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

Supplementary memorandum by The Department of the Environment, Transport and the Regions (RI 23A)


  1.  This second memorandum sets out the response of the Department of the Environment, Transport and the Regions to the Transport Sub-committee's further request for written evidence relating to its continuing inquiry into the maintenance, renewal and enhancement of the national rail network. It addresses those issues which the Sub-committee indicated it wished to consider after the summer recess, following publication of the Government's Ten Year Plan for Transport and the Rail Regulator's draft and final conclusions on the periodic review of Railtrack's access charges. It also acknowledges the implications for the rail industry emerging from the Hatfield tragedy.

  2.  The present Government inherited a railway system that was suffering from years of under-investment, which had been fragmented by privatisation, and which had no framework for the strategic planning of the industry as a whole. Most franchises were for seven years, inhibiting long term planning by operators, and there were no proper incentives for private companies to invest in expansion. Recent trends in the use of the rail network have been strongly upward, with a 20 per cent increase in passenger journeys since May 1997 and a 22 per cent rise in freight movements in the three years from May 1997. The railway has therefore become a growth industry and many of the problems it currently faces are those of expansion.

  3.  The first part of the Sub-committee's inquiry considered Railtrack's past investment performance. Current investment is running at record levels and Railtrack have invested more in the first half of 2000-01 than in the whole of 1996-97. But the Government believes even more will be required in the future to cater for growing passenger and freight demand, to improve performance and to meet the needs and expectations of the public and the industry. The Government's 10 year strategy reflects the fact that numerous points on the network now operate close to maximum capacity. Without major investment, service levels will deteriorate, overcrowding on many lines will rise and safety will suffer.

  4.  The Government's objective is to ensure that all rail industry parties maximise their individual and collective contributions to achieve delivery of the Government's integrated transport strategy as reflected in its Ten Year Plan for Transport. Having made real progress in getting the rail industry to work together and in putting the interests of passengers at the forefront of the revival, the Government now aims to make even greater progress over the next decade. We believe that substantial infrastructure investment is essential to reinforce current welcome trends and to achieve the improved services and modern, safe rolling stock that passengers rightly demand.

  5.  This memorandum is structured to facilitate the Sub-committee's inquiry. It sets out the Government's vision and objectives for the railways and its strategy for achieving them through new legislation, new resources and new franchise agreements. It describes how the Government's focus on safety, incentives, performance and service quality will ensure that the railways are run in the public interest as part of an integrated transport system.


  6.  The Government's vision is a national railway where today's highest standards are tomorrow's norm. This will lead to more and more people using rail from choice and to a virtuous circle of growth, rising revenue, more investment and further growth. The vision can be realised within 10 years and we are already well underway to achieving it. Completing the job will require partnership, strategy and, above all, investment.

  7.  The programme of expenditure for the railway which forms part of Transport 2010 aims to increase passenger and freight traffic by 50 per cent and 80 per cent respectively, through a substantial increase in the capacity of the network and the quality of service. The Government is committed to working closely with Railtrack, the train operators, the (currently shadow) Strategic Rail Authority (SRA) and the Office of the Rail Regulator (ORR) over the next 10 years to rebuild public confidence in the railway through improved safety, service and performance. This will enable the safe, modern and efficient railway that we all want. A large expansion of rail services will make an important contribution to reducing future levels of congestion on the roads.

  8.    The Government aims to achieve more customer satisfaction on all train operating companies (TOCs), through improving the quality of service to customers while reducing most currently regulated fares in real terms. It plans to prevent unacceptable overcrowding on London commuter services and to provide improved information systems. This will only be achieved through higher levels and effective enforcement of TOC service commitments. The Government is therefore determined to rectify the defects of the present regulatory structure and to ensure that the railways are run in the public interest.


  9.  Delivering these high-level objectives and improvements will require substantial capital investment and coherent strategic direction over the next decade. We intend to achieve them through replacement of the current short franchises and implementation of the Ten Year Plan. The challenge for this Government is to create the framework to enable the bigger and better railway by establishing the correct incentive structure and funding arrangements for the industry; and by providing the right tools and powers to enable its key players to work together effectively to rebuild public confidence in its ability to deliver a safe quality service. Through new legislation, new forms and enhanced levels of investment, and new franchise agreements, the Government aims to establish a true public and private partnership working to shared national objectives.


  10.  To enable the substantial investment and improvements in service quality required over the longer term, the Government is enacting legislation. Subject to Parliament's approval, the railways provisions of the Transport Bill will establish the SRA and provide for more effective regulation of the industry by the SRA and the Rail Regulator.

  11.  The SRA will in the next few months publish its first strategic plan. Among other things, the plan will set out the principles of investment support and the forms of funding that will be available, building on the Ten Year Plan.

  12.  The SRA will use the franchise replacement process to require operators to undertake extra investment and to secure improvements to their service delivery standards. It will monitor delivery of these obligations and be empowered to take swift action if train operators fall short. The SRA will be able to pay grants and secure investment not just through franchises but by contracting with Railtrack and others for the wider development of the network. It will work closely with other transport providers and promote integration between transport modes, in furtherance of the Government's integrated transport strategy.

  13.  The Rail Regulator will continue to set the structure and level of charges that Railtrack can make for access to the network. He will ensure that Railtrack do not abuse their monopoly position and will enforce their network licence conditions. The Regulator will have a duty to facilitate the furtherance by the SRA of its strategies, which will ensure that both regulatory bodies are working towards the same broad goals. Both the Regulator and the SRA will be subject to statutory guidance from Ministers. The Health and Safety Executive will remain as the safety regulator for the industry.


  14.  Securing new investment must be a partnership between Government and industry. The Government's policy is to increase passenger and freight traffic on the railway. The bigger and better railway will be created by a number of different organisations—the SRA, ORR, Railtrack and the passenger and freight operators—working together to shared aims. To stimulate continued passenger growth, the shadow SRA, has started the franchise renegotiation process and introduced the Rail Passenger Partnership (RPP) scheme. RPP funds will support innovative proposals that produce significant wider benefits for integrated transport and modal shift.

  15.  Our freight policy targets improvements in operating efficiency and facilities, together with better use of the network, and embodies the strategy we set out in our Sustainable Distribution paper last year. It aims to encourage further growth by helping to establish an integrated, competitive and efficient freight distribution system; and focuses on those options that provide best value for money. The SRA will work with Railtrack to invest in new freight infrastructure, develop freight priority routes, eliminate bottlenecks and encourage market innovation. The SRA will launch a new freight grant scheme to ensure that the available funds are applied promptly and efficiently in support of the increase of up to 80 per cent in rail freight volumes envisaged in the Ten Year Plan.

  16.  To underpin the SRA's overall strategy of levering in private investment, the Government has provided long term funding. This recognises the fact that rail enhancement schemes often take considerable time to produce a return to investors; that in some cases an investment may never be a purely commercial proposition; and that a key objective of the Department is to support the industry in ways which contribute to wider, social and environmental objectives. The Ten Year Plan for Transport is the vehicle for such support.

  17.  Under the Ten Year Plan, the railways will benefit from the Government commitment and strategic planning that was missing from the fragmented network that we inherited following privatisation. The Plan sets out, for the first time, a long term view on the investment levels to help achieve the Government's vision for the railways, to complement the legislative changes and to deliver the Government's integrated transport strategy. It provides a more stable climate for rail investment for both the public and private sectors. The Spending Review 2000 provides the launch pad for the Plan.

  18.  Government funding for railways over the period of the Plan will include £12 billion of revenue support for passenger and freight train operators and a new £7 billion Rail Modernisation Fund. The Fund will support both passenger and freight infrastructure enhancements and allow the SRA and the industry to co-operate in drawing up a long-term investment programme. It will use the most effective and innovative means to introduce capital support into the industry; address market failures; and maximise the capacity to raise private capital including a range of funding mechanisms.

  19.  Together with capital grants for renewal schemes, including the West Coast Main Line, Government funding is expected to support a capital investment programme of £49 billion to secure the biggest rail improvement programme for more than a century. We expect that, among the projects to be delivered by 2010 by that level of investment, will be:

    —  completion of the Channel Tunnel Rail Link;

    —  upgrading of the East Coast Main Line;

    —  modernisation of the West Coast Main Line;

    —  completion of Thameslink 2000;

    —  gauge and capacity enhancements on freight routes to major ports, such as Felixstowe, and to the Channel Tunnel; and

    —  installation of the Train Protection and Warning System (TPWS) across the network and full automatic train protection (ATP) on the high-speed passenger network.

  20.  Refranchising is central to investment in and expansion of the railway. Longer term franchises will be offered in return for commitments to improve service and performance. The Government also endorses the need for refranchising to deliver benefits for taxpayers and passengers, by incorporating better value for money and increased compensation to passengers where improvements to performance are not achieved. The new franchise agreements will also contain new provisions for driving up safety standards and enforcement of punctuality targets.

  21.  Replacing the current shorter franchises with ones lasting up to 20 years will provide train operators with greater incentives to invest in expansion and in new rolling stock. The replacement process is already well underway and gives the TOCs a key role in driving forward the level of national investment by enabling them to bring forward and work up in partnership with Railtrack and third parties new enhancement proposals based upon clearly defined commercial requirements. The biggest improvements will be sought from franchises where performance is currently unsatisfactory.

  22.  The shadow SRA has published an indicative new franchise map as part of the refranchising process. The Government supports the principles behind the redrawing of the map—that the franchises need to be structured around the needs of passengers to provide strengthened local accountability; and should make sense in operational terms. The changes are intended to ensure sufficient capacity and investment to provide for the 50 per cent increase in passenger use of the railway to be delivered by the Ten Year Plan.

  23.  A further important function of the SRA is to drive up investment levels by seeking new ways to lever in private finance and to seek alternative methods of funding and managing enhancement projects. Railtrack will have the key role in expanding the network, but the SRA has reserved the right to secure publicly funded expansion through third parties where this would offer better value for money and would not impair the safety and operational integrity of the network. Options include joint ventures with operating companies, construction and project management firms and City finance houses; and Special Purpose Vehicles—companies set up specifically to undertake rail infrastructure works. This approach dovetails with the SRA's overall remit to encourage private investment in the railway—from Railtrack, the passenger and freight operators and from new joint ventures.

  24.  As owner of the operational infrastructure, Railtrack have a pivotal role to play in creating a safe, high growth, high investment railway—working in partnership with the Government and the industry to rebuild public confidence in the railway; and to deliver the Government's Ten Year Plan. Railtrack's 2000 Network Management Statement (NMS) is particularly important in this context and, by setting out Railtrack's vision for the development of the network, has provided major inputs into the Rail Regulator's periodic review of Railtrack's revenue requirements, the Ten Year Plan and the shadow SRA's national investment strategy.

  25.  The Rail Regulator has ensured that Railtrack's future spending is properly directed as part of the periodic review of the structure and level of their access charges for franchised passenger services, which he has just completed. This is the first review since Railtrack's privatisation and ensures that they are properly financed to play their central role in maintaining and renewing the network and investing in safety. It provides for major expenditure on signalling and track renewals, including resources specifically targeted at reducing broken rails. All this will help to ensure greater safety.

  26.  At the time the review puts in place a new incentive framework to enable Railtrack to improve their performance; to significantly enhance the railway over the next control period; and to fund the investment necessary to deliver the objectives of the Ten Year Plan. For the first time Railtrack now have incentives to promote the use and development of the network; and a direct stake in the volume of passengers using it.


  27.  There is a clear consensus that the prospects for the railway today are brighter than for decades; and that major investment is required to turn these prospects into enduring reality. The Government must act as facilitator to secure this renaissance—by focussing on safety, performance and service quality to create the environment and framework to enable long-term higher levels of investment and effective enforcement of improved operating performance.

  28.  Railway safety and public confidence in the effectiveness of safety arrangements are fundamental to the Government's integrated transport strategy. The Government will continue to give the highest priority to safety and looks to the rail industry to do the same. Lord Cullen's public inquiry into the Ladbroke Grove crash is considering the whole question of rail safety management, culture and regulation. It is essential that we find the underlying cause of the Hatfield crash as quickly as possible. The findings of the Health and Safety Executive's investigation will therefore be made available to Lord Cullen to enable him to consider within his current inquiry what wider implications this latest crash might have for the railways safety regime.

  29.  Meanwhile, the Government has taken a step-by-step approach to improving railway safety. Within that process, the Deputy Prime Minister has now signed and laid before Parliament new Railway (Safety Case) Regulations which will transfer responsibility for train operators' safety case acceptance from Railtrack to the Health and Safety Executive. These regulations—along with the necessary simultaneous changes by the Rail Regulator to Railtrack's network licence—are due to come into force on 31 December. They will enable the setting up of a new rail safety company. Railway Safety, within Railtrack to replace their Safety and Standards Directorate; and will thereby separate Railtrack's safety functions from its commercial interests.

  30.  The Ten Year Plan gives priority to safety and includes funding for TPWS across the network and for European standard ATP on high speed lines. Railtrack aim to complete lineside installation of TPWS by the end of 2002, a year earlier than planned, beginning with the highest risk locations. We are committed to bring within the Plan any further measures arising from Lord Cullen's public inquiry and the joint Lord Cullen/Professor Uff inquiry on train protection.


  31.  The railways today have their best opportunity in over fifty years to change and grow. The Government is determined to make the most of that opportunity through its Ten Year Plan. We recognise that substantial investment is needed to deliver the essential requirement of increased rail safety, reliability, capacity and quality needed for the future. The Government is therefore making ample resources available for the future. We are putting in place a framework of new legislation, strategic direction, proper regulation and incentives that will enable all key players in the industry to work together constructively to achieve this.

  32.  The Ten Year Plan, the ORR's periodic review and the shadow SRA's national strategic plan will provide the platform to realise the Government's vision of an industry delivering a safe, high quality service that is integrated with other transport modes; and which will offer ample capacity at reasonable prices to induce more and more people to use it each year. Large scale investments take considerable time to design, guide through statutory planning processes and construct. We will not correct decades of under-investment overnight and the Government has to plan for the next ten years now. Transport 2010 addresses that need.

November 2000

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