Select Committee on Welsh Affairs Minutes of Evidence

Examination of Witnesses (Questions 1 - 19)




  1. Order, order. Welcome to this Committee hearing this morning. I am very pleased you were able to come, Mr Gibb. Perhaps you would like to introduce yourself and the company you have with you.
  (Mr Gibb) Good morning. My name is Chris Gibb, I am Managing Director of Wales & Borders Trains.

  (Mr Brown) I am Nick Brown. I am Director of Commercial Development for National Express Group.
  (Mr Pheasey) Good morning, I am Malcolm Pheasey, Project Director, Franchising for Wales & Borders and National Express.

  2. Thank you all for coming. Wales & Borders Trains was formed only a month ago I understand. Can you explain the reasons for its formation?
  (Mr Gibb) Certainly. Wales & Borders Trains was formed as part of the Strategic Railway Authority's plans for an All-Wales franchise and we have formed the first stage of this, bringing together the three National Express Group activities within Wales.

  3. What improvements are you focused on delivering for passengers in Wales in the short term? What is your long-term strategy should you be successful in securing the franchise?
  (Mr Gibb) The short-term agenda is one of improving performance and reliability and safety. At the moment we are working on a three-month future because of the state of our franchise. Against that, we are working on a plan of train refurbishment, train reliability improvements, improvements to the timetable and we are also working with a number of grant-funding bodies to seek grant funding for various initiatives across Wales, some of which have recently been successful and many others are in the pipeline.

Mr Caton

  4. In your written memorandum you say, "Recently, both network congestion, as other operators have increased their services, the track difficulties experienced by Railtrack and overcrowding of services from passenger growth, have caused an imbalance in the previous relationship between costs and quality". Is that a euphemism for saying that the standard of service has plummeted?
  (Mr Gibb) The standard of service we offer has been affected by a range of different things over the last 12 months and prior to that. The increasing passenger numbers is one of the things which has affected the standard of service we provide; other issues such as the infrastructure and changing standards have also affected the level of service we provide. We have seen a very big growth in passenger numbers in some areas, for example on Valley lines we have seen a 23 per cent passenger growth in the last two and a half years.

  5. How quickly can you turn around that imbalance between cost and quality?
  (Mr Brown) This goes to the core of the issues around re-franchising for Wales and Borders. What we are looking for is certainty of funding to enable us to plan long term. Mr Gibb has mentioned the three-month termination notice which Wales & Borders Trains face at the moment.

  What we would be seeking is either a two-year franchise extension or a complete re-franchise through the process which was initiated by the Strategic Rail Authority last year to secure long-term certainty for the business so that we can plan on a longer term basis, levering the investments which are needed and restore that balance between cost and quality which we refer to.

  6. You say in your memorandum that the current division of responsibility for transport between the Government and the National Assembly can work against a fully integrated approach. Is this a serious problem?
  (Mr Gibb) We have a very good relationship both with the Assembly and Westminster's representatives whom we deal with. We are quite content to work with both organisations into the future. The Assembly has taken an increasingly proactive role in infrastructure investment in Wales, but also support/funds additional train services which we run in Wales. We receive the bulk of our funding from the Westminster governed Strategic Rail Authority and we have a good relationship with them and have been successful in securing additional funds over the last 12 months for new services and new projects.

  7. You say in your memorandum that this separation can work against a fully integrated approach. What sort of things had you in mind?
  (Mr Gibb) The determination of our franchise structure through a thing called the passenger service requirement, which lays down the level of services we operate on the routes in Wales, is by the Strategic Rail Authority to the instructions laid down by Westminster. The National Assembly has a transport policy of its own and sometimes potentially those two transport policies can conflict. The franchise agreement that we are operating to, does not necessarily match the transport strategy held by the National Assembly for Wales.

  8. Would further devolution of transport policy help?
  (Mr Gibb) That is a question for the politicians to determine between the two organisations. We are happy to work with both or either organisation in the future.

Mr Wiggin

  9. Could you elaborate a little more? We should be grateful for your opinion on that rather than a fob, if you would not mind.
  (Mr Brown) Just to give you an illustration, we have seen some encouraging initiatives from the National Assembly for Wales through the capital grants aspirations they have and the capital funding route seems clearer. The issue is the revenue funding going ahead into the future over whatever lengths of franchise. That is currently split between the responsibilities of the National Assembly and what is currently funded through the Strategic Rail Authority.

Mr Caton

  10. In your memorandum you say that one element of the operating cost is the leasing charge for the additional rolling stock required. National Express have suggested to the National Assembly for Wales that they consider capital grant funding the additional rolling stock as a way to reduce the operating cost and hence the call on public subsidy. That is transferring the subsidy to capital rather than revenue, is it not? What is the advantage of that?
  (Mr Pheasey) The advantage is precisely that. The local authorities traditionally and that continues with the Welsh Assembly, find it easier to make a one-off capital contribution in some form of grant than ongoing revenue subsidies. The normal structure at the moment in the industry is that a rolling stock company would capital finance the rolling stock and then whoever is leasing it, the train operator, would then pay so much a year as a rental by leasing it and that is a revenue cost that goes on. If the Welsh Assembly wished to capital purchase those trains, then that would not go onto the subsidy line which goes on for ever. It still costs the same amount but it transfers it into capital money which is often easier for local authorities to gain. The Strategic Rail Authority is the body which would provide the revenue subsidy.
  (Mr Gibb) We do have a precedent in Wales for that where we have trains owned by local authorities which we are operating, Bridgend County Borough Council and Rhondda Cynon Taff both own trains which were sold to them under BR in the early 1990s and we still operate them on that basis.

  11. You refer to local authorities there and in your memorandum you refer to liaison with the local authorities, with the National Assembly and others, including other transport operators. Could you tell us a little bit more how you work with these other institutions and agencies to deliver an integrated public transport system for Wales?
  (Mr Gibb) The most effective liaisons of that kind are through consortiums of local authorities. We came from the early 1990s of dealing with the very large local authorities such as Mid Glamorgan and West Glamorgan and through those local authorities we built new railway lines, opened new stations and built new trains. Since local government reorganisation it has been a little more challenging dealing with a larger number of smaller authorities. In some areas the local authorities have formed themselves into consortiums, for example SWIFT in the Valleys area, which is a very effective consortium of local authorities which has submitted transport grant applications to the National Assembly. We are a full member of SWIFT and play a very active part in the development of SWIFT's activities in the Valleys. Those are the most effective schemes for the larger projects. For the smaller projects, we work closely even with Parish Councils, very small local authorities for station enhancements and for grant funding applications where we shall work jointly for very small schemes such as cycle racks at stations and things like this. We shall talk to anybody who is willing to come to that sort of partnership.

  12. Do you see ways of improving this partnership to achieve an integrated system?
  (Mr Gibb) We have gone from a position in the early 1990s where we did not spend any money and we expected the partners to come forward with all the funding, through a position where we have started to make some matched funding contributions, especially to joint marketing partnerships with local authorities which have been particularly effective. In the future further contributions from us and an ability to fund those sorts of relationships and play an equal part with those local authorities would add to the effectiveness of those relationships.

Mr Wiggin

  13. The new draft Directions and Guidance to the Strategic Rail Authority on 29 June require that "all bidders ... must be made aware of the criteria upon which their bids are being assessed". Has the Government achieved this position with the SRA?
  (Mr Brown) We would always welcome further clarity on this. We read the draft Directions and Guidance and we also read the Secretary of State's statements. We are looking forward to the Strategic Rail Authority strategic plan which we believe will be published before the end of this month. We hope that gives us a clear way forward for the industry.


  14. How close are the SRA and National Express to getting agreement from First North Western to transfer the North Wales section of its franchise?
  (Mr Gibb) The discussions we have had with the Strategic Rail Authority so far have primarily concerned the three National Express Group activities within Wales. We are well advanced in discussions on the transfer of the six First Great Western stations in South Wales, that includes Cardiff Central, and we are expecting a transfer of those stations in January. We are ready to take the First North Western activities in North Wales at any time. Practically I believe the earliest that can be achieved is September next year and we are ready to take it in on that basis if the SRA so wishes.

  15. Why such a long delay?
  (Mr Gibb) The changes necessary to re-map the franchises are extremely complex and we have now completed the first stage of that and are very clear as to the work involved. In North Wales it is necessary to disentangle the timetable between the two parts of the resulting operation. It is very important that there is very clear accountability as to who runs what services, who is legally responsible for issues like safety and performance. Any complication in terms of accountability would make it very difficult to operate these services, so the next timetable where those sort of changes can be made is the September timetable next year. We are assisting in every way that we can to make that a practical proposition.

  16. What is the difference between letting the franchise by extension or by competition?
  (Mr Brown) Franchise extension would not involve a competition. It would be an extension to the existing franchise agreements. They all have in them a clause which can extend up to 26 financial periods, effectively two years.

Mr Owen

  17. What would be the benefits and disadvantages for Wales of short, two-year extensions as opposed to 20-year franchises?
  (Mr Brown) The benefit of an extension at this stage is that we can hit the ground running much faster with some of the investments and the initiatives Mr Gibb has already described and that we have put in our submission. The issue of 20-year franchises, obviously gives you a much longer planning horizon. We believe that with some of the difficulties in the rail industry at the moment, balanced against some of the very encouraging initiatives which have come from the National Assembly, we can make a very positive contribution to continued development of rail in Wales now rather than waiting for a re-franchising process in 2004, which is the end of the current franchise.

  18. What kind of time period and what level of investment would Wales require to make a significant contribution to objectives such as access for disabled people, punctuality, which is a big issues? What level of investment do you think would be required?
  (Mr Pheasey) Picking up the disabled point, the arrangements for funding works to improve disabled access, I am talking particularly about stations—new trains are bought and they come more or less ready prepared for that—we have done an assessment which is round about £19 million to make reasonable provision. The issue actually is how far you go to make reasonable provision. At the end of the day it can only be tested in court. We have made an assessment of what we think is reasonable and it comes to about that sort of figure. Separately from that we would expect that something in the region of £39 million of capital investment, that includes capital investment in rolling stock, would meet the Secretary of State's current Directions and Guidance and make significant improvements in the short term in Wales. That would be associated with a franchise extension, which we believe could be negotiated and put in place very quickly. We believe a longer-term franchise of 10 years, 20 years or whatever, particularly let competitively, would have a much longer lead time to get the new franchisee in place. You have to specify very clearly at the outset what you want bidders to bid against. We think that will take the SRA a lot longer and delay improvements. We suspect that the SRA will not be able to afford anything like the sort of monies we put in our initial proposal 12 months ago. That was based on extensive discussions and consultation with the local communities. We felt that met what Wales needed but it has become clear that the SRA are not able to sustain the sort of money involved in that.

  19. I was not quite clear. Did you say the level of investment was £40 million, but over what time period?
  (Mr Pheasey) That would be to 2006. I should stress that is not the subsidy which will be required, that is just the capital element of the investment.

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