Examination of Witnesses (Questions 375
WEDNESDAY 15 NOVEMBER 2000
375. Good afternoon, gentlemen, I apologise
for keeping you waiting. Would you be kind enough to identify
(Mr Mulligan) I am Chris Mulligan, Director
General, Greater Manchester PTE.
(Mr Preston) I am Kieran Preston, Director General,
West Yorkshire PTE.
(Mr Scales) I am Neil Scales, Chief Executive and
Director General, Merseytravel.
376. Do any of you have any general remarks
you would like to make?
(Mr Mulligan) No, we are ready to take questions.
377. Can I ask you, firstly, does your Group
believe that sufficient funds are allocated to the railways in
the Government's ten year plan?
(Mr Mulligan) We are extremely impressed by the scale
of funds allocated generally in the 10 year plan, in the order
of £180 billion. The £49 billion over 10 years looks
extremely impressive. As an accountant and somebody who has had
long experience of dealing with the private sector, I find the
two thirds private sector, one third public sector components
of that 49 billion allocated to rail something thatlet
us put this way, I remain to be persuaded whether that money will
come through from the private sector. I say that based on experience
of dealing with Metrolink. A lot of people have the impression
that the private sector are bold buccaneers and take a great deal
of risk. My experience is to the contrary, unless the private
sector is very, very clear about its down side risk as well as
the upside potential it will discount the amount of money it is
prepared to put in. We are dealing here with an industry which
is absorbing approximately over £1 billion a year of public
subsidy. We are dealing with 20 year franchises. We are dealing
with an industry which is particularly vulnerable to the economic
cycle. I just wonder whether some of those private sector funds
are going to materialise.
(Mr Preston) It is very difficult to gauge whether
the level of investment is appropriate. What I found to be quite
useful, if you look back at the 10 year period, which I did recently,
from 1984 to 1995, and compared rail investment in the United
Kingdom with rail investment across 14 European countries, our
investment lagged between 50 per cent and 150 per cent, depending
on which year you looked at. If you take the sum in the 10 year
plan and bring it to a comparable pricing basis it actually does
compare very favourably as a per capita percentage and as a percentage
of GDP. In the last two years it starts to tail back again. It
is a useful comparator.
378. If you have a note on that the Committee
would welcome that.
(Mr Preston) I would be happy to do that.
379. Do you think Railtrack will be able to
deliver the investment programme over the next five or 10 years
that Government is looking for?
(Mr Mulligan) I think that we have seen a great deal
from Railtrack about what they propose to do. In terms of delivery
enhancement, at this point in time we have yet to see any major
expenditures. One of the points that concerns us as a Passenger
Transport Executive Group is we ought to have, to a greater or
lesser extent, major enhancement schemes which we wish to sponsor
with Railtrack over the next four or five years. One of our current
experiences is the very great difficulty because of the sheer
work load, I do not want to be unkind to Railtrack in getting
them to focus on these particular schemes, apart from the immediate
380. Do you think that the Government's investment
programme over the five or ten years can be delivered within the
present structure of the industry?
(Mr Mulligan) There are three main components, one
is what the public sector will put into the network. I am fairly
confident that money can be found, provided over the next five
or ten years there is a cross party consensus. We need to see
what the replacement franchising produces in terms of the investment
the private sector is prepared to make. I have already expressed
some scepticism on that. As far as Railtrack is concerned, what
I am not absolutely clear about at the moment isif I take
my own case in the northwest, we will have a major congestion
problem in and around Greater Manchesterwhether or not
they will have the physical resources or the financial resources
for the next four or five years to make any impact on that.
381. You have, understandably, Mr Mulligan honed
in on Railtrack, which is my first question. My question was more
to do with the structure of the industry Railtrack and train operating
companies. What is your view about what is now understood, and
generally accepted, about the owner fragmentation of the industry
on privatisation, which we still have? Do you think that structure
will deliver the investment that the Government are seeking to
(Mr Mulligan) I have my reservations, particularly
from our experience over the last few years in the northwest,
and I suspect in the northeast, with the franchises there. That
the way those franchises were left over a seven year period, to
put it mildly, was over-optimistic in the case of OPRAF in terms
of what those businesses could invest in. The lowest possible
bid was accepted. Both I and my two colleagues here have had to
deal with franchisees who have been making very substantial losses
each year. In terms of being partners in a public sector/private
sector investment it has not worked. What is absolutely essential
in the next phase of replacement franchising is that our partners
are robust financially and in other ways in order to participate.
382. Is that the only change, the one you have
referred to, that you think is required to the structure to make
sure, or as sure as possible, that the investment programme the
Government have announced will be delivered.
(Mr Mulligan) It will make a major difference.
383. Are there any other changes?
(Mr Scales) I think the current Regulator is now a
lot more robust than the last Regulator. If we make train operating
company franchises longer that will make a difference as well.
As long as we keep our eye on the ball and make sure what is in
the plan is delivered I think we will be a lot better off. We
are where we are and it is really a matter of working with the
constraints we have.
384. You are here representing the Passenger
Transport Executive Group and my final question is this, we heard
on many occasions from Mr Corbett, the Chief Executive of Railtrack,
that Railtrack does not put profits before safety, do agree with
(Mr Mulligan) That is a very difficult question for
us as a Passenger Transport Executive to answer.
385. You are in the transport field, you keep
a very close watch on these things.
(Mr Mulligan) In any business there has to be a balance
between the profitability of that business and
386. I will rephrase my question, have Railtrack
got the balance right?
(Mr Mulligan) I cannot answer that question, because
I am not close enough to the issue to give you the answer.
387. Would any of your colleagues venture an
(Mr Preston) Listening to Mr Knapp it seems to me
that we all need to know probably more about how Railtrack is
actually managing its business. The Regulator has talked about
the need for the very clear register of assets, their status,
priority for expenditure and investment between those assets,
of course including emphasis for spending on safety. My own view
is, looking at it from an organisational way, how is that process
managed. I do not think we know enough about how they are managing
their business and how they are building the capacity.
388. If you do not know enough, Mr Preston,
how can you come to a judgment or no judgment, as the case may
be, about the balance between safety and profits?
(Mr Preston) They have to demonstrate more openly
what their programme is and their priorities and how they are
going to deliver it. That is my view.
389. Just taking that line of questioning on
a bit further, in your evidence did your group not say that you
were concerned that focus on safety, post Hatfield, might detract
from investment on the network?
(Mr Mulligan) I think the point that we were driving
at is that the focus on safety is absolutely unchallengeable.
Nevertheless, you can look at it in a number of ways. If the problem
is one of backlog maintenance over a number of years, everybody
in that type of business is well aware that one gets into a situation
of having to make major capital expenditure. I can think of a
parallel in the old Manchester Metrolink, where when we have had
a railway line vested in us by Railtrack, or before that, British
Railways, the first thing that has been done is that the private
sector have been over every inch of that railway and made certain
that the bridge structures, the track and other significant issues
are all put right before they take on board the operation and
maintenance. Therefore, one ends up with a very large capital
outlay at the outset for the very simple reason that the private
sector looking at a particular railway line will be looking at
whether it is going to take the risk associated with the bridge
that might fall down, whether it is in five years, 10 years or
15 years. What we are seeing now is a bringing forward and a capitalisation
of the essential safety expenditures. The only question that we
posed in our evidence was whether that was going to come out of
the sum of £49 billion or whether it was going to be provided
390. You started off by saying safety was unchallengeable
and then began to challenge it.
(Mr Mulligan) I do not challenge the
need to have a safety expenditure. What I am asking, I thinkthe
query we have madeis to what extent in terms of the £49
billion set out in the 10-year plan will that safety expenditure
come out of that sum of money or will it supplemented separately.
391. Let us assume that a Safety Bill is there
and we all accept it is unchallengeable. I am not sure the Committee
will accept that it is unchallengeable, I am not sure that Mr
Corbett and yourself will accept that it is unchallengeable. If
a chunk of capital expenditure is to be made to bring safety up
to a certain level, where would that money come from if it is
not going to come from that £49 billion, given that the Regulator
has said he is only going to allow the asset base for Railtrack
to be increased to a certain level?
(Mr Preston) If you look at the £52 billion in
Railtrack's network management statement, they are very clear
about how much they will be spending on maintenance and how much
they will be spending on renewals. The big question mark actually
is on the other £30 billion, only £4.2 billion of which
is committed to enhancing and developing the network. £25
billion is uncommitted. They surely have schemes they would like
to deliver, but it is not committed and a large proportion of
that depends on the extent to which Railtrack get at the partners
to deliver those enhancements. Our concern was that, of course,
what has to be spent to deliver safety has to be spent, but the
temptation surely must be to spend from that £25 billion.
If that is the case, the question is, how does that money get
replaced in terms of enhancement to the network?
392. Do you think the regulatory framework is
right? Should it be more flexible?
(Mr Preston) I think, As Mr Knapp said, Tom Winsor
has done quite a good job. He has had a very difficult job to
do and I think he has had to get a balance between flexibility
and certainty. He has put in £5 billion more over the next
five-year period. He has reduced the fixed element of access charges
from 93, 94 per cent to 80 per cent. There is 20 per cent variability,
so there is some incentive for Railtrack to develop the network.
He has introduced a capacity charge, which we are not particularly
happy about. In our areas there might be a chance to talk about
that. There is also a volume incentive. I think he has done quite
a good balancing act within the parameters of his instructions.
393. Within that framework, do you think the
PTEs have sufficient influence on things like capacity, reliability
and those sorts of issues?
(Mr Preston) We have had a lot of opportunity to respond
and work with the Regulator, and he has taken on board some of
our comments, particularly in relation to calculating fixed access
charges and their allocation. We are not happy with the capacity
charge element, because it will clearly apply mostly on congested
parts of the network, such as we are experiencing in metropolitan
areas. Initially we can live with it, because whatever costs are
associated with it will be passported through the Government to
the SRA and to the passenger transport authorities. Our concern
is that when we seek to enhance or develop the network in a largely
social railway, we will not be able to compete with the bigger
commercial of intercity trains. That is a very real problem.
394. One final question. Within this complex
regulatory framework and complex business structure that the railways
have these days, is safety sitting in the right place?
(Mr Mulligan) I think we have been down this track
before in the previous evidence. I think we have stated that we
thought safety should be dealt with by an independent body. I
think that, in our opinion, wherever it is, safety has to be the
number one priority both for Railtrack or anybody else looking
395. I want to ask you, Mr Scales, you did say
that some of the liaison with franchise operators and Railtrack
was poor. What ought they to do to improve their consultation?
(Mr Scales) They need to be a lot more transparent,
Chair. They need to take on board the views of the stakeholders.
The case in point in the evidence was Lime Street station where
they came and imposed a solution on Mersey Travel and the train
operating companies. They need to be a lot more open in what they
are doing, they need to have a clear direction and they need to
take people on board with them, because we do have some good ideas
396. You have, presumably, all of you, addressed
to them the kind of worries that you have about the competition
that you see between your own projects and those of, for example,
the intercity lines?
(Mr Mulligan) Yes. I think particularly in the Regulatory
Framework we have made very clear representations to the Regulator.
You can take the case of Manchester, which is a major problem
in terms of capacity, that if the rationing of spare capacity
is going to be done by price, then obviously the commuter services,
unless one applies social cost benefit analysis, are going to
lose out to those services which are more profitable. As yet,
we have made representations to the Regulator, various mechanisms
are being developed, and we want to see how those sums work out
in practice. One expects that if the normal principles of pricing-off
apply, then we will find that the enhancement of changes we wish
to make for the benefit of commuters in strictly financial terms
may not be as advantageous as giving those paths to intercity.
Whereas if you look at it from the other end of the looking glass,
if I can say that, then it is certain that cost benefit analysis,
the benefits to integration, all the things that the Transport
Bill and Act is about, may not be delivered as effectively.
397. Have you had direct talks with Railtrack
about that, because it is so fundamental with the way you operate?
You have obviously been talking to the Regulator, but do you have
direct talks with Railtrack on something like that?
(Mr Mulligan) We regularly talk to Railtrack about
the sorts of schemes that we think are going to be absolutely
necessary. If I can talk specificallyI think it is a United
Kingdom problem, certainly a North Western problemthere
was recently a meeting with Cumbria, Cheshire, Lancashire, Greater
Manchester and Merseyside, plus business representatives, where
they said the resolution of the capacity problems around Greater
Manchester around Manchester City centre was so important that
it was the number one public transport project for the whole region.
We have spoken to Railtrack about that and we are talking telephone
number type solutions. There is no doubt that Railtrack are willing
to take these forward in design terms. The thing that makes me
extremely anxious is with the West Coast Mainline due to be coming
into Manchester quite shortly, with the Trans-Pennine Express
being introduced ahead of the northern franchise that that sort
of investment needs to be timed to coincide with those franchises.
I have no comfort at the moment that timing will match, therefore,
we are going to have a period of yearsmembers will realise
that for a scheme, from design to completion, can take five to
ten years. What we shall end up with is trying to get a quart
into a pint pot, or more like a gallon. We are already at absolute
capacity at the moment and these issues have been discussed with
Railtrack. We have made it quite plain, both my own authority
and Merseyside, we do not want to see a short-term solution adopted
to what is a long-term problem. The appropriate time to do it
is shortly, now when we are bringing on the replacement franchises,
both Trans-Pennine, and in the next 12 to 18 months the northern
398. On this issue you told us that the discussions
between yourselves and the regulator are robust and there is a
certain measure of disagreement. What is the position as far as
the Strategic Rail Authority is concerned, have you come to some
agreement? Are you still snarling at each other?
(Mr Mulligan) I hope we have never snarled at each
other particularly. We have differences of opinion from time to
time. On that difference of opinion, largely we are responsible
in our metropolitan areas and, indeed, the Shire areas to produce
local transport plans which take an overall view of what is best
for our particular area, whether it be bus, whether it be rail,
or a metrolink in the case of Greater Manchester. If an authority
determines that a rail-based solution is the best solution for
that area and is prepared to finance, out of resources made available
by Government, a contribution to that we find that the proposal
that SRA may, which is by its very nature a monofunctional body,
evaluate the land use transportation plan as well as the transportation
plan against its own criteria, is going to be quite difficult.
This is why we have said in our evidence that we think that the
money for major railway schemes in metropolitan areas, in particular,
should be coming through Government. I have to say in my conversations
with the chief executive of the Strategic Rail Authority and the
directors of Railtrack they do not disagree with that opinion.
399. They do not disagree with it, but the present
legislation just going through the House is not going to establish
that position. There is nothing to stop them voluntary agreeing
that it should happen.
(Mr Mulligan) The means of funding is not an issue
for legislation, it is an issue which is determined by the DETR
in the way it deals with the SRA. We do find it deeply disappointing
that the legislation does not oblige Railtrack to take account
of local transport plans, because that is totally illogical if
the Government wants integrated transport and its chosen vehicle
is the local transport plan. In the interests of joined-up Government
there should be a reference in the remit of the Strategic Rail
Authority to take account of those local transport plans. Whilst
my discussions with the Strategic Rail Authority and those of
my colleagues are, on the whole, at the moment very constructive
I would like greater clarity about how the Strategic Rail Authority,
with limited capital funding, is going to prioritise schemes in
an environment where the Government is after fully integrated
public transport in some of the major metropolitan areas.