Examination of Witnesses (Questions 540
WEDNESDAY 31 OCTOBER 2001
540. So you do not have a view Chief Executives
of organisations involved in the market on whether it can be done
in the rail industry? You do not have a view on the viability
or not of the company limited by guarantee model?
(Mr Garnett) We are all waiting to see whether this
can be made to work. I think there is a degree of scepticism about
541. On the vertical integration front, do the
skills exist within the train operating companies to run parts
of the networks, if indeed the experiment you talked about were
(Mr Green) Many of us spent 40 years of our lives
doing it so we are going back to the way the rest of the world
542. You will not be doing it personally though.
Do you have the skills within the organisation to take on that
(Mr Green) The skills have been split so the answer
is no, train companies would not have infrastructure engineering
skills, but nor did Railtrack when it started on day one, so you
acquire the staff with the work.
543. What about the outlook for investment.
Firstly, if I could ask you to talk about the two-year franchise
extension; what is the consequence of that decision for investment
and what in your view, is the consequence of the current approach
to franchising across the industry for investment in new rolling
(Mr Garnett) We cannot go out and order new rolling
stock for the East Coast Main Line on a two-year franchise, not
because the Government will not say they will underwrite the cost
of that in terms of guaranteeing the next franchisee who comes
in, but the funders will not give the money because people do
not get paid for new rolling stock until it is introduced into
service. Only one piece of rolling stock has been successfully
introduced and that is Chris Green's Voyager Bombardier trains.
The rest of the history in this country has been pretty grim.
So they want to know that the person ordering the train is on
the hook to get that train into service because it is only then
that the manufacturer gets paid. In the work we have done we have
had letters back from financiers saying, "We will not put
money up to buy these trains unless you are the people who introduce
them into service and prove that they run for a period."
That affects the rest of what we are trying to do in the two-year
franchise such as station investment and refurbishing trains.
The other thing it prevents us doing is getting on with staff
development because our staff say, "What is our long-term
future with this company?" We at GNER have prided ourselves
in what we have done with staff. It is about career progression.
We all say we need better management, more management, higher
calibre people. It is very difficult to do that if you are looking
at a very short time horizon.
544. So are the SRA and the Government not offering
you the support that would come through the use of Section 54
to enable you to go ahead with the orders regardless of the short
nature of the franchise?
(Mr Garnett) Section 54 does not solve the problem
of you being the person who introduces that train into service.
545. Finally, could I ask you both to give me
your view on whether the current situation facing Railtrack, and
the transition from the old Railtrack to the new Railtrack, makes
it more or less likely that it would be possible to deliver major
infrastructure improvements within the time-frames set out in
the Government's ten-year plan?
(Mr Green) I think it makes it much more likely that
we are going to have a robust, reliable railway and we will make
the existing network work because we have got a unity of focus
on operations and engineering. I am very doubtful whether we are
going to attract £34 billion from the private sector without
some government guarantees behind it.
(Mr Garnett) We are going to lose two years in the
time process while all this indecision goes on.
546. What are you doing to attract passengers
back on to the railway?
(Mr Garnett) We are first of all trying to get the
message out there that the railway is running rather well. There
is still a massive perception that it is not running well. It
is running well. Punctuality on our route has improved dramatically
since the low levels of the summer, so you have got to get that
over into the public perception. Every time there is a bad news
story about Railtrack all we do is put more people off travelling
by rail because they think the whole thing is a disaster. That
is the image issue. Then we are going out trying to publicise
with promotional work and advertising to tell people the service
(Mr Green) We have doubled the marketing budget for
advertising, but the very best thing that has happened is having
new trains working on the track which has raised passenger morale
and staff morale.
547. What about the cancellation of services
on the East Coast?
(Mr Garnett) We had a bad period of cancellations
at the start of the summer when we were rebuilding our locomotives.
Over the last eight to ten weeks cancellations are now less than
one per cent of the trains we run.
548. How many trains do you run?
(Mr Garnett) We run 119 trains a day.
549. So you are talking about 10 trains a day.
(Mr Garnett) No it is one per cent so we are talking
about one train a day being cancelled or less than that.
550. This is not the experience that a lot of
my constituents are witnessing. We look forward to that improvement.
What about fares, are we going to have some stability with fares?
Will there be fare increases?
(Mr Green) We promised in May that we would freeze
the fares for a year and we are doing that despite this being
one of the most difficult years in our lives.
551. What about GNER?
(Mr Garnett) 22 per cent of our fares are regulated.
We have always controlled our fares carefully. We are going up
at one fare increase a year. We shall be going up in January with
inflation. We deferred the increase last January until May and
then we only put it up by the inflation of the 15 months.
552. What about the other three phases on the
East Coast Main Line to which we referred earlier? How will they
improve the service if they ever were applied?
(Mr Garnett) I think we have got to decide whether
those three phases are needed. I think the demand of people to
run trains on the route was unreal and that led to one of the
massive increases in cost escalation. We need to go right back
and say how many trains do we need to run the East Coast Main
Line, how many freight and how many passenger trains and then
say what is the best way of doing it. The thing grew like topsy.
553. Are you saying that the assessment has
not been made? You have not submitted to Railtrack or any other
authority the number of trains you would like to increase?
(Mr Garnett) We have submitted what we want to do.
Other operators have put in some very inflated increases which
I do not believe are sustainable, and one of the reasons behind
the Secretary of State's standstill on the franchise was to say,
" Let's go round this whole thing again" because the
costs were getting totally out of the hand. We have got to go
round and say what is the most sensible assessment of capacity
on the East Coast Main Line.
554. So you are saying that the three phases
may not be necessary?
(Mr Garnett) I think on the scale and costs, my guess
is that it was over-elaborate.
555. Mr Green, if the Government were to come
to you, and you as a company have argued that vertical integration
is something that you would consider, and said to you that you
were to get that on the West Coast Main Line, would you still
pursue them for compensation?
(Mr Green) I missed the first part. If they were to
556. If they were to allow you (rather than
using, as always happens, Scotland as an experiment) to run an
experiment on the West Coast Main Line and give it to your company
to run, would you then continue to pursue the Government for compensation?
(Mr Green) We really would have to. You cannot have
a hole of £300 million in your books and do nothing. Having
vertical integration would not fill the hole.
557. It is not altogether in the railway industry
unusual to have holes of that kind.
(Mr Green) Madam Chairman, we would not be able to
do that deal.
558. You talk about the idea that there should
be some form of trial and everybody seems to point to Scotland
and say that is where it should be. Surely, there are additional
problems there? You have got a devolved parliament where the stream
of money is not absolutely certain, as it would be as it comes
through the present procedures.
(Mr Green) I would have thought that could be solved.
There are practical reasons for it being Scotland. There is one
big operator, ScotRail, there is one big track provider, Railtrack,
and GNER and Virgin could have contracts with ScotRail. There
would be no problem with that.
559. Surely you set up a further form of bureaucracy?
You have got the Regulator, you have got the Strategic Rail Authority,
you have got the Government, you have got the potential for a
devolved government, an administrator charging 450 quid an hour.
All of that is added cost before the travelling public see anything
happening as far as the investment itself is concerned.
(Mr Green) The bigger cost saving comes from not having
a separate Railtrack in Scotland and a separate infrastructure
company, a separate ScotRail, and four other train operators.
The less interfaces there are, the easier it is to run the industry.
Mr Donohoe: Having been in ScotRail itself when
it was nationalised, maybe that should be the direction we should
go and we should look at the whole question on that basis. Given
that all of the investment