Select Committee on Transport, Local Government and the Regions Appendices to the Minutes of Evidence

Further memorandum by the National Union of Rail, Maritime and Transport Workers (PRF 29A)




  RMT have already submitted comments to the Transport sub-committee in respect of the original enquiry into Passenger Rail franchising. The committee will be aware that in this document RMT stated that the existing structure of the industry was incapable of delivering a first class railway due to its fragmented structure.

  RMT expressed concern over the ability of the industry to deliver the £60 billion of investment as originally envisaged under the 10-year plan, especially given the deteriorating financial position of Railtrack. Since this time the Secretary of State has placed the company into administration and we desperately hope that Government will now take the opportunity to fundamentally reform the existing structure of the industry.

  However we fear that this is not the Governments intention. Whilst the conversion of Railtrack from a company subject to the interests of shareholders to that limited by guarantee is clearly a step in the right direction, reports in the press indicate that the Secretary of State is to leave the existing structure of the industry largely intact. This will be a major mistake as this will mean there will still be no effective public control over the rail industry.

  The new company must be able to be identified by those working in the industry, and of course the passengers, as responsible for providing clear leadership. This should be in the form of a planned program of investment, direct responsibility for maintenance and renewals, and the promotion of network benefits.

  We are surprised that Government are still promising delivery of £60 billion of rail investment without any promises of additional resources over and above the £26 billion of public money already scheduled. Government have also indicated that they wish to see upgrades of the network undertaken through Special Purpose Vehicles (SPVs). RMT do not believe this is the most cost effective way of delivering investment and we see little prospect of the exclusive use of SPVs being able to modernise the railway in the next 10 years.

  Within our additional comments we will address the questions raised by the committee. However we believe the fundamental question that must be addressed is how the successor to Railtrack will be configured/structured and financed. From this flows the mechanism by which the industry is financed and the relationship with the other constituent parts of the railway. These include the SRA, the Rail Regulator and the passenger franchises, comments on which have been requested by the committee.


  Many of the current difficulties with the railway stem from the fact that no one person is in overall control. The union believes this can be resolved by taking the infrastructure of the industry back into public ownership. Recent events have clearly shown that it cannot work as a private sector business. The railways are a national asset dependent upon billions of pounds of investment and subsidies, and we must ensure that by some means Government has effective control.

  Many details of the precise structure of the industry have yet to be resolved. Government have stated that day-to-day maintenance of the railway will remain with the Company Limited by Guarantee, (CLG). The Secretary of State has also stated that he favours Special Purpose Vehicles (SPVs) for major enhancement projects. Special Purpose Vehicles involve a group of companies formed together to deliver an enhancement project for the railway. The SRA is likely to be the channel for public money and will be one partner within the SPV.

  Reports also seem to suggest that Government may consider mortgaging future revenue from the railway as a guarantee to a private sector investor. For example if an investment bank or private sector company makes available funds for an enhancement program, such as the East Coast Main Line modernisation, they will in return be guaranteed future revenue that flows from the enhancement, so in this example it may be a proportion of track access charges or fare revenue from the East Coast Main Line.

  RMT believe that Government will be making a grave error if they embark upon this course of action. Proceeding this way will mean that on each occasion a major enhancement is planned contracts will presumably be put out to tender for private sector partners. Of course it goes without saying that the private sector will not be interested in participating in projects without guaranteed returns.

  RMT also believe that the taxpayer will pay more for enhancement projects through SPVs. This is partly because Government can borrow money more cheaply than the private sector. However the number of different parties involved in SPVs will we believe mean further delays and expense. Before investment can begin to flow there will inevitably have to be a number of contractual arrangements in place and these arrangements will draw valuable human and financial resources a way from the railway. Convoluted arrangements such as these will also mean that it will be more difficult to exert overall control.

  The railway desperately needs a steady flow of investment that, in current circumstances, can only be delivered by Government. The railway needs workers with sound railway knowledge and personnel with project management experience. Unfortunately SPVs will mean new companies, further fragmentation and an additional set of contracts for investment purposes. This cannot be justified when it is clear that this method of finance will see no greater return on Government funding or additional passenger benefits. We should also note that the SPVs will not only be subject to contractual terms amongst themselves, they will also have to formulate another set of agreements with Passenger and Freight Operators.

  The cost of these arrangements will therefore have to include provision for profit for the private sector partner, and fees for lawyers to draw up all the contractual arrangements between the SPV partners, and the companies in the railway industry affected by the investment. This money could instead be spent on improved services to passengers. The organisational structures on the railway need to be simplified not made more complicated.

  The most important criteria should be that passengers can identify who is in charge of maintenance, renewals and all passenger and freight operations. We believe this can be done as long as the Secretary of State gives sufficient power to the new network operator.


  As we have stated RMT believe that new investment can most simply be delivered by the CLG acting on behalf of the Government. The company, or indeed a separate subsidiary of the CLG, can through Government be granted a stable income stream from track access charges, property income and any other railway assets. In addition investment funds from the Government can also be made available so that the new company limited by guarantee is actually in charge of the whole network and therefore all investment projects designed to improve existing capacity. Additional expertise for particular enhancement projects can be recruited where necessary.

  There is no reason why a number of methods should not be used to finance the railway enhancements. Whilst grant payments from the Department of Transport have been the traditional method of finance, we would recommend that the new company be given the freedom to borrow from a number of sources. This can include borrowing from the city, for example through bonds. A Government guarantee will ensure a high credit rating, so resolving the difficulties of Government obtaining a sufficiently high capital rating to raise finance at minimal interest rates. Again the important issue at stake is central control and the ability of the Company Limited by Guarantee to plan a timetable of investment that places the needs of passengers first.

  The emphasis on possible private investment ignores the fact that the railways simply do not offer a commercial rate of return. The increase in ticket office revenue from extra investment is not enough to service the debt and provide a reasonable rate of profit for the investor.


  One of the first tasks of the new network operator has to be to rebuild confidence in the existing network. The Transport sub-committee has previously recommended that Railtrack directly employ staff to renew and maintain the network. We cannot over emphasise the importance of action on this matter.

  At the current time a number of principal contractors, together with many sub-contractors, undertake maintenance and renewal work. Independent reports have testified to the declining state of railway assets and this has resulted in tragic consequences, most notably at Hatfield. The increased number of contractual interfaces has given rise to additional safety risks that can be easily removed.

  Unfortunately despite the committees previous recommendation the Casualisation of the industry has continued. Latest figures from Railtrack show that there are now over 3,000 employers and 101,000 PTS card holders. Like major investment, renewals and maintenance need to be carried out under central command. As we have previously stated if this work was properly planned the peaks and troughs in workload could be levelled out. This will maximise the employment of permanent competent staff, and reduce the reliance on less competent sub-contractors and casual workers from agencies.

  A common safety culture for staff directly employed by the infrastructure owner is a number one priority that we sincerely hope is not going to be by-passed given the present opportunity for reforming the industry.


  The committee has raised the issue of passenger franchises. We have to get back to basics and remember that the railway needs to be run for the benefit of passengers.

  The network operator should be given wider powers to promote an integrated railway with network benefits. The train operating companies should be required to deliver these. The successor to Railtrack will also need to be far more pro-active in facilitating increased freight than has previously been the case with Railtrack.

  The preference for RMT is to see a re-integration of rail and wheel thereby bringing the passenger services back into public ownership at the end of their contractual terms. However at the very least the DTLR should renegotiate passenger franchises on the basis of increased Passenger Service Requirements, commitments to through ticketing and timetabling, and minimum levels of staff. Some operators may not be happy with this but the maintenance of a public service, not the generation of profits, is surely the primary function of the railway.

  Again the successor to Railtrack must be given powers to promote network benefits and ultimately if train operating companies do not wish to participate then the new company must be able to run franchises. Many passenger operators are already indicating that they have doubts about the viability of their operations. The taxpayer surely cannot be expected to pay ever-increasing subsidies to Train Operating Companies so that they can maintain services that are run primarily on a commercial basis.

  The future structure of the successor, and its relationship to the other constituent parts of the railway, gets to the very heart of the argument over public control and accountability of the railway. At the current time no one on the railway can take tough decisions as the fragmented structure of the industry means that the interests of the different constituent parts of the industry pull in different directions. The railway needs clear leadership from the top to resolve the differing interests of the various components that make up the network. In the days of British Rail the Board sometimes made tough decisions that left parts of the BR Group feeling aggrieved, but it was clear who was in charge and the decisions were made for the benefit of the whole network.

  RMT are not arguing for a reincarnation of British Rail but for effective control over the network. The new company should provide clear leadership and this can take the form of a planned programme of investment, responsibility for the maintenance and renewal of the track and the promotion of network benefits. There is simply no need to have such a convoluted structure with two regulators. Passengers should be able to identify who is in charge and there would be no doubt under these proposals.

  It is for these reasons that we reject the idea of granting train operating companies control of the track. There are many practical problems with this proposal, such as access for freight and lines with multiple passenger operators. But even more importantly this method will leave little scope for effective public control of railway operations, maintenance or investment.


  Earlier in this document RMT advised that investment in the railway needs to be centrally co-ordinated so that it can be delivered as quickly and efficiently as possible. The cost of major enhancement has escalated in recent years to due to the multiple operational and contractual interfaces in the fragmented railway.

  In a recent edition of the magazine, Modern Railways, Roger Ford undertook a comparison of the cost of investment under British Rail and the railway under privatisation. His analysis illustrates how, on the basis of the new official estimated cost of £6.3 billion for the West Coast Main Line (WCRM) route modernisation, the cost per mile will be £15.75 million. This compares with £4.9 million per mile when the line was last modernised in 1966. The figures have been calculated at 2000/01 prices. If latest reports are correct it is also likely that the cost of modernisation will have increased to at least £7 billion.

  Other comparisons have been made and the findings have been the same. For example the new line built by BR at Selby in 1980 was £10 million per mile. Under today's railway phase 1 of the Channel Tunnel Rail Link will cost £39 million per mile. Again these figures have been adjusted to reflect inflation since the original BR project.

  The conclusion to the study was that current schemes are costing two to three times what BR would have paid for the same project. The increased number of interfaces involved clearly increases costs. For example the cost of Leeds remodelling and signalling was estimated at £100 million, in line with Newcastle remodelling under the East Coast Main Line electrification in 1984. Railtrack gave approval for the scheme at a cost of £168 million, and it has since come in at £240 million. From that figure there is at least £50 million in compensation payments to Train Operating companies. There is a similar story with WCRM. Costs have now increased by a further £500 million to £6.3 billion. Again £300 million of this £500 million is due to increased compensation payments to Train Operating companies.


  RMT believe that a publicly owned rail network can deliver a better railway. The railway needs effective public control and accountability over railway operations, maintenance and investment. It is the lack of leadership and overall control that continues to see the industry drift along.

  Whilst we welcome the proposed conversion to a not for profit company Government simply cannot leave the current structure of the industry intact. The resources of the industry have to be co-ordinated for investment, new passenger network benefits and central command of maintenance and renewals.

  The cost of keeping the current structure retains all the problems with increased numbers of interfaces, contracts and claims for compensation payments. It is vital that the industry is reformed so that these extra costs are stripped out of the railway. The status quo not only costs the taxpayer more but also severely inhibits the ability of the network operator to effectively maintain the track, centrally plan enhancement or co-ordinate network benefits.

  It is now clear to most observers of the railway that the expenditure envisaged under the 10-year plan cannot be delivered. Government have committed £26bn to the railway but this money has now virtually all been accounted for. The ETCS signalling (safety) scheme will cost £4bn, implementation of the Disability Discrimination Act £1bn, the West Coast Main Line at least £6.3bn. When this is added to the £11.3bn subsidy to the Train Operators and £5bn for the Channel Tunnel Rail Link there is no money left. This is before taking into account the cost of Thameslink 2000, the East Coast Main Line modernisation, Great Western electrification and a number of other schemes to reduce congestion around the existing network.

  RMT believe that the original targets for passenger and freight growth as envisaged under the 10-year plan will need to be reconsidered and additional money allocated accordingly. Certainly if Government leave the existing structure of the industry intact the money promised under the 10-year plan will deliver less enhancement of the railway. The taxpayer currently spends billions of pounds on the industry and we need to ensure that far better value is obtained so that all resources go directly into improved network services.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2002
Prepared 8 March 2002