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

Examination of Witnesses (Questions 375 - 399)




  375. Good afternoon, gentlemen, I apologise for keeping you waiting. Would you be kind enough to identify yourselves?

  (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 that—let 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.

Mr Stevenson

  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 priority.

  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 is—if I take my own case in the northwest, we will have a major congestion problem in and around Greater Manchester—whether 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 provide?
  (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 him?
  (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 answer?
  (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.

Dr Ladyman

  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 for separately.

  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 think—the query we have made—is 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 after it.


  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 sometimes.

  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 specifically—I think it is a United Kingdom problem, certainly a North Western problem—there 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 years—members 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 franchise.

  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.

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