Memorandum by the Rail Regulator
What are the legal bases for regulators; what
is the nature of their powers and how do they exercise them; how
could their powers be revoked; from where do they obtain their
financial and administrative support?
1. The Rail Regulator is a creature of statute,
namely the Railways Act 1993. He also has functions as a competition
authority for the railway industry under the Competition Act 1998.
His functions and duties were amended by the Channel Tunnel Rail
Link Act 1996, the Greater London Authority Act 1999 and the Transport
2. The Railways and Transport Safety Bill
currently before Parliament will, when enacted and brought into
force, abolish the statutory office of Rail Regulator and in its
place establish a board consisting of a chairman and at least
four other members, all appointed by the Secretary of State. The
new organisation is to be called the Office of Rail Regulation.
3. Unlike most other sectoral regulators,
the Rail Regulator is not directly concerned with consumer protection,
including fares. Rather, the statute concentrates the Rail Regulator
on the monopoly and dominant elements of the railway industry.
His most important functions are:
(a) the issue and enforcement of licences
and licence exemptions for the operation of railway assetsthis
includes enforcement of the network licence held by Network Rail,
and thereby oversight of Network Rail's efficient stewardship
of the national railway network as the monopoly infrastructure
(b) establishing the level and structure
of charges payable for access to railway facilitiesthis
encompasses establishing the level of income Network Rail should
recoup through track access charges to finance the stewardship
of the network, and ensuring that the charges regime promotes
efficient use, operation, maintenance and renewal of the network;
(c) approval of access agreements and subsequent
amendments, and access exemptions, and the enforcement of rights
to compulsory third party access to railway facilitiesthis
covers the responsibility for ensuring the fair and efficient
consumption of rail network capacity by train operators, including
the contractual terms under which capacity is sold;
(d) concurrent jurisdiction with the Office
of Fair Trading for the enforcement of domestic competition law
in cases of services relating to railways under the Competition
(e) supervision of the industry-wide network
code which contains common provisions for the efficient use of
capacity and the development of the network; and
(f) determining certain classes of appeal
(including appeals on points of law) arising from disputes in
the railway industry.
4. The Strategic Rail Authority (SRA) is
a non-departmental public body (NDPB) which exercises certain
other regulatory functions in respect of railway services, mainly
concerned with consumer protection. This function is discrete
from, but complementary to, the Rail Regulator's functions. The
SRA also awards passenger rail franchises and administers the
system of grants for passenger and rail freight facilities and
services. The SRA is not independent of Government and the Secretary
of State can give it directions. The distinction between the two
bodies is frequently misunderstood.
5. In exercising his powers, the Rail Regulator
must discharge the statutory duties conferred on him by section
4, Railways Act 1993. The Regulator must also act in accordance
with European law relating to competition, the provision of railway
services, licensing, capacity allocation, charging and technical
standards. The decisions of the Rail Regulator are also susceptible
to judicial review.
6. The Rail Regulator has frequently stated
his firm commitment to a policy of openness and transparency in
all he does (as to which please see later).
7. The powers of the Rail Regulator can
be revoked by amendment or repeal of the relevant statute. In
some cases, in particular his appeal functions, amendment of the
industry-wide network code could revoke his powers.
8. The Rail Regulator is supported by the
staff of the Office of the Rail Regulator (ORR). The ORR is a
non-ministerial government department, staffed by civil servants,
which currently employs 140 staff. The projected budget for the
ORR for 2003-04 is £14.8 million. ORR's budget is agreed
with HM Treasury, and is recouped through licence fees payable
by the holders of railway operating licences.
By whom and how is the continuing need for regulators
measured; how is their role changed or ended?
9. It is for Parliament to decide on the
need for regulation in the railway industry and on the nature
of that regulation.
10. The regulation of railways is not new.
It goes back to the beginnings of the railways, and the Railway
Regulation Acts 1840 and 1842 are, in some respects, still in
force. The modern domestic law of rail regulation is contained
principally in the Railways Act 1993.
11. Parliament has traditionally concluded
that monopoly and dominant players is an industryespecially
where there is monopoly control of essential facilities such as
a networkmust be subject to regulation to prevent or penalise
12. There is also a requirement in European
for each Member State to have a regulatory body for the railways.
13. Any alteration to (or removal of) the
Rail Regulator's functions would require primary legislation or
regulations under the European Communities Act 1972.
14. Following the placing of Railtrack PLC
in railway administration in October 2001, the Government reviewed
the regulation of the railways to ensure that it was appropriate
for the new industry structure which was intendeda company
limited by guarantee rather than the traditional equity model.
15. Following that review, on12 June 2002
the Secretary of State made an announcement to Parliament (Annex
2 to this memorandum) in relation to its conclusions. Only one
change was and is to be made: the creation of the regulatory board
(see paragraph two above). This is in accordance with current
Government policy for all regulatory authorities.
In his statement, the Secretary of State said that there are a
number of "key overarching principles" which guided
the review of rail regulation and which would inform any further
changes which might be made. It described the first of these as
"an essential continuing requirement". The Government's
first principle is:
"providing sufficient comfort and protection
to operators and lenders through independent economic regulation
and in order to regulate monopoly/monopsony elements and to secure
private investment in the railways at efficient cost".
16. There may, however, be other changes
in the scope of the Regulator's powers as a result of the implementation
of the EU Directives forming the EU Infrastructure Package or
the implementation of the EU Regulation on competition modernisation.
Who are the members of regulatory bodies; how
are they appointed; are they adequately representative; do Nolan
17. As a single statutory officer, there
is only one Rail Regulator. There are therefore no members.
18. That position is shortly to change.
The Railways and Transport Safety Bill will replace the single
statutory officerthe Rail Regulatorwith a statutory
board of executive and non-executive directors. The Government
has stated that it expects to introduce the new board structure
at the end of the present Rail Regulator's term of office in July
2004. It is not known what criteria the Government will apply
to the representative nature (if any) of the members of the regulatory
19. The Rail Regulator is appointed by the
Secretary of State after an open public competition. Nolan principles
apply in full.
20. The Secretary of State may remove any
person from office as Rail Regulator on the grounds of incapacity
(ie the same grounds of removal as apply to High Court judges).
21. It may be noted that, although the powers
and responsibilities of the Rail Regulator are vested in the single
statutory officer, successive holders of that office have established
and maintained an advisory board comprising permanent executive
directors and non-executives selected for their expertise. The
appointments are made by the Rail Regulator. In announcing its
intention to legislate in this respect, the Government said that
it wishes to build on the existing ORR board structure, and retain
the existing permanent executive board directors.
What are regulators set up to achieve; to what
extent do regulators achieve their purposes without adverse consequences;
how is their effectiveness assessed?
22. The Rail Regulator was set up to achieve
the independent regulation of the monopoly and dominant elements
of the railway industry in accordance with public interest criteria
(section 4, Railways Act 1993) and the principles of fairness.
23. The Rail Regulator's achievement of
his purposes would normally be measured by the performance of
the railway companies which are affected by his jurisdiction.
For example, when the Rail Regulator took enforcement action Railtrack
in 1999 in a case of poor infrastructure performance adversely
affecting passenger trains, the company took remedial action which
led to its catching up almost all the shortfall in its performance
in the following year.
24. However, the perturbations which have
affected the railway industry in the relatively short time since
privatisation was completed with the flotation of Railtrack in
1996, and particularly in the last three years, make it difficult
to assess what beneficial effects regulation has had. The picture
has been clouded by five serious rail crashes, the disintegration
of the integrity of the network following the Hatfield derailment,
the financial collapse of Railtrack and the restructuring of the
industry on quite unforeseeable grounds after the year-long administration
of that company. The Rail Regulator did not contribute to the
occurrence of these events, but he had to deal with their consequences,
for example by the action he took in relation to network performance
after the Hatfield derailment.
25. However, it is clear from the railway
industry's responses to the Government's consultation on the structure
of the industry that the role of the Rail Regulator is seen as
vital, as a safeguard of fair and objective treatment, and as
a basis, thereby, for ongoing private investment in the railway
network, underpinning Network Rail's ability to borrow in the
To what extent are regulators both prosecutors
and juries on an issue; what rights of appeal are there against
decisions made by regulators?
26. The Rail Regulator has many powers whose
exercise or non-exercise may affect railway industry players and
those who use or depend on the railway.
27. In several instances, the Rail Regulator
is responsible both for deciding whether to exercise his statutory
powers to tackle a perceived problem and then for determining
what powers to use to achieve his statutory objectives in section
4, Railways Act 1993. This is not different from the position
of other regulatory authorities.
28. In the case of an access charges review
under Schedule 4A, Railways Act 1993, the Rail Regulator must
decide what the structure, level and profile of access charges
are to be for (usually) the next five years. If the infrastructure
provider (Network Rail) dislikes the Rail Regulator's decision,
it has a right to reject it, in which case the Rail Regulator
may refer the matter to the Competition Commission for final determination.
The decision of the Competition Commission is susceptible to judicial
29. In the case of a decision to modify
an operating licence, if the licence holder dislikes the Rail
Regulator's proposed modification it can refuse to agree to it.
If the Rail Regulator wishes to persist with his proposal, he
can refer the matter to the Competition Commission for determination.
If the Competition Commission agrees that the licence should be
modified, the licence will be changed in the way determined by
the Competition Commission despite the licence holder's objections.
Again, the decision of the Competition Commission is susceptible
to judicial review.
30. Appeals in relation to certain decisions
of the Rail Regulator under the Competition Act 1998 are also
made to the Competition Commission.
31. If the Rail Regulator takes enforcement
action for breach or apprehended breach of an operating licence
under sections 55-57F, Railways Act 1993, that enforcement action
may include the imposition of financial penalties. If the operator
in question is aggrieved at the Rail Regulator's decision in this
respect, he has a statutory right of appeal to the High Court
(in Scotland, the Court of Session).
32. In all cases, as a public authority
exercising statutory functions, the Rail Regulator's decisions
are susceptible to judicial review.
How are regulators held to account by Parliament;
what other accountability do regulators have to auditors, Government
departments or other public bodies?
Parliament and other public bodies
33. The Rail Regulator may be called before
committees of Parliament. This has happened on numerous occasions,
most frequently the House of Commons Select Committee on Transport,
but also the Committee on Public Accounts.
34. ORR staff have given evidence to the
Transport and Environment Committee of the Scottish Parliament.
35. The Rail Regulator has made it clear
that he would welcome more regular and systematic scrutiny of
his work by Parliament.
36. The Rail Regulator is subject to the
jurisdiction of the following bodies:
(a) the parliamentary Commissioner for Administration
in respect of complaints of maladministration;
(b) the Comptroller and Auditor General in
respect of financial management; and
(c) the Information Commissioner in respect
of the Rail Regulator's obligations under the Data Protection
Act 1998, and the Freedom of Information Act 2000.
37. Although independent of Government,
the Rail Regulator is required to make an annual report to the
Secretary of State who lays a copy before Parliament.
The Rail Regulator also provides advice on relevant written Parliamentary
Questions referred to him by the Secretary of State. The Rail
Regulator also replies personally to letter from Members of Parliament.
38. The Rail Regulator's authority to issue
licences comes from a general authority in that respect given
to him by the Secretary of State. That general authority can be
amended or revoked at any time.
39. Under section 4(5)(a), Railways Act
1993, the Rail Regulator is required to have regard to any general
guidance issued to him by the Secretary of State about railway
services or other matters relating to railways.
The obligation to have regard to general guidance is not inconsistent
with the Rail Regulator's independence because the Rail Regulator
may conclude, in the light of his other statutory duties, that
a different course or action is warranted. "Have regard"
is not the same as "do as you are told".
40. Under section 69(2), Railways Act 1993,
the Rail Regulator is required to have particular regard to considerations
specified by the Secretary of State in prioritising his review
of the provision of railway services, and considerations to which
he should have particular regard in determining whether to exercise
his statutory functions.
41. Under section 69(3), Railways Act 1993,
the Rail Regulator is required to give information, advice and
assistance to the Secretary of State.
42. The Secretary of State has no power
to direct the Rail Regulator to exercise his functions in any
43. Scottish Ministers do not have rights
or powers corresponding to those outlined above in the hands of
the Secretary of State.
How are regulators accountable to those whom they
regulate; what is the impact of regulation on the economy; how
transparent are their methods of working?
44. The Rail Regulator is accountable to
the bodies he regulates in three principal ways.
45. In the cases of decisions in individual
cases and in matters with industry-wide implications, the Rail
Regulator consults extensively before reaching his decision. He
publishes full reasons for his decisions which are premised on
a thorough assessment of submissions and evidence. In major cases,
the Rail Regulator also holds hearings which enable all affected
and interested parties to make oral statements and representations
in relation to their positions on a particular issue, to hear
and respond to what is said by others, and if necessary to criticise
the line which they believe might be taken by the Rail Regulator.
Neither the Railways Act 1993 nor the rules of public law require
the Rail Regulator to commit to such a high degree of due process
and transparency of decision-making. However, the current Rail
Regulator has chosen to proceed in this way in the interests of
accountability to stakeholders, to ensure regulatory decisions
are consistent with stakeholders' legitimate interests, and to
give confidence to industry players, investors and the public
in the regulatory process and the quality of decision-making.
As explained above, the Rail Regulator's decisions are susceptible
to judicial review and, in certain material instances, the Rail
Regulator must make a successful reference to the Competition
Commission before he may proceed with disputed proposals.
46. In the case of his overall regulatory
work programme for each year, the Rail Regulator publishes and
consults widely on a draft business plan. He does this to ensure
that the industry, investors, other stakeholders and the public
are aware of what the Rail Regulator plans to do and not to do.
This gives people an opportunity to comment on the regulatory
work programme and the Rail Regulator's planned expenditure, and
to influence them before a decision is made. The business plan
is published, made available to Parliament, and (as with all regulatory
documents), placed on the Rail Regulator's website.
47. Regulated bodies and other people are
of course free to make representations to the Government or, through
their elected representatives, to Parliament if they believe the
Rail Regulator is failing in some aspect of his statutory responsibilities.
This could result in Parliament making legislative changes to
the Rail Regulator's functions and duties.
48. The Rail Regulator is also mindful that
industry and public confidence in what he does is highly important.
Capital markets are very sensitive to unpredictability in regulatory
policy, and the Rail Regulator has always tried hard to ensure
that his approach is consistent, soundly based and provides no
surprises. Regulatory risk is not the risk that the regulator
will act or fail to act. It is the risk that the regulator will
act in an unpredictable way.
49. The impact on the economy of the Rail
Regulator's decisions can be material. The efficiency and economy
of the provision of railway services are highly important factors
in national transport affairs. Many people and businesses rely
on the efficient operation of the railways to a considerable extent,
even if they themselves do not use them. It is therefore very
important that regulation of the railway industry is aimed at
the right things and is pitched at the right level, dealing effectively
with possible abuse of monopoly or dominant market power but not
stifling commercial innovation or investor confidence.
How are regulators accountable to the public other
than through Parliament; what opportunities do the public have
to express particular concerns to regulators; how do regulatory
bodies relate to their associated consumer watchdogs?
50. Although the Rail Regulator works primarily
within the railway industry, ensuring the equity and efficiency
of relationships between the companies that provide services relating
to railways as opposed to the provision of services to the end
user (the travelling public and the freight customer), the Rail
Regulator always has regard to the quality of that end-user service.
His statutory duties are all about the effect on the person who
uses or relies on railway on railway services.
51. Prices (fares) to the public are primarily
a matter for the SRA in accordance with section 28, Railways Act
52. The Rail Regulator's consultation documents,
responses to consultations, and provisional and final conclusions
(with reasons) are available in the public domain (through the
ORR library and on the Rail Regulator's websitewww.rail-reg.gov.uk).
The ORR's website has recently been considerably improved to provide
users with a comprehensive guide to rail regulation, explaining
the necessary rules and processes and the criteria and policies
which inform regulatory decisions. This allows any person to submit
comments and to taken part in consultation exercises if they wish.
Last year, it is estimated that the ORR website received a quarter
of a million hits and ORR handled a total of 1,166 letters and
e-mails from the public.
53. The Rail Regulator meets regularly with
the Chairman and National Director of the Rail Passengers' Council
and ORR staff often attend relevant meetings of the regional Rail
How effective is public consultation by regulators;
what opportunities do the public have to contribute; to what extent
do the public make use of those opportunities?
54. The Rail Regulator consults on all significant
areas of regulatory policy before reaching a decision. In almost
every case he publishes provisional and final conclusions. All
documents, including responses to consultations, are put in the
public domain. The Rail Regulator does not consult members of
the public directly, because the issues being consulted on require
a largely technical and financial expertise and are specific to
the railway and wider commercial sectors. But the (albeit rare)
submissions which come in from members of the public are taken
just as seriously as those from the industry and investors. He
does consult passenger and freight representative bodies such
as the Rail passengers' Committee network and the Rail Freight
Group, as well as public authorities such as Passenger Transport
Executives and local authorities.
55. The ORR will send specific consultation
documents, press releases and other information made public by
the ORR in response to any reasonable request from a member of
the public. The ORR's website is the principal getaway to the
work of the office, and provides a comprehensive explanation of
the work we do and plan to do.
To what extent do the needs or concerns of the
public guide the work of regulators; are regulators instruments
of Government or representatives of the public?
56. The protection and promotion of the
public interest is the Rail Regulator's primary concern. His statutory
duties all point in that direction.
57. The Rail Regulator is not the instrument
of government. He is independent and, if there is to be private
investment in the railway industry, he must remain so.
58. The Rail Regulator's public interest
objectives and criteria are given to him by Parliament and they
may only be removed or changed by Parliament.
How independent are regulators of Government;
what factors do or might compromise their independence?
59. Subject to the factors mentioned above
(such as the obligation to have regard to statutory guidance and
the right of the Secretary of State to amend or revoke the authority
of the Rail Regulator to grant operating licences), during his
term of office the Rail Regulator is completely independent of
60. The Secretary of State of course has
the right not to reappoint an incumbent Rail Regulator, which
may make a difference if the incumbent wished to be reappointed.
61. In legal terms, the Rail Regulator's
independence can only be compromised by Parliament passing primary
legislation (or by the use of implementing regulations under the
European Communities Act 1972).
62. The effectiveness of a regulator depends
to a very considerable degree on his willingness to protect his
independence and jurisdiction. The Rail Regulator's independence
may de facto be compromised if, facing inappropriate political
or other pressure, whether public or private, he gives in to it.
Investors, industry players and the public will not be slow to
recognise a regulator who has wrongly given up his independence
through his behaviour. The adverse effect of any such compromise
on industry and investor confidence may be very considerable.
Office of the Rail Regulator
29 April 2003
1 Article 30 of Directive 2001/14/EC of the European
Parliament and of the Council on the allocation of railway infrastructure
capacity and the levying of charges for the use of railway infrastructure
and safety certification. Back
During the debate on the Railways and Transport Safety Bill, the
Secretary of State said, "Part 2 provides that the Office
of the Rail Regulator should be restructured. The Rail Regulator
is working well, but we want to take this opportunity to bring
the railways into line with other regulated industries, replacing
the individual regulator with a regulatory board, which is consistent
with the recommendations of the Better Regulation Task Force.
The Bill restructures the existing Office of the Rail Regulator,
creates a statutory regulatory board in place of the regulator,
building on the existing advisory board that he already has, and
enables a wide range of experience and views to be brought to
decision-making. We will not make the change before mid-2004,
which will enable the regulator to complete the useful work that
he is doing in reviewing access charges." Official Report
(Commons), Col 772, 28 January 2003. Back
Council Regulation (EC) No 1/2003 on the implementation of the
rules on competition laid down in Articles 81 and 82 of the Treaty. Back
Section 1(3), Railways Act 1993. Back
The Rail Regulator has a power under section 71, Railways Act
1993, to publish information and advice in relation to railway
services in such manner as he may consider appropriate. He also
has a duty under section 72 of the Act, to maintain a public register
containing the material specified in section 72(2). The Rail Regulator
must however have regard to the need for excluding, so far as
practicable, matters relating to the affairs of an individual
or body if publication or registration of those matters would
in his opinion seriously and prejudicially affect the interests
of that individual or body. Having regard to the categories of
exempt information provided for in the Freedom of Information
Act 2000, it is not thought that the entry into force of that
Act will oblige the Rail Regulator to make wider disclosure of
information in his possession than he does at present. Back
Section 74, Railways Act 1993. Back
A copy of the current statutory guidance is at Annex 1. Back