Further memorandum by the London Transport
Users Committee (PRF 34A)
PASSENGER RAIL FRANCHISING
This supplementary memorandum offers brief comments
on the topic raised by the Sub-Committee arising from Railtrack
being placed into administration.
PLC BEING PLACED
(a) By switching the focus of franchising
to the short term the Government's policy effectively buys time
for the structure of the industry to be reviewed. If Railtrack
had continued to exist in its previous form, its various legal,
financial and other relationships with the many other players
in the industry could have acted as a constraint on the extent
to which any desired restructuring could be achieved in practice.
The new position may therefore prove beneficial in that there
will be fewer fixed points around which a new structure needs
to be drawn.
(b) If this new found flexibility is to be
realised, however, it is important that the position is not compromised
by the administrators seeking to settle Railtrack's affairs solely
in the interests of creditors and shareholders. As a passengers'
organisation we have no knowledge of the legal duties placed on
the administrators in this regard, but would suggest that this
is a matter which should be urgently looked into.
(c) Perhaps with the benefit of hindsight
one can see a fundamental problem faced by Railtrack. To raise
capital for investment it needed to make profits on a par with
other major companies. However, apart from property income, its
revenues were fixed by the Regulator. This meant that profitability,
at least in the short term, was largely a function of cost cutting.
(d) This regime led to the company establishing
an organisation and culture which sought to minimise expenditure.
The Hatfield accident showed that the fine judgement needed in
such circumstances to keep on the right side of safety was lacking.
The response, with the same culture having caused an exodus of
experienced railway engineers, was to panic and (together with
throwing the operation of the railway into chaos) lose control
of costs for fear of another serious accident.
(e) It was of course the case that British
Rail was always under strong pressure to minimise costs. However,
the overall regime was such that if safety required that money
be spent, then the work was done and the costs recouped by cuts
elsewhere in the business. We cannot recall any significant accident
on BR being caused by an error of judgement about safety versus
expenditure on maintenance.
(f) We therefore consider that in establishing
a successor (or successors?) it is essential that the financial
structure, while plainly being one which encourages proper control
of costs, should not be one which induces the same extreme organisational
and cultural pressures as arose in Railtrack.
(g) This is a major issue, possibly the core
of the railway problem. In our original memorandum to the Sub-Committee
we indicated support for the view that the SRA needs to be transformed.
The same can be said for the industry as a whole and we would
suggest that the new situationcoupled with the recent publication
of Lord Cullen's recommendationscreates a golden opportunity
for all the structures to be reviewed. LTUC, as part of the RPC
network, would wish to be party to such a debate and it is important
that rushed decisions should be avoided.
(h) We would particularly commend that the
proposal by Mr Kiley for direct Transport for London participation
in the operation, maintenance and development of the national
rail network in the London area should be given the most careful
consideration. It may be that a single new body embracing responsibilities
hitherto undertaken by both Railtrack and the SRA would be appropriate.
One of the many issues to address would be the question of boundaries,
as the TfL area does not correspond with railway operating geography
and nor does it match the overall London travel to work area.
Suffice to say here that the wider the boundaries of such an organisation,
the greater the need for stakeholder representation which reflects
the non-London interests of the counties, cities and towns within
(i) If there is to be a review of all the
structures then it is perhaps jumping the gun to say that the
railway infrastructure must be owned by a limited company.
(j) Whatever the structure and whatever the
financial arrangements, both the manner of the ending of Railtrack
and the manner in which weak TOC franchises (Prism and MTL) were
eased out of the industry clearly support the truth of what Mr
Kiley has said about London Undergroundthe railway must
run, at the end of the day responsibility for this rests with
Government so there can be no true transfer of risk. Although
shareholders may lose all or part of their investments, all debt
and on-going expenditure has to be picked up by the public sector.
(k) If, as is widely suggested, future maintenance
and development of the railway infrastructure will have to be
funded by bonds or some other Government backed securities, then
the vital thing is to avoid the Treasury straitjacket which limited
BR's ability to develop the network. This means finding a formula
which keeps railway funding outside the scope of the Public Sector