Further memorandum by the Railway Reform
Group (PRF 9A)
PASSENGER RAIL FRANCHISING
The Railway Reform Group welcomes the opportunity
to present evidence, provided by this timely Inquiry by the Transport
Sub-Committee. We particularly welcome the expansion of the Terms
of Reference for this Inquiry to include the impact of Railtrack
PLC being placed into Railway Administration on the Governments
franchising policy together as well as considering the possible
financial structure of Railtrack's successor. We also note that
in the context of a wider potential re-structuring of the industry,
the Committee will consider the relationship of Railtrack's successor
to the TOCs and regulatory bodies and the allocation of risk between
the new company and Government.
As we said in our primary evidence to the Committee
an independent non-judicial Inquiry into the current state of
the industry, together with a clear set of recommendations attuned
to both financial viability and practical delivery is something
we have been attempting to persuade Government itself to undertake.
We now understand that at the time of our discussions with the
DTLR, they may have been a little diverted by the development
of "Project Ariel". Any Inquiry into the wider reform
of the industry beyond an immediate objective of denying a further,
almost unquantifiable, outflow of public funding to Railtrack
PLC would have been a "thought too far".
In the unique circumstances in which Government
and railway industry stakeholders now find themselves, it is particularly
difficult to assess not only the impact of franchising policy
but on all of the other areas of concern of the Committee. We
say this as there seems to be an assumption on the part of many
stakeholders of a plan, beyond the immediate action of placing
Railtrack PLC into Railway Administration. Despite all our contact
discussions with industry stakeholders at many levels, we have
to admit to being unable to identify such an entity. In the light
of this we can only reasonably assume that the greatest single
impact on the Governments franchising policy will be to induce
still further delay in the process, in addition to that brought
about by the changes in franchising policy itself announced by
the Secretary of State in July this year.
There can however be little doubt that the action
taken by the Government to place Railtrack PLC into Railway Administration
presents an opportunity. We share the Secretary to State's optimism,
expressed in his recent statement to the House:
"Railtrack's demise offers a golden opportunity
to recast the railway industry in our country and to create a
railway industry that is fit for the 21st century, which simply
is not the case at the moment." (Hansard)
and we welcome the indications given in the Secretary
of State's statement of the 7th October when he said:
"I also plan to legislate, when Parliamentary
time allows, to rationalise the present regulatory structure to
provide stronger strategic direction while reducing the burdens
of day to day interference in the industry and a self-defeating
system of penalties and compensation. This will deliver clearer
accountability and end perverse incentives".
If we attribute to the Secretary of State the
most generous interpretation of his statements wording possible
it would appear, at long last, that The Railway Reform Group could
justifiably lay claim to having its primary objective of "simplifying
the complex contractual matrix of the Railways Act 1993 . . ."
adopted as Government policy. There is however a qualification
to that primary objective: it is "and placing the passenger
and freight transport consumer at the heart of the industry".
From these precepts we hope that the Committee
will understand that we are as concerned with the "How to
. . ." of the industry as the "What for . . .".
As a result our work over the last ten years has dealt with providing
a sound and equitable investment appraisal process for the industry,
seeking to enhance the contribution made by the consumer to industry
development, developing safety management and operational concepts
which have been influential as well as continuing to both react
to and contribute towards the development of policy in both railway
and wider transport fields through a wide range of mechanisms.
We thus feel reasonably confident in proposing
for further debate, examination and (maybe) even adoption, a holistic
view for future principles, structure and relationships which
would result, in our view, in finally delivering that "railway
industry that is fit for the 21st century, which simply is not
the case at the moment".
Our views are being set out in our forthcoming
publication "Pulling TogetherA National Network Railway"
and although we do not wish to quote at length from a draft, it
contains a number of identifiable "building blocks".
Company Limited by Guarantee (CLG)
is not a "Resurrection of Railtrack" but enables compliance
with EU Directives.
"Ownership" of network
remains with CLG (which can remain in administration or out of
administration is largely dormant) but with high prospect of clearance
of liabilities over time.
Consortium/Alliance based franchise
bids to include infrastructure maintenance Contractors, Train
Operators at Franchisee level, Logistics and Consultancy expertise,
Freight Group. Established as RailCos'.
RailCos' may be either geographically
or market segment based franchises but there would be significant
reduction in numbers overall.
CLG Regional/Zonal "people"
assets are leased to Railco for Franchise term so that Railco
is master in own house for operations but does not take additional
risk from "ownership" of proportion/whole of infrastructure"
CLG will have 3 potential long-term
Lease charges for physical assets
Lease charges for "people
assets" to Railcos'
"Open Access" charges
(published tariff or Open Book based)
CLG Headquarters "people"
assets (Leased to SRA) are "keepers of Graph" and devise/develop
train plan on directions from SRA. Also systems "people"
assets ensure continuing development and integration and the Asset
Condition Register is held and maintained by the SRA.
RailBank established: charged with
delivering £30 billion + private sector funding contribution.
RailBank administers Rail Modernisation
RailBank utilises effective and innovative
means to introduce capital support into the industry.
RailBank addresses market failure
to maximise capacity to raise private capital.
RailBank operates at arms length
from HMT (but under FSA supervision).
RailBank empowered to use guarantees
in line with SR 2002 et seq to obtain best market rates but conditional
on similar arrangements to CTRL financing where no PSBR future
Reflects to HMT, HSC, DTLR and industry
regulators independent assessment of financial implications of
regulatory decisions and draft/subsequent legislation.
Propose realistic financing measures
implied from regulatory decisions.
RailBank liaison with NAO for Value
for Money (VFM) audit throughout industry.
A Rail "Senate" is established
to act as:
Supervising Board (on the lines
of EU model) for CLG and as Industry Appeals Body.
Economic Rail Regulator/International
All Industry Stakeholders/Consultees
inclusive of Consumer representation and Regional Assemblies &
If it is really the Governments intention to
"the burdens of . . . a self-defeating system
of penalties and compensation . . . and end perverse incentives".
we would propose that the existing Performance Regimes
be scrapped for other than minimal interfaces of "through
running" by third parties. This would have a beneficial effect
in immediately releasing over three hundred staff within the industry
with useful operational experience and understanding from the
fruitless exchanges involved in delay attribution, compensation
and possessions regimes. In addition the track access charging
regime largely become redundant as the quality of infrastructure
becomes a RailCo issue and we would expect very significant reductions
in the level of such charges to reflect only the marginal costs.
The effect on Freight operations of such proposals
would take the achievement of the Ten Year Plan objectives out
of the realms of the possible into that of the probable, although
the reduction in network Trace Access charges would be offset
to some extent by the necessity of bearing whole costs of maintenance
on current freight only lines. This in itself would provide an
incentive for further Joint Venture approaches to the re-opening
of such lines for passenger services.
The Railway Reform Group believes a structure
along the lines of that which we propose will satisfy a comprehensive
range of principles and will deliver these in a form which is
recognisable as a Network. They will provide long term stability
with both accountability and affordability. They provide an opportunity
for a consumer responsive, reliable railway, which will be affordable
to the passenger, the freight service consumer and the taxpayer.
They are amenable to local, regional and national input in contributing
to the quickly improving, safer railway to which we aspire.
In outlining these proposals we have of necessity
been brief but their potential significance is not related to
the length of this evidence. We would be pleased to submit further
evidence, either in writing or orally, should the Committee wish.
25 October 2001