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

Examination of Witness (Questions 815 - 839)




  815. May I ask you to identify yourself, please?
  (Mr Winsor) I am Tom Winsor. I am the Rail Regulator.

  816. Do you have any opening remarks you wish to make?

  (Mr Winsor) Very briefly, if I may. Having followed the Committee's questions in previous hearings in relation to this subject, I believe it may be useful if I clarify a number of points on the periodic review of access charges, which I completed on 23 October of this year. The amount of money which has been allowed to Railtrack in the review needs to equal and does equal the amount of money they need to maintain and renew the national network. That amounts to approximately £15 billion over five years beginning 1 April 2001. I have established this figure through a colossal amount of work over the last year with my staff and with my consultants, with the industry and with others. The £15 billion will be paid to Railtrack by the train operators and by the Government. Broadly speaking half of that money will come from the fare box and half of it will come from the Government. The Government support is paid either through access charges—this is subsidy payments to the train operators who then pay it in access charges to Railtrack—or through direct grant from the Strategic Rail Authority and the direct grant is £4.7 billion. As far as Railtrack is concerned, there is no difference between the two forms of income: they are both revenue. The periodic review is now in place. It has been finalised. Through its robustness I believe it does provide a new financial framework, a framework for enhancement, and most importantly it provides greater accountability for the amount of money—passengers' money, freight users' money and Government money—than ever before. It also improves the alignment of Railtrack's incentives with the incentives which face the rest of the industry. In relation to the West Coast Main Line project, I reviewed this in great detail. As you know, Railtrack told me in December 1999 that its expected cost had risen to approximately £5.8 billion. That raised considerable alarm bells and I worked closely with Railtrack, with the SRA and my consultants to understand what was going on. There are three different elements to the project: firstly, maintenance and renewal which is just the same as Railtrack must do elsewhere on the network. That is funded as part of the £15 billion I described earlier. Secondly, there is the contract between Railtrack and Virgin for enhancing the railway to the standards which Virgin wants to enable the much faster trains. Virgin have a fixed price contract for that work and it is worth approximately £550 million. If that work for the Virgin enhancement costs more than that, then Railtrack takes the risk. There is also additional enhancement of the West Coast Main Line which the SRA wants. This is an addition of 42 paths a days on the slow lines. The cost of these is £500 million and the SRA has agreed to a grant payment conditional on the delivery of both the 42 paths and the Virgin upgrade, because the 42 paths cannot be delivered unless the Virgin upgrade is done. Clearly this was a very unsatisfactory state of affairs. We had to review the outputs and also the costs after a lot of work had already been done. We will not have to do this kind of work in future since we are putting in place as part of the review an enhancement framework which is going to save a great deal of time and effort. As part of that enhancement framework the ways in which this expenditure and the work will be done will be understood and established up front, and that is vital for efficient investment. It is important that investors know what is going to happen. Finally, there has been some discussion in the Committee on the Government's 10-year plan for £60 billion of expenditure on the railway announced in July. This periodic review covers the first five years of the ten-year plan and in relation to those five years £15 billion will go to maintain and renew the network, as I have already said, half from Government and half from the fare box very broadly. In addition to maintenance and renewal, our current assumptions are that Railtrack will finance £8 billion of enhancement expenditure. The precise figures will depend on the customer requirements and that is closely connected to the Strategic Rail Authority's franchise replacement programme. The bidders in that programme will seek from Railtrack, and may sometimes seek to do themselves, particular enhancements to improve their services to passengers. So the amount of £8 billion is an approximation; it is not a guarantee. The Government's rail modernisation fund is expected to provide a further £3 billion for enhancements in those five years. There is £7 billion in the fund but £3 billion in the first five years. Finally, I think that there has been a lot of uncertainty, at least in the minds of commentators, as to the accountability of Railtrack to the public interest. I expect I shall be asked some questions about how that accountability is working and how we intend to improve it. I very much welcome the passage of the Transport Act 2000. That intensifies and underscores the fact that Railtrack in fact do not have three or more regulators. They have one regulator for safety, just like ordinary commercial operations, factories, power plants, whatever, and everybody in commercial life faces safety regulation if anything they do may threaten health and safety. As far as the regulation of economic and commercial behaviour is concerned, that is in the hands of the Rail Regulator. The Strategic Rail Authority has a different role. The Strategic Rail Authority do not have regulatory powers in relation to Railtrack, but they do have a very large chequebook. It is up to the Strategic Rail Authority how and when they use that chequebook. They may give grants, they may make loans and they may enter into contracts—some very complex and very large contracts—to procure from Railtrack directly particular outputs which they want to buy. That is something which the Strategic Rail Authority can do and they are not the only people who can do those things. As the regulator of Railtrack, I must make sure that Railtrack delivers. To do this I have made it clear what I expect of the company and how the company will be paid, what I expect to do to monitor delivery and what I will do if Railtrack falls short of expectations. In conclusion, may I say that I have spoken in the main about the periodic review, which I believe is the principal reason for my second appearance. However, I have not mentioned the accident at Hatfield and Railtrack's reaction to the accident at Hatfield, a matter which is in fact uppermost in our minds, as I realise that you may wish to cover these matters in the detailed questions.

  817. That is helpful. You have brought a welcome clarity to some of the points we are going to go into in considerable detail. What you have done is give us the parameters. You will not be surprised if we ask you a lot of questions which relate to the matters you have raised. We are meeting at a time when the general public are not only bewildered but quite horrified at the chaos in the rail industry. Those who are forced to continue to use it are facing continuous problems, some of which have been further exacerbated during the last week by the failure of some of the companies to come up with timetables. It is not a question simply of the Committee being concerned about what is going to happen in the future, but we must relate what companies have done in the past. You have flattered us by sitting in on some of our previous sessions in order to listen to the questioning which has gone on and I think that has been not only an interesting step but a welcome one. Not of course that all our witnesses should sit in on all of our sessions all of the time or we should lose a certain element of surprise. I do think it would really be very important for this Committee to know not only what your intentions are in relation to various subjects you have raised but how you think Railtrack, for example, has performed in the past. Let me ask you one question. Do you think it would have been a good idea, indeed might have been in the public interest, for the Government to take an equity stake in Railtrack in return for the money which has already gone into the railways and the money which will go in under the ten-year plan?
  (Mr Winsor) I doubt it, because I do not think it would have done the Government any good, apart perhaps from a right to dividend payments, but it would depend on the class of capital the Government received for the money.

  818. Is that because you think there are other ways of making them truly accountable?
  (Mr Winsor) Yes, and they are better ways than being a minority shareholder. It seems to me that the pressure for either renationalisation of Railtrack or an equity stake—and it appears to me immaterial whether it is Railtrack or a water company, electricity company, gas company or whatever—the motive for going for shareholding is not to have pride of ownership in shares of course, it is to secure control or influence over the policy and decisions of the company and the way it carries them out. I believe that through proactive, firm and effective regulation the public interest can be served much better than purely through the influence of the minority shareholder.

  819. Yes, but that of course depends on how tight those restrictions are, how well they are administered and what returns the taxpayer gets, does it not?
  (Mr Winsor) It does.

  820. Would you not feel that so far those restraints have not worked terribly well?
  (Mr Winsor) There have been considerable difficulties in securing appropriate information from Railtrack about the condition of their network and in relation to other matters. That is why, since I was appointed as Regulator in July 1999, I have taken my organisation from first gear to fifth gear in order to improve Railtrack's accountability so that we could, using the power of the existing regulatory regime, happily enhanced now by the Transport Act 2000, improve Railtrack's accountability to the public interest. I have to say that I wish these steps had been taken earlier.

  821. You have that in common with all of us.
  (Mr Winsor) I wish, at the time of privatisation, Railtrack had been given a measure of accountability to the public interest which was appropriate for a private sector Railtrack, but it was not so.

  822. I wonder why it did not occur to the people who were privatising it at the time.
  (Mr Winsor) It did; it did. As you may know, I was chief legal adviser to the first Rail Regulator.

  823. Yes, I did know that. I am quite well informed.
  (Mr Winsor) In February 1994 there were some very heated meetings between the then representatives of the Office of the Rail Regulator and the Department of Transport. We were pressing on the Department to include in Railtrack's network licence at the time it was granted—and of course it would have been much simpler to do it then than the way I am having to follow now through the licence modification procedure—appropriate conditions in relation to the assets of the company and how they operate them.

  824. Are you telling us the Department would not play?
  (Mr Winsor) The Department rebuffed us on almost every point we made.

  825. That was very courageous of people who were dealing with highly expensive consultants, was it not?
  (Mr Winsor) They were not dealing with me as a highly paid consultant. I was on an extremely modest secondment fee.

  826. I believe you.
  (Mr Winsor) It is a matter of public record. They rebuffed us on those licence conditions and when I took over as Regulator one of my first acts was to pull out the file of the licence conditions which we had sought then, dust them off, decide whether they were fit for purpose and those are the ones we are working with now, in addition to others.

  Chairman: We are going to come back to a lot of the detail on this.

Mr O'Brien

  827. The rail network has to bow to conflicting pressures: safety, performance and growth. How should this be managed?
  (Mr Winsor) There is a very considerable growth agenda which was not present at the time that the Conservative Government privatised the industry. That does put pressures on the industry which it was not expected to face. However, we can manage performance and growth in a way which is consistent with safety, which I think is the core of your question. There has been a lot of comment about how pressure for performance and pressure for safety are in some way incompatible with one another, that one is only achieved at the expense of the other. If that is the thrust of your question, may I say that I believe that is ill-founded because I believe that a well-managed railway is a safe one if we have well-maintained rolling stock, competently operated, running on time on well-maintained infrastructure. Trains which run on time, where the drivers know where they are going to encounter yellow and red signals and encounter as few of them as possible, on well-maintained infrastructure, will be safer whatever speeds they are operating at.

  828. Has your review over a period of time eased the pressure at all on the network?
  (Mr Winsor) The pressures for additional capacity will not be eased as a result of my review per se, but what we are doing is providing considerable sums of money for the enhancement of the network so that Railtrack and its customers can increase the capacity of the network. Of course with increased capacity, we can get more trains on and we can accommodate the agenda for growth. We are equipping Railtrack very substantially to meet a huge growth agenda.

  829. Will that have an impact on the expansion of the network?
  (Mr Winsor) It will because it will facilitate the expansion.

  830. How do you see that?
  (Mr Winsor) Railtrack will be accountable to its customers for particular enhancement schemes. Some of the enhancement schemes are already in the review; approximately 300 or 400 relatively small enhancement schemes are part of what is called the incremental output agenda of the Strategic Rail Authority. These are additional enhancements which are already known about, taking out conflicting movements and crossings and so on, which the SRA knows now that it wants to finance. That is going to improve capacity. In addition to that, the enhancement framework which we have established for Railtrack and its customers will facilitate a very considerable growth in the capacity of the network.

  831. Both passenger and freight?
  (Mr Winsor) Passenger and freight. Freight has its own very special features and my conclusions on the future of freight charging have not yet been arrived at.


  832. Are they part of the 42 paths or not?
  (Mr Winsor) The 42 paths which may be taken up by freight are matters for the West Coast Main Line which are already decided upon, so that is separate. The access charges for freight is a matter which is still out to consultation.

Mr O'Brien

  833. When do you expect to report?
  (Mr Winsor) I expect to report on that in the early part of next year.

Mr Donohoe

  834. How often do you speak to the operating companies themselves?
  (Mr Winsor) My Office is in contact with them on a very frequent basis. Shortly after the Hatfield accident I had all of the managing directors who could make it of the passenger train operating companies, together with Mr Mengel of EWS and Mr Goundry of Freightliner, the chief executives or senior officers of all of the train operating companies into the Office of the Rail Regulator for what we like to have as a regular meeting. Of course it was intensified in its importance by the aftermath of Hatfield. Tomorrow morning I shall be receiving a visit from the chief executives or senior officers of the franchise owners, Virgin, GNER, National Express, GB Railways, Connex and others. They want to come to talk to me about the way in which Railtrack has responded on the national recovery plan and also associated matters I believe.

  835. I think you were in the room when we took evidence from the Association of Train Operating Companies.
  (Mr Winsor) I do not think I was.

  836. You have looked at the transcript no doubt.
  (Mr Winsor) I am afraid the transcript has not been available to me.

  837. Does what they said resemble at all what you hear privately from the individual train operating companies?
  (Mr Winsor) Yes. I believe that what they said to you in public is what they have been saying to us in private.

  838. No, that is not what I am asking. I am talking about the individual franchisees, the rail operating companies themselves. What they tell me in private is totally different to any of the evidence we got from ATOC. My first question was to ask how many times you met them and you said your Office meets them regularly. What do these individual companies say to you about the operation of Railtrack in private as opposed to what they have been saying in public? I am told that they believe there is almost intimidation by Railtrack on them. Have you ever picked up anything of that nature, do you detect anything like that?
  (Mr Winsor) Intimidation is not a word which they have used to me but they have described behaviour with which they are dissatisfied and it is connected not only with the way in which Railtrack has responded to the aftermath of the Hatfield accident, but also generally with the way in which Railtrack deal with the train operators as their dependent customers. I believe that Railtrack looks at the relationship—or has until very recently when the management changes were made—looked at this through the wrong end of the telescope. For too long Railtrack believed that it was a giant in the industry: financially it is, but a giant which was a dictator to the industry and that the train operators must come to Railtrack as supplicants. I think that is looking at it through the wrong end of the telescope. Railtrack is a supplier of infrastructure services to the industry and that is where Railtrack's place is in the food chain. The customer is king. Railtrack's customers are the train operators and the train operators' customers are the passengers. The passengers, either through their taxes or their fares—and the same applies for freight—are the people who are financing this industry. Railtrack is a supplier and it must become far more customer focused and customer oriented than ever it has been before. I believe that under the old regime Railtrack simply did not understand that. The other fundamental point that Railtrack needs to get through the organisation—and there is a significant culture change which still needs to take place—is that, as far as running trains on Railtrack's tracks are concerned, it is not a privilege, it is a right. When Railtrack gets those two clear messages through the culture and the organisation, I think that its dealings with its dependent customers and its relationships with the industry will be far better.

  839. Do you think in the long term it would be right if the operating companies were actually the ones which maintained the rails that they operate on?
  (Mr Winsor) It is conceptually possible that they would do so. Then one would have to ask the question: why do we have Railtrack?

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