Memorandum by the Passenger Transport
Executive Group (PRF 15)
PASSENGER RAIL FRANCHISING
1. The Passenger Transport Executive Group
(PTEG) represents the 6 English PTEs and Strathclyde in Scotland.
The Passenger Transport Authorities (PTAs) cover areas with a
population of 13 million people. All PTEs are co-signatories to
the appropriate local franchises in their area and, therefore,
feel well placed to comment on the impact that the Secretary of
State's Draft Directions and Guidance and Policy Statement will
have on delivering an improved, and fit for purpose, modern railway.
2. PTA/Es are committed to delivering high
quality integrated transport networks for the conurbations they
represent. Through investment in rolling stock, new stations and
other improvements to the network, use of the local railways in
conurbations has grown significantly. Furthermore, each PTA/E
has in place Local Transport Plans and Rail Strategies for further
developing their networks. These strategies recognise that if
rail is to continue to play its part in an integrated transport
network which underwrites the economic, environmental and social
objectives for the conurbation, long-term strategic planning is
required. Most such strategies take a 15-20 year view. Such a
timescale is essential and is based on PTE experience of developing
light and heavy rail networks.
3. Since the publication of the SRA's Strategic
Rail Agenda in March of this year, the PTA/Es have been working
closely with the SRA to put in place a more robust franchise agreement
which could deliver the aims of both the PTEs and the SRA through
new longer-term franchises. PTEG believes that the investment
that is needed in rolling stock and infrastructure can only come
through the commitment to longer-term franchises. It is, therefore,
concerned that at the heart of the revised Draft Directions and
Guidance and Draft Policy Statement there is a tension between
the greater emphasis being placed on franchise re-negotiations
and short-term extension and the delivery of long-term improvement
in performance and the need for substantive investment. Whilst
it may be appropriate for some longer, more viable, franchises
PTEG does not believe that short-term extensions will be effective
in the case of those franchises to which it is co-signatory.
4. Central to the Guidance is the funding
envisaged in the 10 Year Plan. In section 8.1 of the Guidance,
DTLR restates the investment envisaged in rail in the 10 Year
Plan, namely £49 billion in the period up to 2010, of which
£34 billion is expected to be private investment. PTEG believe
that this is no longer a realistic planning assumption. The ORR's
decision on the Second Control Period and changes in Railtrack's
role mean that there is substantially less funding in total and
less available from the private sector. Without clarity of future
investment levels, there can be no major enhancement of the network
and, therefore, service development. There are also significant
shortages of skills and staffing and a lack of agencies to deliver
investment. PTEG believes these to be significant factors in the
renewed emphasis on short-term franchise extensions. This may
be an acceptable tactic to cover the period until these issues
are addressed. However, if this is the case, it should be accompanied
by a clear directive to the SRA to prepare realistic financial
estimates quickly, rather than reproducing the £49 billion
figure in the Draft Instructions. As they stand, the draft Directions
and Guidance and Franchising Policy Statement will not bring about
the improvement that PTEG believe is necessary in the rail network,
nor will it achieve many of the objectives set out in section
2 of the Guidance and in its Annex A.
5. PTEs have direct and indirect experience
of the effect of seeking to secure improved services through franchise
Northern Spirit/Mersey Electrics
In 2000, it was necessary to re-negotiate these
franchises, which affect all of the English PTEs except Centro
(West Midlands PTE). Initially, Arriva Trains took over the existing
Northern Spirit franchise in February 2000 and in February 2001
agreed a two year extension to the franchise for substantial additional
funding. The SRA's justification for the additional funding into
the Northern Spirit franchise (and also the Mersey Electrics franchise)
was that there would be real improvements in service. It was in
recognition that the original franchises were seriously under-funded.
Unfortunately, in the last 12 months there have been no improvements
in service delivery within those PTA areas served by the Arriva
Trains Northern franchise indeed it has deteriorated. Problems
with performance, particularly through the management of driver
recruitment and training, have continued. There has been no investment
in new rolling stock.
Midland Main Line
This was an early example of franchise extension.
Negotiations in 2000 secured an extension of the existing Midland
Main Line franchise from 2006 to 2008 with more and faster services
direct from Sheffield to London, station improvements, additional
rolling stock and improved services between Leeds and Sheffield.
All of these were key objectives of South Yorkshire. Whilst there
remain issues to be resolved with Railtrack, this was perhaps
one of the first examples of what was seen as a successful short-term
extension. PTEG believes this is due to it being the re-negotiation
of a franchise which still had six years to run.
Whilst none of the PTEs are co-signatories to
the GNER franchise, it has a significant impact on the local services
provided in Tyne and Wear, West Yorkshire and South Yorkshire.
It also plays a major part in the development of the economy of
those three areas. The extension of the franchise by two years
has been greeted with dismay in all three areas. It has also had
the practical effect of slowing down other investment that was
planned. For example, the Doncaster Interchange scheme is now
being reduced in scope because of the difficulties in reaching
agreement with the parties involved in the project and uncertainties
over what is precisely the future of the East Coast Main Line.
Substantial growth has been experienced in this franchise since
privatisation and PTEs believe it is imperative that additional
rolling stock is procured as soon as possible. A two year extension
is not conducive to this process.
This provides services between London Marylebone
Station and Birmingham. Although Centro is not a co-signatory
to the Chiltern Railways franchise, the Strategic Rail Authority
(SRA) fully involved Centro in the refranchising process. Centro
involved the leadership of the West Midlands Passenger Transport
Authority (WMPTA) in many of the discussions. A number of passenger
benefits were achieved through the agreement to a long-term franchise.
M40 Trains, the existing operator, was declared as the preferred
bidder in August 2000. Centro and WMPTA were successful in encouraging
M40 Trains to extend its services beyond Birmingham to Stourbridge
and Kidderminster as part of a new franchise. This provides very
welcome direct rail links between these towns and London. Although
the SRA and M40 Trains signed Heads of Terms of an Agreement for
the new franchise in August 2000, a new franchise agreement remains
to be signed. However, agreement has been reached with M40 Trains
to bring forward some of the passenger benefits, including extended
services to Stourbridge and Kidderminster, through changes to
the existing franchise agreement. Centro consider that this is
a good example of innovative improvements in service that can
be achieved through close working between a PTE, the SRA and operators
competing to win longer term franchises.
The SRA announced in March 2000 that it was
including the refranchising of Central Trains in the second tranche
of its franchise replacement process. This announcement was wholeheartedly
supported by Centro and WMPTA. Central Trains provides most of
the local train services in the West Midlands. The existing franchise
was losing money and performing poorly. Centro regarded a new
franchise as a means of addressing these problems, and an opportunity
to obtain private sector funding contributions to assist capital
investment to unblock congestion in the West Midlands rail network.
The process began well with close working over a six month period
between Centro and the SRA. National Express Group, the existing
train operator, and a consortium led by Group 4 were pre-qualified
and presented outline proposals for a new Central Trains franchise
in July 2000. M40 Trains also provided, by invitation, proposals
for running those Central Trains services running through Snow
Hill Station in Birmingham.
In February 2001, the SRA announced that it
was halting the Central Trains franchise replacement process.
The SRA originally cited the reason as being that neither the
proposals from Group 4 nor National Express Group delivered the
benefits passengers are looking for. In March 2001, Sir Alastair
Morton also criticised the approach of Centro to the franchise
replacement process, including their wish to retain existing train
services and standards, as being contributory reasons for halting
the franchise replacement process. Centro, WMPTA, the competing
train companies and business community leaders in the West Midlands
all expressed their concerns at the SRA's decision to halt the
franchise replacement process. Centro and WMPTA believed there
was a basis for taking the process through to the final bid stage.
Much time, effort and money had been invested by Centro and train
companies in progressing the franchise replacement process. This
is a poor example of joint working to achieve local and national
improvements to rail services. Centro believed at the time that
the SRA halted the replacement process, that financial pressures
and changing priorities affecting the SRA were other unstated
reasons leading the SRA to halting its own process half way through.
6. PTEG has looked carefully at the revised
Draft Directions and Guidance and in general welcomes the principles
behind them and the separate Draft Franchising Policy statement.
The detailed objectives and targets and their linking for the
SRA to those of the 10 Year Plan are broadly supported. However,
there is a fundamental concern that the Directions and Guidance
will inevitably force the SRA to focus on Inter-City and South
East commuter routes to achieve its objectives. Given the need
for revenue support inherent in the structure of the regional
franchises, coupled with generally short passenger journeys, it
is highly likely that the SRA will identify that the best "Value
for Money" can always be achieved by investing in routes
that give the best commercial return and are more likely to attract
partnership funding. The Directions and Guidance, therefore, needs
to be more explicit in the way it expects the SRA to address regional
networks, recognising particularly the importance local commuter
routes have in the overall transport matrix in the Metropolitan
areas and the social and environmental benefits that accrue. The
purpose of public sector funding of our railways needs to be restated.
In our major conurbations, PTEs are quite clear that local rail
services are essential to ensuring our major city centres do not
choke their economic and financial viability through gridlock
traffic conditions (eg a sixth of people coming into Birmingham
at peak times are carried by rail services). We have demonstrated
over many years how more and more people can be attracted onto
rail from cars. The subsidy levels being paid to sustain local
rail services are a small price to pay to avoid the economic and
social costs of our city centres failing. In addition to PTE areas,
the Social Railway in the Shire Counties must also be supported
fully by the SRA.
7. PTEG also have a number of other concerns.
These centre around:
the conflict between the aim to improve
services and secure investment and short-time franchise extension,
particularly in the conurbations;
ensuring that PTEs who are co-signatories
to the franchises are fully involved in franchise development
the lack of comfort with regard to
Ministerial commitments given in relation to the role of PTEs
and the status of the Local Transport Plan.
These points can be expanded in looking at the
extent to which the Draft Directions and Guidance and Policy Statement
will deal with the five key points that the Committee is examining.
8. Improvements in punctuality, reliability
and comfort require investment in track and signalling, rolling
stock and a co-ordinated approach to driver training. Improvements
in frequency and service require additional rolling stock, drivers
and investment in capacity. They all require significant investment.
Rapid improvements require a climate of confidence in which the
partners (Train Operating Companies, PTEs, ROSCOs, Railtrack and
the SRA) can commit and in which they can see a return. There
was evidence of this in the approach by bidders to the GNER, Central
and Trans-Pennine franchise replacements. That process offered
the prospect of both rapid and sustained improvement. The constraints
on the speed of improvement were the ability of the SRA to make
clear its offer and Railtrack to prepare sufficiently robust costings.
By comparison, franchise extension will always be more costly
and offer less value for money because of the strength of the
negotiating position held by the incumbent operator (eg recent
negotiations with Arriva and First Group).
9. The extension of the Arriva Trains Northern
franchise was an attempt by the SRA to achieve rapid improvement
in service delivery and resolve performance problems. There was
sufficient funding within the franchise extension to deliver extra
drivers and provide additional rolling stock. Difficulties in
obtaining the rolling stock have thwarted Arriva's attempts to
achieve this to date. The issue of driver shortage is more complex.
This arises out of the need for the industry to take a more coherent
and collective view of its requirements as well as individual
train operators to produce more robust manpower plans and management
systems. There should be a directive from the Secretary of State
to ensure a robust training programme aimed at meeting the aims
of the industry. This could take the form of an Industrial Training
Board similar to that in place for the Construction and Engineering
Industry. It would require TOCS to co-operate re resource planning.
It would demand a contribution to a pool funding driver training.
It would bring about co-operation, re-investing in new technology
and training programmes and methodology which would aid both adherence
to standards and more efficient training.
10. Improvements in the reliability and
comfort of rolling stock require there to be a substantial refurbishment
and replacement of rolling stock. Ageing diesel fleets are a particular
problem in the Northern franchises. The requirement for the SRA
to prepare a rolling stock strategy within the Directions and
Guidance will assist this process but will be undermined by short-term
franchise extensions. In the Midland Main Line franchise there
was still a substantial amount of time to run on the existing
franchise. In the case of those franchises due to expire in 2003-2004,
it is insufficient lead in time to see that investment takes place
and earns a return. Even in longer-term franchises such as Trans-Pennine
it would have been four to five years into the franchise before
new rolling stock came on stream.
10 YEAR PLAN
11. This has already been referred to above
and PTEG's view is unequivocal. The sums likely to be available
for investment in the rail network in the next 10 years are no
longer realistic. PTEG does not have access to all of the information
to accurately establish the amount needed for both capital investment
in infrastructure and rolling stock and for the continued support
of rail franchises that deliver the objectives being set of the
SRA. However, the delays to Trans-Pennine and the short-term extension
to GNER would seem to confirm there is a problem. This must be
a priority for the SRA's first November statement.
PTEG gave evidence to this Committee on 15 November
2000 and subsequently, in response to a request from the Chairman,
submitted written evidence comparing rail investment in the UK
with investment by 10 European countries. The evidence suggested
that the planned level of investment in the Government's 10 Year
Plan would match that of the EU average. However, the profile
failed to keep pace with economic growth projection and fell behind
again towards the end of the plan period.
Private sector and City interest in franchise
replacement is now likely to be low. Hatfield, the costs sunk
in abortive franchise bids and the prospect of short-term franchises
or extensions (which allow no new entrants) will compound the
Given the uncertainty regarding the private
sector investment shown in the plan PTEG believe it to be essential
for the Secretary of State to clarify how this investment will
be delivered. This level of investment is crucial if the Government's
transport objectives are to be achieved which in turn are crucial
to the UK's competitive position.
12. It is PTEG's view that realistic planning
for the improvements of track and signalling, and the extent needed
to improve performance, cannot take place in the short-term. It
requires 10 year or longer investment plans. Similarly, to improve
the frequency of services in many of the conurbations, such as
in Birmingham and Manchester, substantial investment is needed
in additional capacity. The SRA have taken forward capacity studies
in these key conurbations and earlier this year were optimistically
talking about how franchise replacements, such as Trans-Pennine,
Northern and Central would be a major part in determining the
way forward. There is a related concern that the importance of
local commuter rail services to reducing traffic congestion and
the resultant economic burden not being given sufficient weight
by the SRA and the Rail Regulator. For example, in the West Midlands
longer distance trains on the Wolverhampton Birmingham Coventry
line are being given preference over local train services. The
real solution is to invest in major improvements to the line and
stop trying to squeeze more and more trains onto a two-track railway.
This is accepted in the findings of a study into West Midlands
Rail Capacity needs. These findings are supported by the SRA,
Centro, WMPTA and the rail industry. However, the SRA admits that
it does not have the funding to do any further development work
on these major investment proposals. This is despite the acknowledgement
at the Government's Rail summit that New Street Station in Birmingham
is the top priority bottleneck in the UK rail network. It is not
at all clear now how those ambitious but essential investment
plans will now be carried forward.
13. The SRA's Strategic Agenda signalled
the ways in which single purpose vehicles may be developed for
major investment. It is important that their creation does no
contribute to the current hiatus in investment or preclude in
regional, lesser attractive commercial areas. Again, it is difficult
to be optimistic that the framework needed for major enhancement
of the network is now in place.
14. PTEG, as Members of this Committee will
be aware, supported the establishment of the SRA and looked forward
to it providing leadership in developing Britain's railways. Leadership
should not be at the expense of key stakeholders involvement.
PTEG was concerned that in moving forward the SRA worked closely
with stake-holders such as the PTA/PTEs and drew on their experience
in developing the rail network. The publication of the Strategic
Rail Agenda was a helpful step in setting out how the SRA saw
15. The Agenda also made unnecessarily negative
remarks about the role of the PTA/PTEs in establishing franchises.
However, since the publication of the Agenda PTEG has had productive
discussions with the SRA about how franchise management and development
should be taken forward. PTEG is concerned that the Policy Statement
and Draft Instructions and Guidance do not give clarity to the
role of the SRA. It also increases the involvement of the DTLR
in most of its decisions. It also seems to understate the role
of PTEs. The way in which the SRA awards new and extended franchises
must be transparent. The offer for which they are bidding must
also be clear to intending franchise applicants. PTEG has specific
concerns about weaknesses in the present Directions and Guidance
which, if amended, could strengthen the way in which new and extended
franchises are awarded. These have been separately submitted to
16. In recent months the change of emphasis
in the franchise programme, the financial decline of Railtrack
and the issues of funding have created a vacuum at the heart of
Britain's railway in which, however hard the SRA might try to
provide leadership, it is impossible. Structurally it may be capable
of doing so. However, it needs Government to give it the financial
clarity to provide the leadership necessary.
17. The uncertainty created by two year
franchise extensions is not conducive to operators drawing up
an adequate manpower plan beyond the expiry date. This can lead
to potential industrial relations problems with operators relying
on overtime and rest day working to keep services operating. As
well as not being conducive to investment in rolling stock and
infrastructure, two year franchises are also not conducive to
investment in manpower. Lack of investment also leads to low morale.
18. Whatever the circumstances and history
that have led to the present position there is consensus that
the national rail network must be transformed over the next 20
to 25 years if the UK economy is to continue to develop its wider
social and environmental objectives. Investment is critical to
improving the performance of local rail services. Local railways
will continue to require funding from the public sector reflecting
the wider social and economic benefits such investment provides.
There has to be agreement on how much the Government is prepared
to pay towards this investment. Other sources can then be sought
for additional funding. Optimum investment will be achieved through
the confidence of a shared long-term vision and a stable climate.
That may need a short-term focus on improving services to the
customer whilst these issues are quickly resolved. The revised
Draft Instructions and Guidance and Policy Statement are a step
in the right direction. With the amendments, PTEG is suggesting
and a clear funding strategy in place both the SRA and PTEs can
effectively meet their statutory duties by the delivery of improved
rail services for all.