Examination of Witnesses (Questions 200
WEDNESDAY 12 JULY 2000
M GRANT AND
MR T JENNER
200. For the record, I do have a pecuniary interest
in Railtrack and EuroTunnel. I should like to link my question
to the current track access charging system and ask whether that
should be revised to better align the incentives of Railtrack.
May I mention the specific example which we have discussed before
and link it to the franchise applications which we know about
for the East Coast rail line and that is the particular bottleneck
north of Newcastle on the East Coast Main Line. There all of us
would like to see more freight go on rail, yet we are faced with
two franchise applications promising more and faster passenger
trains to London, which in themselves are obviously very attractive.
At what stage is a decision going to be made as to whether we
go for more passenger trains or whether we go for more freight
on the line?
(Mr Grant) The whole of the East Coast is being looked
at from London to Edinburgh to Aberdeen. What we are trying to
provide on the East Coast upgrade is more capacity for more passengers
and more freight. There comes a point of course where you just
cannot fit any more on. We are looking at the growth which is
expected from the freight companies and the growth which is expected
from the franchises which are being put forward at the moment.
The upgrade will accommodate the growth we expect to be reasonable
over that 10-year period. I am not sure about the particular bottleneck
you are talking about.
201. I was advised that there is a bottleneck.
At what stage will the upgrade be completed? Will it be in time
for the franchise to have been decided?
(Mr Grant) The upgrade will be done in phases. We
are actually working with Railtrack, who are obviously going to
do the upgrade. We are working with Railtrack and it really is
in a number of phases.
202. So the answer is that it will not be ready
by the time the decision is taken.
(Mr Grant) No; the East Coast upgrade is a 10-year
(Sir Alastair Morton) It will not have begun.
203. I am sorry, Mr Grant, I am going to be
mildly unkind to you and say you have really not answered the
question because you are saying you would expect an upgrade to
provide room for both freight and extra passengers. I am not misquoting
you I hope.
(Mr Grant) That is correct.
204. On what basis do you actually do the assessment
of the rate of growth? We are talking in very general terms. No-one
would doubt that this is what we hope for and we do have in this
Committee some experience of people who talk about aspirational
targets. We are way ahead of you on some things. Aspirational
targets are not very endearing. May I ask you something very boring
like what are we talking about in real terms? What kind of growth
figures? What band are you looking for? I am talking about percentages.
I am not talking about numbers of extra services. You must have
in your minds some idea of what this equal treatment for both
freight and passengers means in percentage terms.
(Mr Grant) Overall we are looking at about 50 per
cent growth in passengers and 80 per cent growth in freight.
205. There is a fundamental flaw in what you
said earlier in terms of capacity and that linked to length of
franchises and the development of the railways in terms of the
lines. You are talking about a 10-year programme to upgrade to
a certain level. As I understand it, franchises are going to be
for a longer period of time. If, within the franchise documentwhich
I would suggest there must bethere are predictions as to
growth over a 20-year period, which is what some of the franchises
could well be, in these circumstances the two do not square in
terms of what there is going to be as an operation. What we were
trying to drive at and Mr O'Brien was trying to drive at is in
these circumstances it is highly probable that the freight is
the first casualty.
(Sir Alastair Morton) The first point is that I think
that is an attitude which British Rail did in the past do a lot
to cultivate. When in doubt raise fares and cut freight rather
than create capacity. That is an attitude which we have said will
not be the SRA's attitude. There is a strategic policy approach:
we are not adopting that old BR attitude. Secondly, if you want
private capital over ten years to create capacity in some agreed
form, it has to be able to earn the return and get its breath
back, as it were, before you can ask it to invest more. Therefore
the idea that you have an investment programme over 10 years which
is part of a franchise lasting 20, is not automatically absurd.
The second ten may be when you earn, rather slowly in the case
of rail, the return on the investment which went in progressively
with disruption costs during the ten. Disruption costs are part
of what we have to talk about and disruption effects. Somebody
has been quoting back to you our term "aspiration" and
206. We do know about those, Sir Alastair.
(Sir Alastair Morton) We created the term so I am
just claiming ownership of it.
207. That figures.
(Sir Alastair Morton) What we are saying is that we
want to know from a would-be franchisee what they are committed
to do in the period until the first review in a longer franchise.
We want to know what they think they will do, what we call the
primary aspiration; what they are pretty sure they will do, probably
in the second review period. All these are subject to variation.
We want to know what they would think pretty likely to follow
on that, to create a continuous improvement; a secondary aspiration
that might be with a lesser degree of certainty and therefore
answerability about it as they go through that chain. You could
even say commitment, intention, aspiration, to signify the difference.
When we get to the first review date, which might be after five
years, might be after four, might be after seven, the one we agree,
we would say to them, "Have you or have you not delivered
the commitments? There is trouble if you have not. Have you cleared
the way for your next lot, your intentions or your primary aspirations
to be now commitments? You have gone through the Transport and
Works Act process, you have invested in the design and development
with Railtrack or others, you are ready to roll on the further
investment? You have had the time, you have done it, and you are
off. By the way, what are your firmer intentions for what was
the third period and is now the second period ahead?". You
create, we hope, a rolling investment programme. It may be that
as the years go by things speed up or things slow down as the
growth is faster or slower, as the needs change, as freight grows
faster than passenger, as the value of freight rises because high
value/low weight freight becomes absolutely natural for travelling
by rail instead of by air. Things change. Technology or whatever
change. You have the chance to adjust in these review periods
and around them what you are going for in the now nearer future.
You have also taken, and I keep coming back to the Transport and
Works Act which is a real blot on the landscape, the chance to
adjust and we would hope not to freeze the picture; in fact we
would not freeze the picture now for the full 20 years. There
is still that point that the return has to roll on ahead of the
208. I can understand what you are saying but
in a specific sense, in terms of the protection of freight, there
is that problem, is there not, that if it is not one fifth of
the use of the track, gauged against the capacity of track . .
. I know you can gauge the capacity of Heathrow Airport and it
is dead easy, but to gauge just what can be done in a railway
is different. Your strategic role is in part to have the capacity
worked out as to what it can be, what it is likely to be in terms
of technological change and what proportion of that is going to
be freight is fundamental to the question.
(Sir Alastair Morton) The only point I am resisting
in this line of questioning is the definition of one percentage.
Over 40 per cent of the movement on the West Coast Main Line at
the moment is freight. I do not think there is another line of
Chairman: I do not want to go over the same
209. If there were any disagreements about investment
priorities, heaven forbid, between yourselves and the Rail Regulator,
how would this be resolved?
(Sir Alastair Morton) Disagreements as to what between
us and the Regulator?
210. As to how investment priorities are to
(Sir Alastair Morton) It would be fair to ask his
opinion as well, but the opinion I will give youand he
is in the roomis that we have a duty under law to provide
a strategy and a strategic investment plan and he, under the Bill
which is going through Parliament, will be under a duty to facilitate
the implementation of our strategy. He is still an independent
Regulator and how he proceeds is up to him, but the direction
is influenced by our view of the way it should go.
211. On the fares issue, what are you doing
to make sure that fares are fair for all passengers? As I understand
it, if you want to come from Manchester to London now, if you
travel on the third Thursday in a month when there are five Thursdays
in the month you can get one of these remarkably cheap tickets.
If you want to travel any other time, you pay an extortionate
amount of money. Is not fare control something you should be looking
(Sir Alastair Morton) Let me start with the generality.
The generality established at privatisation was that certain fares
would be regulated, particularly commuter fares and fares of particular
sensitivity. For the rest it would be a marketplace which has
come since, rather to the surprise of many rail users, increasingly
to resemble the market in air fares.
212. Air fares seem to have come down and rail
fares seem to have gone up.
(Sir Alastair Morton) Some rail fares are down. As
I am sure you know, some fares from London to Glasgow at differing
times have a remarkably wide span.
213. Yes, as I said, on the third Thursday when
there are five Thursdays in the month and you have spent a week
working it out, you can get some very cheap fares.
(Sir Alastair Morton) When you seek to travel by Go
or EasyJet or Buzz or whichever airline, it advertises say "from
£19 to Genoa" and you find something like there are
three £19 seats on the second Thursday of the month and after
that you are paying something else. The Regulator has powers and
the Office of Fair Trading have powers if there is an abuse of
a dominant market position. That is clear. The regulation of fares,
subject to anything Mr Grant wants to add, as provided for in
the law so far is the business of the franchising director, but
it only covers certain fares; the rest is a marketplace.
214. Are you happy with that?
(Sir Alastair Morton) I tell you something we have
to be happy with, which is that we have to be happy with the balance
between what the fare box pays for and what the taxpayer is asked
to pay for. We all want a better railway, we all know it needs
investment, we all know it is going to be expensive. There is
a balance to be found and I would not say it is going to be perfect
for every fare payer, between fares and taxpayers in the provision
of a better railway.
215. What about compensation for services which
are delayed or do not run, are cancelled?
(Sir Alastair Morton) I shall not do it in detail
but I usually start by comparing what you get on those airlines
with what we ask of our railways. The answer is that you get a
very much better deal from the railways, much more payback in
cash as well as kind than you ever can hope for by air.
216. Which part are you talking about?
(Sir Alastair Morton) Train operators in this country,
franchisees. You may not get what you want every time but try
it on the airlines. The fact is that we have a culture of giving
money back if your train is late. We can decide that is the correct
culture and we can then pursue it. We do not seem to believe that
is appropriate for leisure or business travel by air. There is
a reason for that difference which I have never yet discovered.
Perhaps it is right to do what we do on rail. Perhaps we have
it at the right level and over time public opinion will make itself
felt. If anybody is abusing a dominant position, the Regulator
and the OFT are there.
217. Should people get compensation when only
two carriages turn up when there are enough passengers for four?
(Sir Alastair Morton) It definitely feels like it
at the time; I am with you on that.
218. What are you going to do about it?
(Sir Alastair Morton) We are pursuing investment in
(Mr Grant) We have said in new franchise agreements
that compensation for individual delays over 30 minutes will be
offered to season ticket holders. We have also said that cash
rather than vouchers may be offered to passengers in compensation
if they prefer it. It is open to the operators to add the value
of vouchers over cash if they wish to. We are trying to address
the point of compensation for delays in new franchise agreements.
219. How many operating companies do you believe
there will be within the system in the next ten years? I mean
that in terms of ownership.
(Sir Alastair Morton) Operating companies first, ownership
second. We published a map very recently which said there would
be 22 operating companies. We added a sentence near the bottom
saying it is quite possible that neighbouring operations will
be in common ownership. There happens to be a case at the moment:
Connex own South East and South Central. As things stand we have
no objection to Connex unifying the management of those two; they
have in effect done so. Whether that will survive the re-franchising
of South Central we shall see quite soon. Ownership of the 22
or so? Difficult to tell: between six and 12 is low; between 10