Select Committee on Transport, Local Government and the Regions First Report


The Transport, Local Government and the Regions Committee has agreed to the following Report:



  1. After the 1997 general election, the Government proposed a number of measures designed to improve the railways including:

1. In July 1998, the Government published its White Paper on the future of transport, A New Deal for Transport: Better for Everyone. Two years later, in July 2000, it published Transport 2010: the 10 year plan, which set targets for the railways of a 50 per cent increase in passenger rail use, an up to 80 per cent increase in rail freight and a reduction in overcrowding on passenger services.[1]

2. In spite of those aspirations, the railways have failed to improve. Three major fatal accidents have been attributed to factors under the industry's overall control—Southall (19 September 1997), Ladbroke Grove (5 October 1999) and Hatfield (17 October 2000). The rail network was thrown into chaos by the temporary speed restrictions imposed after the derailment at Hatfield, as sections of line were closed for inspection, revealing the full extent of the neglected state of the track and bed, and track was replaced. Major infrastructure projects have also suffered from delays and escalating costs. The Strategic Rail Authority failed to produce its Strategic Plan as initially intended or provide leadership for the industry, and has not awarded a single, new, long-term replacement franchise.

3. In June and July 2001, the Department for Transport, Local Government and the Regions (DTLR) issued its draft Directions and Guidance to the Strategic Rail Authority and its draft Passenger Rail Franchising statement for consultation.[2] These documents had an apparent emphasis on the negotiation of changes and short extensions to existing franchises, rather than on the granting of new, long-term contracts. The Transport Sub-Committee subsequently decided that its first inquiry of the new Parliament would consider the implications for passenger rail franchising of the proposed change in policy.[3]

4. On 7 October 2001, shortly before the Sub-Committee's first oral evidence session of this inquiry, Railtrack PLC was placed in administration. The Sub-Committee therefore decided to widen the scope of its inquiry in order to consider:

  • the impact of Railtrack PLC being placed in railway administration on the Government's franchising policy;
  • the financial structure of Railtrack's successor;
  • the relationship of Railtrack's successor to the train operating companies, the railway regulatory bodies; and
  • the allocation of risk between Railtrack's successor and the Government.[4]

5. The Sub-Committee held five oral evidence sessions during the course of this inquiry and received almost 60 written memoranda. The Sub-Committee is most grateful to those who provided written and oral evidence and to our Specialist Advisor, Mr Chris Bolt, the former Rail Regulator, for his assistance. The Sub-Committee invited a Minister from HM Treasury to provide oral evidence. The Treasury's refusal to provide such oral evidence is unacceptable and we consider it appropriate for the Treasury to provide evidence on matters in which they are deeply involved.

The Strategic Rail Authority and franchise replacement


6. The Government set out the role of the railways in A New Deal for Transport: Better for Everyone, which heralded "a railway renaissance", but only if "the weaknesses arising from the fragmentation of the industry" were rectified.[5] The Strategic Rail Authority (SRA) was intended to provide "a clear, coherent and strategic programme for the development of our railways".[6] The new Authority would also be responsible for setting more demanding performance standards and securing increased passenger benefits through the awarding of new franchises or, in certain circumstances, the renegotiation of existing contracts.[7] The SRA was to ensure that the railways were planned and operated as "a coherent network, not merely a collection of different franchises". It would assess the capacity of the network, assess investment needs and, in the event of conflicting aspirations, identify priorities.[8]

7. The Strategic Rail Authority is a statutory body with Board members appointed by Ministers and subject to instructions and guidance laid down by Government. The Authority's responsibilities were based on those of the Office of Passenger Rail Franchising together with the residual activities of the British Railways Board. The Strategic Rail Authority also assumed certain duties that had previously been carried out by the Office of the Rail Regulator and the Railways Directorate of the then Department of the Environment, Transport and the Regions.[9] As bringing together those functions would require legislation, the Government formed a shadow organisation as an interim measure by issuing directions to the British Railways Board and the Office of Passenger Rail Franchising.[10] The Strategic Rail Authority was established in shadow form in June 1999.[11] After the Transport Act 2000 gained Royal Assent in December 2000, the Strategic Rail Authority was formally constituted in February 2001 with Sir Alastair Morton and Mr Mike Grant as chairman and chief executive respectively.[12]


8. The Strategic Rail Authority is required by law to produce a Strategic Plan.[13] In Autumn 1999, the shadow Strategic Rail Authority announced its intention to publish a 'shadow' Plan in the "late Spring of 2000".[14] Publication of the Plan was postponed to October 2000, so that it would set out how the 10 Year Plan's objectives for the railways would be achieved and was further delayed by the consequences of the Hatfield accident.[15] In March 2001, with the outlook for the industry uncertain, the Authority issued a Strategic 'Agenda' rather than a 'Plan'. The document did not receive a warm welcome: one commentator dismissed it as "far from being a blueprint for the future, it is simply a summary of aspirations".[16] The Authority intended, however, that responses to that document would be used to inform the development of the Strategic Plan, which it now proposed to publish in the autumn of 2001.[17]

9. In response to those continuing delays, the Government set November 2001 as the date for the publication for the Strategic Rail Authority's first overall strategy in its July 2001draft directions and guidance to the Authority.[18] It also proposed that a revised and updated strategy should be produced in November 2002 and each November thereafter.[19] When he appeared before the Transport Sub-Committee in November 2001, Mr Mike Grant, then the Strategic Rail Authority's chief executive,[20] confirmed that the plan would be ready that month. Although he accepted that his organisation was at fault for not having produced the document earlier, he attributed that to the difficulties that had been faced in writing the plan and especially the need to find "some solid ground to stand on".[21] Remarkably, in spite of the crucial importance of providing the railways with a clear statement of intent, even the November 2001 publication date was missed. The new chairman of the Strategic Rail Authority, Mr Richard Bowker,[22] decided to delay its publication until January 2002, so that the plan could "set a clearer vision for the future."[23] It was finally published on 14 January 2002.[24]

10. Sir Alastair Morton, then chairman of the Strategic Rail Authority, told us in October 2001 that, although he had been involved in the preparation of the Strategic Agenda, he had decided not to be involved in the preparation of the Strategic Plan because he felt that the Government's requirement that the Plan should use only the resources currently available to the Authority would be "unworkable".[25] Sir Alastair said he aspired to a Plan that "meets Britain's needs, rather than one the inadequate resources available".[26]

11. The Strategic Rail Authority has failed to date to provide the leadership, priorities and precise timetable for implementation of improvements to the railways that were the main purposes of its establishment. It has also procrastinated over the production of its Strategic Plan. The Government must ensure that the Strategic Rail Authority provides the industry with a clear direction and must hold it to the deadlines for publishing future Strategic Plans. We are concerned that the exact cost and the timescale for implementing all the Plan's proposals have not been set out. The first Plan must be implemented to a clear timetable, so that passengers will know when they will see improved services.


12. When the railways were privatised, passenger services were divided into 25 franchises run by private-sector train operating companies.[27] The original franchise contracts, which commenced in 1996 and 1997, were awarded for periods of between seven and fifteen years depending upon the terms agreed.[28] The Government considered the replacement of existing franchises as central to service improvement,[29] and the 10 Year Plan for transport describes short-term franchises as inhibiting long-term planning and investment by operators.[30]

13. A programme to replace the 18 short-term franchises that were scheduled to expire by 2004 was launched formally by the shadow Strategic Rail Authority in October 1999, with the aim of reaching agreement on contracts, set out in the Heads of Terms, for all replacement franchises by the end of 2001.[31] In return for benefits, including improved service performance and rolling stock investment, the then franchising director, Mr Grant, was prepared to offer new franchises of between 10 and 20 years.[32] The shadow Strategic Rail Authority would be responsible for evaluating the bids from the prospective franchisees and then making recommendations to the Department. Bids for the contracts, which were divided into the following tranches, were invited between November 1999 and November 2000.[33]

Proposed new franchises

Original franchise commencement date
Original franchise
expiry date
Original franchise length
Batch 1 (Nov '99)[34]
South Central
Great North Eastern Railway

21 July 1996
26 May 1996
28 April 1996

20 July 2003
25 May 2003
27 April 2003

7 years
7 years
7 years
Batch 2 (Dec '99)[35]
South West Trains
Central Trains

4 February 1996
2 March 1997
2 March 1997
New franchise

3 February 2003
1 April 2004
1 April 2004

7 years
7 years 1 month
7 years 1 month
Batch 3
Wales & Borders[36] (Aug 2000)
(Nov 2000)

New franchise
New franchise

14. Of the first and second tranches, Heads of Terms have been agreed for the new long-term franchises shown in the table below. The investment commitments made by the new franchisees were intended to provide new stations and trains, improvements to existing stations, track and signalling, and additional and more reliable services.

Replacement franchises

M40 Trains
Heads of terms agreed for new 20-year franchise in Aug 2000. Commitment to invest £370 million.[38]
South Central
(transferred from previous franchisee, Connex, in Aug 2001)
Heads of terms agreed for new 20-year franchise in Oct 2000. Commitment to invest £1.5 billion.[39]
South West Trains
Heads of terms agreed for new franchise of up to 20 years in Apr 2001. Commitment to invest £1.7 billion.[40]

15. As part of the franchise replacement process, although only after the first bids had been invited, the Strategic Rail Authority outlined its longer-term proposals for the passenger rail franchises, including the redrawing of the franchise map. Although the exact shape of the new franchises would not be decided until after bidders had submitted proposals, that was a step towards the Authority's objective of creating fewer but stronger franchises that would attract the investment needed to accommodate rising passenger numbers. Franchises were reorganised into one of three service groups: long-distance, high speed (expanded from InterCity), London commuter and regional services with franchise areas revised so that they complemented one another more effectively and would better match the needs of passengers. Despite the proposed changes to existing franchises, the total number would be reduced only from 25 to 22.[41]

16. While work was under way on the franchise replacement programme, the shadow Strategic Rail Authority was also negotiating extensions of the following existing contracts.

Extended franchises

Original franchise expiry date
Length of original franchise
New agreement
Island Line
12 October 2001
5 years
Two-year extension agreed in Mar 2001
Arriva Trains Merseyside (previously Merseyrail Electrics)
18 March 2004
7 years 2 months
Arriva acquired the franchise in Feb 2000 for a period of 12 months on existing terms. Two year extension was agreed in Feb 2001.
Arriva Trains Northern (previously Northern Spirit)
1 April 2004
7 years 1 month
Arriva acquired the franchise in Feb 2000 for a period of 12 months on existing terms. A two-year extension was agreed in Feb 2001.
Midland Mainline
27 April 2006
10 years
A two-year extension was agreed in Aug 2000. Commitment to invest £238 million. [42]
Great North Eastern Railway
27 April 2003
7 years
A two-year extension was agreed in 2002. A commitment to invest £100 million.[43]

East Coast

  17. Negotiations on the new East Coast franchise were severely delayed and abandoned in July 2001 after 21 months in favour of exclusive negotiations with the incumbent operator, Great North Eastern Railway, for a two-year extension.[44] The Secretary of State's rationale for taking that decision was that commitment to a long-term franchise based on an infrastructure upgrade that had "not yet been fully developed" would be "premature". The case for a long-term contract would be reviewed once work on the upgrade project was more advanced.[45] The then chairman of the Strategic Rail Authority confessed to being "very surprised" that the Government had rejected his recommendation of December 2000, that Great North Eastern Railway should be awarded a 20-year contract, and he expressed concern that only limited discussions had taken place between his Authority and the Department about the recommendation.[46] An agreement to extend Great North Eastern Railway's existing franchise by two years to April 2005 was announced by the Strategic Rail Authority in January 2002.[47]

18. Although some progress has been made with the first contracts to be considered, the franchise replacement programme floundered. By the target date of December 2001, of the 18 short-term franchises, Heads of Terms have been agreed with only the three franchises discussed above and even those contracts have yet to be signed. Progress on the signing of the new Chiltern contract, for example, was delayed by the need for Railtrack to provide cost estimates for the proposed infrastructure upgrades that form part of the new franchise.[48] Negotiations about a replacement franchise for Central Trains had also to be abandoned when the Strategic Rail Authority concluded that the bids did not offer sufficient benefits to passengers and taxpayers.[49] The future of the proposed TransPennine Express franchise also came into question. The Government, however, subsequently gave permission for negotiations to proceed once the short-listed parties resubmitted their proposals.[50]

1   Transport 2010: the 10 Year Plan, DETR, July 2000, Annexe 2. Back

2   The Department for Transport, Local Government and the Regions issued its draft Directions and Guidance to the Strategic Rail Authority and its draft Passenger Rail Franchising statement for consultation on 29 June and 16 July 2001 respectively. Back

3   The original terms of reference were issued in 'New inquiry: passenger rail franchising', Transport, Local Government and the Regions Committee Press Notice, 23 July 2001. Back

4   'Transport Sub-Committee announces additional terms of reference for its inquiry into passenger rail franchising', Transport, Local Government and the Regions Committee Press Notice, 18 October 2001. Back

5   A New Deal for Transport: Better for Everyone, Cm 3950, July 1998, para. 3.26. Back

6   Ibid, para. 3.26. Back

7   Ibid, paras. 4.19 and 4.20. Back

8   Ibid, para. 4.14. Back

9   A Strategic Agenda, Strategic Rail Authority, March 2001, p.4. Back

10   The establishment of the shadow SRA was effected by issuing Objectives to the British Railways Board and Objectives, Instructions and Guidance to the Office of Passenger Rail Franchising (A Strategic Agenda, p.4). Back

11   Sir Alastair Morton was chairman and Mr Mike Grant was chief executive of the shadow Strategic Rail Authority. They were Chairman of the BRB and Franchising Director at OPRAF respectively. Back

12   A Strategic Agenda, p.4. The Transport Act 2000 set out the following statutory purposes for the Authority: to promote the use of the railway network for the carriage of passengers and goods; to secure the development of the railway network; and to contribute to the development of an integrated system of transport of passengers and goods. Back

13   Transport Act 2000, section 206. Back

14   A Strategic Agenda, p. 1. Back

15   Ibid, pp. 1 and 2. Back

16   'Pigs will fly before rail "blueprint" comes true', Independent on Sunday, 18 March 2001. Back

17   A Strategic Agenda, pp. 1 and 2. Back

18   Draft Directions and Guidance to the Strategic Rail Authority, para. 7.1. Back

19   Ibid, para. 7.5. Back

20   Mr Grant stood down from his post on 17 December 2001 ('Management changes at the SRA', Strategic Rail Authority News Release, 17 December 2001). Back

21   QQ 616-622. Back

22   Sir Alastair Morton stood down as the Strategic Rail Authority's chairman on 30 November 2001. He was succeeded by Mr Richard Bowker on 1 December ('Sir Alastair Morton to depart on Friday', SRA News Release, 28 November 2001). Back

23   What future for Britain's Railways?: the way forward for rail in Britain, speech by Mr Richard Bowker to the Commission for Integrated Transport conference on 3 December 2001. Back

24   The Strategic Plan, Strategic Rail Authority, January 2002. Back

25   PRF 42. Back

26   Ibid. Back

27   See Annex. Back

28   The contract for the Island Line franchise on the Isle of Wight was originally granted for five years.  Back

29   Transport 2010: the 10 Year Plan, DETR, July 2000, p. 43. Back

30   Ibid, para. 6.7. Back

31   A Strategic Agenda, p.30. Back

32   Franchise replacement was intended to ensure: "improvement in the quality of passenger services; better performance; investment in extra services; high quality rolling stock providing additional capacity; new infrastructure; easier access to the railway; and better integration with other forms of transport" ('Building a Better Railway: Franchising Director invites Replacement Franchise Proposals for Chiltern, Connex South Central and Great North Eastern Franchises', SSRA News Release, 24 November 1999). Back

33   A fourth tranche comprising Thames and 'Anglian' franchises (comprising the existing Anglia, First Great Eastern and the West Anglian services of West Anglia Great Northern) was also proposed but invitations to tender have yet to be issued (A Strategic Agenda, p. 34). Back

34   'Building a Better Railway: Franchising Director invites Replacement Franchise Proposals for Chiltern, Connex South Central and Great North Eastern Franchises', SSRA News Release, 24 November 1999. Back

35   The SSRA initially invited proposals to provide improved services in several "strategically selected franchise areas" which did not have to be rigidly based on the existing franchise map ('Building a Better Railway: Proposals invited for Second Round of Franchise Replacements', SSRA News Release, 9 December 1999). Back

36   The proposed new franchise would comprise all of the Cardiff Valleys services and certain of those operated by Wales and West, First North Western and Central Trains ('Building a Better Railway: New Franchise for Wales and Borders confirmed - Competition launched for new Franchise', SSRA News Release, 8 August 2000). Back

37   This franchise would comprise services operated on three routes by South West Trains and the Wales and West services that would not be transferred to the Wales and the Borders franchise ('Building a Better Railway: new West Country Franchise announced, SSRA News Release, 23 November 2000). Back

38   'Building a Better Railway: new Chiltern Agreement brings £370 million investment', SSRA News Release, 10 August 2000.  Back

39   'Building a Better Railway:£1.5 billion Investment for new South Central franchise', SSRA News Release, 24 October 2000. Back

40   'Building a Better Railway: SRA and Stagecoach sign-up to £1.7 billion Investment package for South West Trains', SRA News Release, 2 April 2001. Back

41   'Building a Better Railway: Sir Alastair Morton sets out Map for UK Rail', SSRA News Release, 20 June 2000. Back

42   The new agreement includes, amongst other things, investment in infrastructure, rolling stock and staff training ('Building a Better Railway: £238 million additional investment for Passengers on Midland Mainline', SSRA News Release, 10 August 2000).  Back

43   'Two-Year GNER Extension Agreed - £100m Private Sector Investment Committed', SRA Press Release, 16 January 2002. Back

44   PRF 33, para. 1.2. Back

45   'East Coast Main Line franchise', DTLR News Release, 18 July 2001. According to the The Department, it became apparent late in the refranchising process that the costs and the certainty of the delivery of the upgrading works were "very unclear indeed" (Q 23). Back

46   Q 109. Back

47   'Two-Year GNER Extension Agreed - £100m Private Sector Investment Committed', SRA Press Release, 16 January 2002. Back

48   'SRA acts to Ensure early Benefits for Chiltern', SRA News Release, 2 April 2001. Back

49   'SRA Halts Replacement Process for Central Trains Franchise', SRA News Release, 7 February 2001. Back

50   'SRA's TransPennine Express moves Forward', SRA News Release, 14 September 2001. Back

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