Examination of Witness (Questions 815
- 839)
WEDNESDAY 6 DECEMBER 2000
MR T WINSOR
Chairman
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.
Chairman
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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