Select Committee on Environment, Transport and Regional Affairs Appendices to the Minutes of Evidence


Memorandum by The Railway Forum (IT 84)

A NEW DEAL FOR TRANSPORT (CM 3950)

A NEW DEAL FOR THE RAILWAYS (CM 4024)

  1. As the representative body for the railway industry as a whole, The Railway Forum welcomes the opportunity to comment on the Transport White Paper and on Cm 4024. This note is based on the conclusions of an Analysis of the White Paper (attached) which was prepared for the Forum's Annual Conference on 21 September, and draws out some key concerns which we wish to bring to the Committee's attention.

KEY REQUIREMENTS FOR RAIL INDUSTRY GROWTH

  2. Rail has a vital role to play in the future transport provision for this country. It offers major environmental benefits. To maximise those benefits it is essential that rail grows to its full potential, which means delivering the services that passengers and freight customers want. It also means that its environmental benefits should be fully reflected in Government policy. Thus the Forum's Analysis identifies five key requirements to secure rail's future growth:

    —  improved service standards;

    —  increased investment;

    —  equitable pricing between transport modes;

    —  equitable investment appraisal between modes;

    —  forward-looking regulation which encourages growth.

  The Analysis considers how far the Government's proposals meet those requirements.

  3. The Forum welcomes the strong focus which is given to rail, which is stated as being "at the heart of an integrated transport system" and the emphasis on a long-term strategic approach. Assessing future investment needs and funding will be one of the new Authority's biggest challenges. In the short run, we welcome the additional funding allowed by the Chancellor for both local and centrally funded schemes. This should make a useful contribution to the development of the network. And we are pleased to see the direction of the Government's thinking towards more equitable arrangements between modes in relation to such matters as investment appraisal, taxation and law enforcement. It is also stated that the Government will "make increasing use of economic instruments such as pricing and taxation to send clear signals about the wider social and environmental impacts of travel decisions". Potentially this is one of the most important statements in the White Paper. Our only regret is that it does not say enough about how such "clear signals" are to be sent and when.

  4. Taken together, the measures proposed in the White Paper have the potential to make a very real and positive impact on the growth of rail passenger and freight traffic. At this stage, however, many of them are limited to statements of intent. Moreover, some of the proposals—particularly in relation to regulation—could potentially have a negative impact on investment and growth, unless they are handled carefully and pragmatically.

FRANCHISE RENEWAL

  5. We are concerned that delay in taking some of the positive measures identified by the Government could seriously diminish their value. One major concern in relation to sustaining the volume of rail investment is uncertainty over the terms and conditions of franchise renewal, advice on which is to be "an early task" for the new Authority. We consider this to be inadequate. With the first franchises due to expire in 2003 and rolling stock lead times which can exceed two years, existing franchisees need to be told quickly and clearly what criteria they will have to meet in order to secure renewal. Negotiations should begin as soon as possible. Without a clear view of the options, both franchisees and rolling stock companies will have increasingly little incentive to order new trains. This risks a repeat of the disastrous investment hiatus of 1994-1996 which cost some 10,000 jobs; and passengers and the whole industry will suffer accordingly.

  6. We were encouraged by the remarks made by Dr John Reid at our Annual Conference on 21 September that the Government "wants to ensure that investment is a continuous process and that the train manufacturing centres will never again suffer the drought in orders created by privatisation". Dr Reid referred to the possible use of powers in the Railways Act to underpin investment beyond the terms of franchises. He also referred to possible action to alleviate the "extreme bunching" of franchises.

  7. Building on these remarks we believe it must be recognised that

    —  residual risk has to be priced and that continuing uncertainty over franchise renewal will, one way or another, add to industry costs. The longer the uncertainty, the higher the price and the greater the risk that, at some point, new trains will simply not be fundable;

    —  whereas use of powers in the Railways Act to underpin investment is potentially of great value, there powers have not so far been used, and do not in any event take account of wider costs to a franchisee of introducing new rolling stock—management resource, retraining costs, the need for new facilities—which could not be recovered if the franchise were not renewed;

    —  the need to avoid bunching of franchises is quite clear. Neither from an administrative nor an investment point of view does it make sense for so many to fall in at the same time. Nor do decisions on renewal or extension of individual franchises all need to be taken at the same time. But some at least do need to be taken quickly in order to maintain the necessary planning and investment momentum.

  8. It is essential that the Government and OPRAF should, as a matter of urgency, identify ways of reducing current uncertainties over the approach to be adopted in franchise extensions and in the next franchise round. The sooner that uncertainty is removed, the better the prospects of avoiding what the Minister described as the "sort of boom and bust which leads to unemployment, inefficient production and reduced value for money".

RECOGNISING RAIL'S ENVIRONMENTAL ADVANTAGES: FAIR CHARGING

  9. Rail has considerable environmental advantages in relation to fuel efficiency, reduction of emissions, land use, planning and quality of life, land take and noise and vibration.[4] It is essential that rail's wider social and environmental benefits be given full weight in appraisal of investment and other expenditure. It is said in the White Paper that these are matters on which the Commission for Integrated Transport will be asked to advise. We believe that the work needs to be advanced with considerable urgency, not waiting for the formation of the Commission. It should take full account of the regional and local development benefits of rail, as well as its key role in, e.g., helping to reduce greenhouse and other emissions.

  10. Appropriate public support should then be provided for those projects and schemes which are shown to be justified by their social benefits. We would expect the requirement to be substantial. However, as we point out in para 23 below, considerable scope exists for the support of investment which is seen to be in the public interest.

  11. We also have concerns in relation to pricing between modes. The basis of pricing for railways (at the point of use) and for roads (where there is no current charge at the point of use) remains highly detrimental to rail. It should be made consistent between modes as quickly as possible, taking account of external costs and benefits. The Government is proposing to take steps in this direction, but they fall far short of establishing a level playing field. Thus local authorities are to be empowered to levy certain charges on road users, but will not be required to do so. Likewise, the Department is to continue its investigation into motorway charging, but the White Paper (paragraphs 4.100-104) conveys no sense of urgency about this.

  12. Against this background we have been encouraged to read the European Commission's July 1998 White Paper "Fair Payment for Infrastructure Use", advocating the early introduction of common principles for infrastructure charging across all modes. We strongly hope that the Government will contribute actively to the development of the Commission's proposals, and take account of those common principles in developing its own policies.

LOCAL AUTHORITY CHARGES

  13. We think it important that the Government should vigorously encourage local authorities to adopt road charging, using all the instruments it will have available. These will include the new national planning policy guidance, the Government's participation in and approval of Regional Planning Guidance and regional transport strategies, its role in relation to local transport plans and individual schemes, and ensuring that authorities properly carry out their responsibilities to deliver the National Air Quality Strategy.

  14. We applaud the Government's decision that local authorities should be able to recycle the proceeds from road charging into public transport provision and projects. If local authorities make good use of this power—with whatever encouragement Government may offer—it has the potential to have a substantial impact on the quality of public transport provision and the quality of life in many of our towns and cities.[5] It is however important that the legislation should be cast in terms sufficient to allow authorities to undertake this role effectively. They should be able to capitalise the value of revenue streams and, as envisaged in paragraph 4.90 of the White Paper, should be able to enter into appropriate partnership arrangements with private sector firms to encourage integrated transport provision. We agree with the White Paper (paragraph 4.111) that charges must not become a general revenue-raising device. Indeed, it is essential that the proceeds of each road charging scheme should be additional to the resources which the local authority concerned would otherwise have had available, since otherwise the beneficiary would be the Treasury rather than public transport.

LIGHT RAIL

  15. The White Paper (paragraph 3.38) states that new major light rail schemes should "not be a priority" for funding. We disagree with this emphasis. The Manchester Metrolink and other schemes have shown the considerable benefits which they can bring. Light rail schemes should be weighed fully and fairly in the balance against other forms of transport provision, giving full weight to wider social and environmental benefits.

REGULATION

  16. We welcome the recognition by the Deputy Prime Minister in his Statement to the House of the importance for the industry of a stable framework to deliver long-term investment and better services for passengers. That is critically important. Investment in a higher-quality railway encourages passenger and freight growth.

  17. The industry is already heavily regulated, and the volume of future investment is likely to be influenced adversely if expectations develop that regulation may become yet more intensive or detailed, or more time-consuming, or less predictable. If the Rail Regulator is to become subject to statutory guidance from the Secretary of State on his broad policy objectives (Cm 4024, paragraph 64), it is important that the terms of that guidance should be constrained by Parliament in ways that allow it to be understood and forecast in a predictable way. For example, it ought not to be possible for the Secretary of State to issue guidance which, if implemented, would have the effect of prejudicing an investment that had already been committed. Guidance should be strategic: the Secretary of State should not become involved in detailed operation of the railway. The same applies to the Secretary of State's guidance to the Strategic Rail Authority.

  18. Clarity is also needed on the development of competition policy. The Rail Regulator is to continue to exercise his competition powers concurrently with the Director General or Fair Trading. However, we also learn that the new Authority is to "set the longer term policy framework" (paragraph 2.38), which the Regulator is to be required to take into account. Policy on rail competition needs to be determined clearly and as quickly as possible, and then not shaken around again. It critically affects the service and investment plans of existing operators and the commercial judgment of prospective new entrants. Uncertainty and delay is bound to blight individual companies' strategic planning.

THE STRATEGIC RAIL AUTHORITY

  19. We support the broad strategic remit of the Authority as set out in the White Paper and in paragraph 23 of Cm 4024, including the requirement to ensure that freight operators' plans are taken into account in the planning of the network as a whole. We see it as being a proponent of new investment schemes in line with the general thrust of Government policy.

  20. It will be essential for the Authority to concentrate on the strategic issues that set the framework for the industry. Given its huge workload, it should from the outset adopt a structure which distinguishes between strategy and day-to-day franchise management. Otherwise the former will be submerged—or at the very least blurred and blunted—by the pressures of the latter.

  21. As we see it, the Authority's key tasks at the strategic level should be:

    —  target setting (which is a key part of strategic vision);

    —  assessment of the national strategic priorities for rail, and requirements of public funding in support of these;

    —  strategic advice to the various public sector bodies involved in rail transport planning, and resolution of disputes between them on rail priorities.

  22. If the Authority is to carry weight with the various regional bodies, it will need to demonstrate that it has a full grasp of the value of rail to national and regional economic development, and how this can be delivered. In carrying out its business the Authority must also be well informed of the practical consequences of its activities and imbued with the pragmatic approach adopted by the Government. To that end, we think it essential for a number of the members of its Board to have business experience, including some with first hand commercial experience of the railway business. Unless the business dimension is properly represented, the Board will inevitably be unbalanced, and risk reaching unbalanced decisions. The same applies to the Commission for Integrated Transport.

  23. We set out this and other recommendations in the Analysis, which also addresses the quantum of public support which will in future be:

    (a)  required; and

    (b)  available for the railways.

  The Paper points out that by 2003-04, public support will have fallen from £1.7 billion in 1997-98 to some £650 million—a reduction of over £1 billion on an annual basis. By 2003-04 franchise payments received by Government from the industry will total some £140 million (1998 prices). Considerable scope therefore exists for support of investment which is seen to be in the public interest.

CONCLUSION

  24. To summarise, our main concerns are as follows:

    —  the time it will take to establish the Strategic Rail Authority and in particular the risk of loss of investment momentum through delay in the formulation of policy on franchise renewal, with potentially grave effects on the supply industry;

    —  delays in the formulation of policy on rail competition leading to a blight in individual companies' strategic planning;

    —  the risk that the day-to-day pressures of regulatory activity will blur the strategic focus unless that is built into the Authority's organisational structure from the outset;

    —  the need for the Authority's "pragmatism with a strategic view" (paragraph 4.20) to be reinforced by business experience, including experience of railway operation. This applies equally to the Commission for Integrated Transport;

    —  the need for mechanisms to promote the resolution of disputes on rail priorities between regional and local transport planning bodies, and the role of the SRA in dispute resolution;

    —  the need to avoid bureaucratic delay on proposals to improve rail services;

    —  the risk that the various measures to encourage a fairer basis of pricing and appraisal between road and rail will be insufficient, or delayed, or not adequately implemented by regional and local authorities, or other public bodies who may be involved;

    —  that resources should be made available to fund rail projects where justified by their wider environmental, social and regeneration effects.

  25. We strongly hope that our apprehension over the possibility of damaging delays will be mitigated by early legislation and evidence that the Government do not intend issues such as franchise renewal or extension to remain on the backburner until the new Authority has been fully established.

  26. The Railway Forum intends to participate fully in the consultative process surrounding the detailed developments of the Government's proposals, reflecting the approach summarised above.

  27. The Forum would be glad to expand on any of these points in oral evidence to the Committee if required.

September 1998


4   See Railway Forum Brief on "Rail and the Environment" (May 1998). Back

5   Some of the possibilities have been illustrated in a report by the Greater London Group at the LSE entitled "A Fourth Way for the London Underground?" (June 1998). Back


 
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