskip, in your written submission you are very critical of the role of the Rail Development Group. Basically you say-these are not your words-that they are not fit for purpose, they are self-interested and they are going to be no good for the railways. Would you care to expand on that and give an alternative to the RDG?

Geoff Inskip: In fairness, the RDG has now been in place for a little while. We have not seen too much come out of the RDG and it is a concern of the industry that it is not making sufficient enough progress to deliver the savings. But it is fixed to do that and we need to depend on it to do it. Looking at alternative structures to do that is going to be quite difficult. I am not sure what the alternative is. We just want the RDG to get on with things.

Q322 Graham Stringer: Your written criticism is stronger than that. You are saying that they are self-interested and, by implication, have not done their job and aren’t going to do the job. Surely, if you say that, there should be some alternative that will deliver these changes?

Geoff Inskip: In discussions with the RDG, they say they are going to do it and they seem to have a plan of action. Maybe things have moved on a bit since we wrote that. There was great frustration at the time that they were not really making any progress towards it, but David Higgins and Tim O’Toole now seem to be quite keen on ensuring these savings are delivered. They have a direction from the Secretary of State to do it.

Q323 Chair: Mr Inskip, if you have changed your view from the time you sent us that submission, it would help if you could send us something else because that stands as your evidence.

Geoff Inskip: I can do that.

Q324 Graham Stringer: I will move on. Again in the written evidence you call for more transparency and greater accessibility to the way subsidy and funding to the railways is done on a regional and spatial basis. Could you expand on that and say how you think that would improve the arguments for investment in regional rail?

Geoff Inskip: There has been quite a lot of criticism about the high cost of regional railways, for example, and that goes to the core of this argument: what is the cost of the railway? I am not sure anybody knows what the real cost of running regional railways is. The allocation of costs can be done on a number of parameters. We are not quite sure that the way it is done currently would give the right result. If you take specificity of costs, for example, which is part of our argument, and made it more specific to the cost of actually operating the railway, then I think you would get a much fairer result. At the moment Network Rail’s charges are made on a basis which we don’t believe reflects the economic performance and cost of actually operating the trains that run on our railway. If you go back in time and think about the primacy arguments that were about intercity running on the railway first, it took the most cost and therefore it had a fair reflection of the cost to run that railway. With regional railways and then freight operating, costs were charged at the margin over and beyond the cost that was there. We think that is a fairer way of reflecting costs going forward. It would help reduce the cost of operating the railway.

Having said that, there is still this issue of the very high cost of running Network Rail. You have to reduce the cost of running Network Rail in the first instance and then apportion it on a better basis than currently.

Q325 Graham Stringer: Just to be clear, your feeling is that, although we don’t know, if the assessment of investment and subsidy was done on a more transparent basis the balance between the south-east and the rest of the regions would look less unbalanced.

Geoff Inskip: Yes. We have put in an alternative scenario that indicates that is the case.

Professor Nash: I very much agree with the point that, currently, all published assessments of the cost of different types of service on the rail system rely heavily on some more or less arbitrary allocation of the fixed costs of the system. It is in the nature of a railway that a large part of the costs are incurred by providing the infrastructure. The actual wear and tear of running trains on them is only a small part of the infrastructure costs. That can clearly be directly attributed to individual services, but there is a lot of arbitrariness about how the big rump of fixed costs is allocated. The fixed charge to franchisees, for instance, is simply allocated on a mixture of train kilometres and passenger revenue. The recent regional disaggregation published by ORR again allocates those costs and revenues that are not specific to a region on the basis of train kilometres. That is all fairly arbitrary.

If we really want to know what the economics are of regional services, given that one assumes that the intercity services and the London commuter services are certainly going to stay, then we need to look at the additional costs of adding the regional services on to the network. In some cases that needs infrastructure that you would not otherwise need, and therefore the whole cost of that infrastructure should be allocated to regional services. In other places it is simply making use of the capacity of the existing system, and there is a low cost involved in that.

I am not aware of any attempt to estimate those avoidable costs of the regional network in the last 10 or 20 years.

Q326 Graham Stringer: There is another oddity as well, isn’t there, Professor Nash? If you invest in extra rolling stock which can enhance and increase the capacity, that is considered as subsidy. If you make structural changes to the actual railway lines, that is considered as capital investment. Is that a fair way of accounting for money going into the railways?

Professor Nash: It is a consequence of the way different assets are financed, with rolling stock being financed through leasing and therefore being part of the train operators’ costs.

Q327 Graham Stringer: Is it a fairer way of doing it?

Professor Nash: At the end of the day, what matters is that there are appropriate methods in place for appraising both investments and subsidies. It is true that a cost-benefit analysis is routinely used with investments but perhaps not so much with subsidies. I think it should be. That would then make all forms of Government finance subject to the same economic test.

Q328 Chair: Professor Nash, to your knowledge has this issue been taken forward anywhere where costings are actually assessed? On the figures produced by the McNulty Report showing what is said to be a very high rate of subsidy for regional railways, it could make those regional railways look very vulnerable. This is a very serious issue. Are you aware that this matter has been considered seriously anywhere?

Professor Nash: Not in terms of recent experience. I find the McNulty figures puzzling in that I could not find any published explanation of how they were derived. As I say, the current fixed charges to franchisees are themselves fairly arbitrary. What has often been done, including by ORR, is simply to allocate the Government grant to Network Rail in proportion to the fixed charges that are part of the franchise. That would be equally arbitrary.

Chair: We have had information, in written evidence we have received, from Transport for London that claims that London rail users get a 4.8p Government funding per passenger mile compared with 31p for each regional rail passenger mile. Transport for London is putting a case to us that they are in fact getting a bad deal and that the regions are getting a much better deal. This is an issue that somebody will have to get to grips with.

Q329 Graham Stringer: I want to follow up on that. On those figures, the previous Secretary of State said, when we were asking for investment in the Northern Hub, that the bus subsidy was so high that fares would have to go up or we wouldn’t get the investment. What you seem to be saying, Professor, is that there is no real basis to these figures and that they are just arbitrary. If that is the case, it is serious. Is that what you are saying?

Professor Nash: In terms of the published figures for subsidy per passenger mile, yes, there is a high degree of arbitrariness about them. There is a serious need to look into this more thoroughly.

Q330 Chair: Mr Inskip, you have submitted some detailed figures to us.

Geoff Inskip: The point is that capital investment is paid for quite separately and directly by DfT to Network Rail. Therefore, it does not form part of the formulation of charges into things like the regional rail charges. The point about capital investment is that a lot of it is invest to save. Where the south-east have had a lot of investment, that has reduced the cost of their railway. What has happened in the north and the midlands is that we have not had that investment. We feel that something like the Northern Hub, for example, will improve not only economic performance but the parameters round the railway. We know that electrification reduces operating and maintenance costs in the long term. We need more electrification. That will help reduce the cost of operating the railway in Northern. It is those sorts of investment decisions that need to be made.

But those investment decisions are taken outside the decision-making process on subsidy. Capital investment decisions are made by DfT, by putting that money into Network Rail quite separately, and then the operating company or the regions don’t take a charge for that in the long term. If you were a commercial company you would make that investment and then you would charge depreciation against those particular regions. If you charge the depreciation on the capital investment then that would start putting the charges up where the investment has been made. That would perhaps put up the 4.5p to some different figure, although I can’t tell you what that figure would be.

Graham Stringer: That is very interesting. Thank you.

Q331 Julie Hilling: I want to be clear. In terms of your proposal, do you then become the DfT, so you let the franchise rather than operating it?

Geoff Inskip: Yes. We would be letting the franchise on our terms.

Q332 Julie Hilling: What would the relationship then be with the track, with Network Rail?

Geoff Inskip: This is interesting because we don’t believe that we want to do any vertical integration. That is not where we sit at the moment. Network Rail charges need to be dealt with quite separately, outside the discussions. They will have to form part of the financial discussions that we have with Government because when Network Rail’s charges come through for the train operating company we want to see a flow-through of those. Where they get reduced, part of that should be captured locally. The real costs that we are talking about here are the operating costs of the train operating company itself-bidding out that part of the franchise. As you know, the train operating companies expect the Network Rail charges to be a flow-through in terms of Government funding.

Q333 Julie Hilling: You are saying this would be a bid for growth but where would you then be cutting costs? How would you cut costs?

Geoff Inskip: There are a couple of areas. One is the need for capital investment, which we have said before. We have made the point that electrification does help reduce costs. We also make the point that we would like to prepare our own HLOS-high level output statement-and our own SoFA, so that forms part of what we do. Rather than DfT having their part of HLOS and SoFA at that level, we would take it locally and determine exactly how that gets spent.

Q334 Julie Hilling: How would we ensure that those safety standards and ongoing maintenance, improvements to track and so on, are of the right standard and improving rather than decisions being made at a local level saying, "We will put off doing that until next year because it doesn’t look good on the books"?

Geoff Inskip: I don’t think we would be looking to put off decisions like that. To a certain extent, putting off decisions like that got us, historically, into the problems of make do and mend. I don’t think that is an option. Where we see the benefits is that we do recognise that the Rail Delivery Group, the Secretary of State and also Network Rail are admitting that their view is they can reduce their subsidy requirements from £6 billion down to £2 billion. It is that move down into that reduction of subsidy that should flow through and be captured locally as well. However much of that £3.5 billion or £4 billion will be saved, as RDG do its work and Network Rail deliver those savings, that will reduce our costs. What we are saying is that should not all go back to Treasury. We are suggesting that 50% of that gets captured locally and 50% of it goes back to Treasury. We think that is a fair deal: 50% will go to passengers and locally we would like to determine-effectively, under devolution, our politicians will determine-how that money gets spent, whether on better services, reduced fares or whatever it is.

Q335 Julie Hilling: I am unconvinced about the savings that you talk about. I am also a little unconvinced when you say that the train operating company will pay for new trains. I am a little concerned about the model that you talk about when you say, "There are going to be wonderful savings, we are going to have a better service and we want a share of the savings." I don’t see that.

Geoff Inskip: Perhaps I can help a little bit. Part of this issue is in relation to the base franchise specification that ORR will be putting out. To a certain extent that is a negotiation with the DfT at this stage. There is also an element of negotiation with the train operating companies because what we will be putting out is a base level specification-a specification of service and determining how fares will be dealt with. We will get responses from the train operating companies in that regard. That response from the train operating companies will be, in particular, in relation to the cost of rolling stock and the cost of running the trains. It is the above-rail cost, to that extent. We would expect to see, on the growth agenda, some improvements to those services which, incidentally, we can then buy in addition to the base level specification, should we so wish, going forward.

The other part of this equation which is more difficult-and I understand the concerns the Committee will have because we have the same concerns ourselves-is: how is Network Rail going to deliver the £3.5 billion of savings? Sir David Higgins and Tim O’Toole are saying to us all, and they said it to you as well, that they are going to deliver those savings. It is formally their position that they will be delivering a reduction in subsidy from £6 billion to £2 billion over the coming years. If that does happen-when that happens, is what I am saying-we expect that part which is going to arise as a result of those savings, which is relevant, into either the West Midlands or Northern to be captured by us and spent by decisions made locally.

Q336 Chair: Mr Buxton, what benefits do you expect Community Rail to see from devolution?

Neil Buxton: We have already proved that devolution can bring a lot of benefits at local level. As long as we have the support of the devolved body, then I think we can carry on doing that. There are ways forward in which we can do that. Certainly getting communities involved in their railway line and their services can be helpful. I don’t think, however, that Community Rail Partnerships are quite ready for micro-franchising just yet. They are not really set up for it, they are not big enough and it is probably better left to the larger authorities. However, as long as we can work with them, that is the key thing.

Q337 Paul Maynard: Do you feel that you are being involved at the moment in discussions over things like rail in the north? I know, for example, that on the South Fylde Line they have seen passenger numbers driven up by the Community Rail Partnership and the same with the Mid Cheshire Line. Is that still going to be the case if the big clumping ITA strides in to say, "Actually, you are outside the boundary. We don’t really care about you quite so much because you are in posh Knutsford or posh Lytham. To hell with you"? Is that not a danger?

Neil Buxton: It is certainly a danger but I think they would be very foolish to ignore that. A well-working Community Rail Partnership can deliver a benefit-cost ratio of 4.6:1.

Q338 Paul Maynard: Have they been discussing it with you so far though?

Neil Buxton: We are starting discussions with them, yes.

Q339 Paul Maynard: Starting; good.

Neil Buxton: Absolutely, and I intend to continue having discussions with them on this.

Chair: I hope that they are fruitful ones. In the absence of any other questions, thank you very much for coming and answering our questions.

Prepared 16th July 2012