Examination of Witnesses (Questions 140
- 159)
MONDAY 27 NOVEMBER 2000
MR MICHAEL
GRANT, MR
MARTIN MCGANN
AND MR
TERENCE JENNER
140. Paragraph 2.10 seems to be a fairly key
paragraph in what we are talking about. I know it has been referred
to already but it needs some more discussion I think. "Work
done in 1999 by AEA Technology and London Economics on behalf
of OPRAF compared punctuality and reliability incentives to company
revenue and found that even if companies' trains were always punctual
the maximum incentive payment would still represent only two to
three per cent of revenue." It goes on later to say: "This
view was confirmed by the consultants' econometric analysis which
examined the relationship between performance and a number of
factors and found a `mainly insignificant' relationship between
incentive payments and better performance. This weak relationship
between incentives and performance might also reflect the fact
that the rates of incentive payment were set to reflect the disbenefit
to passengers caused by cancellations or lateness, and not the
amount of investment that would be needed to secure improved performance;
in other words, it may be cheaper for the company to pay the penalty
than to fix the problem." This seems to be central to the
issue, does it not, that whatever you are going to do, no doubt
with the best will in the world, to try to improve the system,
is it actually going to make a great deal of difference?
(Mr Grant) In the long-term the solution is major
investment and, therefore,—
141. Exactly.
(Mr Grant) Therefore, setting a penalty today has
to help but it is not going to solve the problem. The problem
needs to be solved in the long-term by major investment in the
infrastructure.
142. Exactly. So you are agreeing with this
phrase here "...the fact that the rates of incentive payment
were set to reflect the disbenefit to passengers caused by cancellations
or lateness, and not the amount of investment that would be needed
to secure improved performance;"? That is the key phrase,
is it? Do you agree with that?
(Mr Grant) I agree with it but, on the other hand,
I would not suggest that we take away all penalties. It is somewhere
between zero if you take away all penalties and billions of pounds
to put major infrastructure in place. We have suggested, and we
are implementing, that these incentive payments should be doubled.
It is not to try to solve the major problems but to make sure
that train operating companies are incentivised.
143. Although it only affects currently two
to three per cent of revenue you are going to double them and
you think they could make a real difference, is that your view?
(Mr Grant) It will make a difference in terms of the
train operating companies but, as I said, it will not solve the
long-term problems.
144. Paragraph 3.7, this definition of overcrowding,
it says here "Thus, on most suburban London commuter trains,
three per cent overcrowding equates to around 31 passengers standing
per carriage..." I do not represent a London constituency,
I am a London commuter. By the way, do you commute to work on
the train?
(Mr Grant) Yes, I do. Connex.
145. Poor you. I am glad anyway that our rulers
have to suffer in the same way that we do, that is at least something.
How is this definition arrived at? When I have been travelling
up to Newark in the last few weeks, a journey which used to take
an hour and a half, now supposed to take two hours but in fact
takes anything up to two and a half hours, if I go up on Friday
I have to sit on the floor with perhaps 25 people standing in
a carriage. Is that overcrowded or not?
(Mr Grant) The definition of overcrowding—Mr
Jenner can help me here -comes from the original BR days. I think
more generally the overcrowding solution, as the report says,
will come from investment in the infrastructure. I come back to
the same point I made earlier. In fact, the report identifies
that some of the newer trains, because of the Disability Act,
will take up more space for disabled access.
146. We need a better definition, do we not?
It is just ludicrous at the moment. Are 20 people crammed on the
floor overcrowding or not?
(Mr Jenner) The technical way it is calculated is
a certain amount of space is allocated to a standing passenger
which, if my memory serves me right, is something like 0.55 square
metres. That is how the calculation is made.
147. I suppose it is a bit better than a cattle
truck, is it?
(Mr Jenner) It is a lot better than London Transport.
148. That is something anyway. Can you tell
me something about the cost of improvements, just a general reply,
please? I think the public would like to know how much the cost
of improvements is going to fall on the customer and how much
is going to fall on the profits of the train companies. Can you
just help me out with a general response on that, please?
(Mr Grant) This is quite a difficult question. Where
we are at the moment in franchise replacement is we are agreeing
heads of terms with two franchisees. Depending which type of franchise
it is, some of them will produce a premium, ie money back to us
at some stage, and others will be on the basis of a subsidy profile
for the life of the franchise. Our intention would be to put the
subsidy in place at the beginning and receive the premium towards
the end. I cannot give you a definition at this stage of how much
would fall on the public purse and the private purse, other than
outline what was in the ten year plan in terms of the expectations
of public sector and private sector money.
149. But you can understand the interest the
public have in this. I wish you could come up with a more consumer
friendly answer, something that they can understand. You will
appreciate that as they are going through this misery at the moment
they want to know that people like you, who are acting on their
behalf, have this clearly in focus. This is your opportunity in
a public forum to give them reassurance, not in technical language,
the sort of language you have just spoken, but language that they
can understand. How much of the cost of improvements is going
to fall on the customer and how much is going to fall on the profits
of the train operating companies? In language that the general
public can understand.
(Mr Grant) If I could give you an outline, for example,
of the Chiltern franchise and the Midland Main Line, which we
are putting together. We are looking there at £600 million
of new investment for the two. If you were to talk about the South
Central franchise, you are talking about £1.5 billion of
investment. In terms of the profitability, yes, we expect the
train operating companies if they are providing a service to make
a profit and any excessive profits will be under the claw back
regime.
150. Can you tell me how you are going to define
"excessive profits"?
(Mr Grant) That will be a negotiation that we will
have with the train operating companies before we sign that franchise
agreement. We have not done that as yet.
(Mr McGann) The enhancements in the ten year plan
were predicated on the basis that there would be no real increase
in currently regulated fares. The assumption that fares would
be capped on RPI minus one was kept in the plan.
(Mr Grant) And the mechanism for the profit share?
Not the actual figures but the mechanism.
(Mr McGann) The mechanism will be that when a train
operator passes an agreed benchmark, and we will not do it on
an annual basis because of the risk that profits will peak and
trough but we will look at it over a five year period, if in that
five year period they reach the benchmark then we will claw back
in the fifth year and that will keep rolling on a five year basis.
151. I appreciate why you may not want to say
a lot of what your plans for the future are in terms of your negotiations
but it would be quite helpful, as you are an expert in this field,
to give us a general feel about how you think it has gone so far
in terms of profitability. What is your general view? Have there
been examples of excess profit making? Could you give us some
examples and give us a feel of what you think has been going on
and how you think things might be improved?
(Mr Grant) There have certainly been examples, and
I cannot give you figures off the top of my head, of where train
operating companies are making healthy profits. South West Trains,
the First Group, have made profits that were recently announced.
At the same time there are train operating companies who have
found it extremely difficult to live with the current franchises.
I suspect the fact that some of the franchises are in portfolios
means that their losses have been offset by profits in others.
It is not a complete picture but it is a mixed picture. Some have
found it very difficult to make a profit while others have made
healthy profits. That is the result of the first round of privatisation
where I have been told that the first franchises were let but
on a competitive basis, if you like, with more flexibility, and
as the franchising process got into gear the later franchises
were much tighter.
152. Just a last question. There has been a
lot of talk in recent weeks about botched privatisation, too many
companies with their fingers in the pie. I was always an enthusiast
for the previous privatised network which used to exist before
British Rail where Great North Eastern Railways would be responsible
just for the track it ran its trains over. I cannot resist asking
this question. I do not suppose you want to give us, as you are
here now, your view about whether you think the present system
is capable of delivering what the public want or whether we are
just flogging a dead horse, or slow train, whatever the expression
is?
(Mr Grant) What I can say is that the SRA will be
working extremely hard to try and make the existing structure
work. We have these working groups. I would like to see what they
can do first. If they do find structural problems no doubt they
will tell us. More importantly, we have to keep going, we have
to try and keep delivering. I would not want to see a hiatus whilst
in some way the structure was reorganised.
153. It is your instinct that you can succeed
in that laudable aim?
(Mr Grant) We will certainly give it our best shot.
These five working groups are going to report to the steering
group in December. We will report to the Deputy Prime Minister
and if there are structural issues there we will address them.
Mr Davies
154. I would like to ask a few London questions
before I ask a few strategic ones. Am I right in saying that you
recently agreed plans for London trains to allow much larger numbers
of people to stand up in their commuting journey? In terms of
the train plans, am I right that you have agreed that commuters
will have to stand up during their journey, therefore, making
it more of a risk to safety?
(Mr Grant) There have certainly been some experiments
on Connex in terms of taking seats out to see if it would be more
comfortable for passengers.
155. More comfortable to stand than to sit!
(Mr Grant) You are never going to be able to supply
all of the seats that are needed. If you wanted to make somebody
travel for 15 minutes on the train you will never—never
is a long time—it would be very difficult to provide seats
for everyone travelling into London on a computer journey.
156. You obviously support a plan for making
more passengers stand for the entirety of their commuter journey
to fit more sardines into a can.
(Mr Grant) I travel on Connex myself and in some instances
I would find it more comfortable to stand in a wider space than
to have more seats and, frankly, more people more squashed.
157. Do you think there are safety concerns
over having large numbers of people standing in carriages, given
the history of collisions we have just witnessed?
(Mr Grant) I am not an expert on safety. I assume
as part of that experiment Connex consulted the Health and Safety
Executive and they did get their approval to do that.
158. Your organisation agreed these train plans.
I know you said you are not an expert in safety, but you do know
enough about safety to know these things may be unsafe?
(Mr Grant) We would not have agreed it if it had not
been safe, because the Health and Safety Executive would have
told us it was not safe. We would not have agreed to try the experiments.
I would certainly in some instances prefer to stand in a wider
area than have an extra seat.
159. London commuters can look forward more
and more to stand rather than sit while commuting, from your answer
to the last question.
(Mr Grant) Not necessarily, because we are trying
to provide more capacity.
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