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

Memorandum by The Railway Industry Association (RI 13)

  The Railway Industry Association is the trade association for the railway supply industry. More than one hundred companies are members of the Association, employing over 30,000 people with many more among their sub-suppliers. They include most of the companies engaged in infrastructure maintenance and track renewal for the national railway system, as well as numerous manufacturers of infrastructure equipment and components, the manufacturers of rolling stock, consultants and many specialist service providers.

  The Association believes that two issues are central to the future renewal, maintenance and development of the railway infrastructure in this country: that the resources available should be sufficient to meet the needs of the system, and that the programme to use those resources should be managed in a planned and balanced way.

  On the first point, substantial increases in investment are essential. They are needed to remedy the historic and long-term underfunding of both the national railway and the London Underground, to accommodate the growth which has occurred in both passenger and freight traffic and which is forecast to continue, and to raise service quality to an extent which will divert motorists from road use. We welcome the recognition by Railtrack that higher levels of annual renewals expenditure are required and the larger charges which they have consequently made in their accounts for 1999-2000. But the £52 billion of investment needs identified in Railtrack's Network Management Statement, plus the further amounts identified by the Rail Freight Group, are indicative of the scale of resources likely to be required.

  We are encouraged by recent ministerial statements suggesting that additional resources are likely to be made available to the industry. Given the magnitude of the funding needed, however, we welcome efforts by all parties that are aimed at increasing the total resources available. In particular, it seems right that the sSRA should set demanding investment requirements as part of the franchise replacement process, and should then have a continuing involvement to ensure that those investments take place and contribute to passenger growth on the system.

  The franchise replacement process, together with the Regulator's periodic review of access charges and the forthcoming Ten Year Plan, between them create an exceptional opportunity to allow the Government to inject into the railway the resources that are needed for investment. We hope that the Government will take full advantage of that opportunity, and are urging them to do so.

  The second point—the importance of a planned and balanced approach to the improvement of the network—is fundamental to securing an economical as well as an improved railway, and one which strengthens rather than weakens the UK's economic and employment base. The supply industry has for many years been subjected to highly volatile ordering patterns. Most recently, in the mid-1990s the rolling stock supply industry received no orders from the mainline railway for virtually three years, a starvation of work which led to at least 10,000 job losses in the industry and widespread loss of skills. On the infrastructure side, the signalling supply companies were actively encouraged some years ago to recruit additional skilled staff in anticipation of a substantial rise in demand which did not then materialise; each of the major UK-based companies has consequently been obliged to undertake redundancy programmes in the last eighteen months.

  Such volatility is evident in many fields across the industry, and makes planning very difficult. That is inefficient and therefore costly—because stop/start production is highly wasteful, and because it discourages companies from investing in staff, training and equipment. The cost of this inefficiency falls ultimately to the major clients in the industry and to the public sector. But it also damages the country's long-term economic interest, because it reduces the competitiveness of the UK supply industry, weakens the strength of UK firms, and encourages the growth of imports when demand rises.

  There are therefore powerful reasons of efficiency and of national interest for reducing substantially the uncertainty which the supply industry currently faces. There are at least four important steps which need to be taken to achieve this:

    (i)   the framework of public policy for the industry is uncertain pending the completion of the Government's Ten-Year Transport Plan, the Regulator's periodic review of access charges and the sSRA's re-franchising exercise. It is essential that each of these is brought to a conclusion as quickly as possible, that the implications of each for investment should be transparent, that they should set a clear long-term framework which allows investors to take commercial decisions consistent with the lengthy payback periods of many railway projects, and that commitments once made should not subsequently be breached. This last point means for example that the Government having published long-term forecasts for public expenditure in the Ten Year Plan should not then cut back the resources available to transport in the face of competing demands for other services such as health and education. It also means that investments assumed by the Regulator in his periodic review to be undertaken in the forthcoming control period should then actually materialise;

    (ii)   It is essential that the PPP for London Underground is not accompanied by an hiatus in investment akin to that which accompanied the privatisation of the main line railway. We are aware that London Underground have placed a number of contracts which should reduce this risk, but it is far from clear that they will be sufficient to avoid a short-term reduction in investment which would be damaging both to the Underground and to the supply industry, and which would be wholly unnecessary given the scale of the investment backlog on most of the Tube network;

    (iii)  there can be no sensible long-term projection of an economically-efficient programme for the maintenance and renewal of the mainline railway assets without much better information than currently exists on the quantity, location, condition and life-cycle costs of those assets. We therefore welcome the positive steps which Railtrack is taking—along with the Regulator's initiative in this area—to obtain and then share such information. Unfortunately we understand that the process will take a number of years to reach completion;

    (iv)  future investment strategies once formulated by the major clients have to be communicated clearly and effectively to the supply industry and then through all the links of the supply chain. Again, we welcome the positive steps which Railtrack in particular have recently announced in this area. The Association is itself developing a supply chain initiative—the RIA Value Improvement Programme—which sees the importance of enhanced communication throughout the supply chain as a central means of driving out waste and, in the long term, producing a more economical and efficient railway. The objectives of the Association and of Railtrack are similar in this area, and we are working closely together to achieve them. Again however, it will take time for results to materialise over the industry as a whole.

  To summarise: the Association believes that there are two major issues to be addressed, namely the volume of resources available and the use of those resources over the medium to longer term in a planned and balanced way. The current public-sector reviews (the Ten-Year Plan, the review of access charges and the re-franchising process) are all central to an adequate resolution of both issues, and present a rare opportunity both to inject resources into the railway and to establish a framework for its long term growth and efficiency. We urge all concerned to seize that opportunity and to bring to an end the uncertainty and the consequent waste which have dominated the industry for far too long.

June 2000

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