Select Committee on Transport Written Evidence

Further memorandum by the RMT (FOR 39A)


  Since the deadline for original submissions, there have been developments in the industry about which the RMT would like to provide additional information. These relate to the structure of the rail industry and mail on rail.


  The RMT welcomes the decision to bring all the infrastructure maintenance contracts back in-house, in line with the recommendation that was made by your Committee in 2001, in respect of Railtrack. We would congratulate the government for creating the structures in the railway that has allowed this decision to be made.

  We note Network Rail concluded that creating a "single integrated rail maintenance operation" would deliver "significant efficiency saving". It is clear that in large part the decision by Network Rail was driven by the need to reduce costs. It is anticipated that this will be achieved by reducing management duplication, complex reporting lines, introducing direct control over the management and financing of works and, because Network Rail is a "Not For Dividend Company", the removal of the need to subsidise payment to shareholders.

  However, if this template for controlling costs is being applied to rail maintenance we think it would be prudent for the government and industry to take stock and satisfy itself that the current overall structure of the industry is the correct one for controlling costs and delivering value for money for the taxpayer and fare payer.

  In this respect with regard to infrastructure renewals and enhancements, analysis by Rail Business Intelligence (RBI) in October 2002 showed the cost of investment in the railway was now two to three times more than if British Rail were undertaking the same works calculated at today's prices. Further analysis by RBI in July 2003 reveals that between 1975-79 expenditure on track renewals, in 2003 prices, was considerably less than that spent by Railtrack in 1997, 1998 and 1999. However, the 2003 Network Rail Business Plan Summary shows that renewal rates in the 1970s were around 1,000 kilometres per year in 1975, 1976 and 1979 and around 800 kilometres a year in 1977 and 1978 but by the late 1990s renewals had fallen to less than 400 kilometres a year. This clearly demonstrates that under a unified BR management every pound spent resulted in far greater levels of track renewals than under the privatised Railtrack.

  Chris Green, chief executive of Virgin Trains has already raised concerns about the renewals regime, when commenting on Network Rail's decision he said "The message on renewals is that they will go the same way unless the contractors get their act together . . . the railways have been fragmented too much—a bit of command and control will do no harm. This should be a red card on maintenance but also a yellow card on renewals."

  Renewals and enhancement projects on the mainline railway are currently undertaken by the same companies which have been withdrawn from railway maintenance, with Jarvis being responsible for over 50% of all renewals (RBI 16 October 2003). Before Network Rail took maintenance back in house it conducted a detailed review of whether bringing rail maintenance in house would help it control quality and costs. We believe it is now appropriate for the company to undertake a similar review and publish the findings as to whether the current arrangements for renewals and enhancements are satisfactory.

  With regard to passenger services, since privatisation almost 10 billion pounds in public subsidy has been paid to private train operators and, according to a recent study by Dr Richard Knowles of Salford University, annual rail subsidies were £270 million greater in 2002-03 than in the year before privatisation. The new franchises awards at South Central and South West Trains and the two-year extension for the Central Trains franchise have all been marked by substantial rises in public sector subsidy.

  Section 212(30) of the Transport Act 2000 allows the SRA to run rail services where a franchise has ended and no new tenders have been invited or where a tender process has taken place and no suitable franchisees have come forward. This means passenger train operating companies can be bought under the control of the SRA at the end of their current franchise. However, whilst the SRA has certainly exerted more control over the franchise process, the government and SRA continue to automatically award new franchises to the private sector, in effect re-privatising passenger services. Little consideration seems to be given as to whether the franchises could be run by the SRA.

  This issue was raised by Ann Cryer MP in transport questions on 21 October, when she asked the Minister of State "What the criteria are for awarding railway franchises; and what plans he has to allow the Strategic Rail Authority to run franchises under section 212 (30) of the Transport Act 2000."

  The Minister replied that "Our directions and guidance to the Strategic Rail Authority list the factors that it should take into account when assessing bids. A copy is available in the Library of the House of Commons. Ultimately, the authority is looking to secure the best value for money for passengers and taxpayers. Apart from the interim arrangements necessitated by the termination of the Connex South Eastern franchise, we do not currently anticipate any other circumstances in which section 30 will apply."

  However, the directions and guidance to the Strategic Rail Authority contained in the House Of Commons library does not indicate whether, when awarding franchises, an assessment is made as to whether a public sector bid through the SRA would be appropriate. The RMT believes that the SRA should take control of passenger services at the end of the franchise period. Or, at the very, least due to the significant amounts of fare and tax payers money involved, the SRA should make provisions for a public sector bid in the rail franchising process to establish whether the SRA taking control of a franchise would provide better value for money and for the more effective coordination and integration of passenger services.


  On 18 September Lord Whitty, a DEFRA minister wrote to the RMT to state "I personally and this Department also have grave concerns about the Royal Mail decision, which seems to be heading in the opposite direction from the aim of a more balanced, environmentally friendly and integrated transport system."

  Royal Mail has in part justified its decision on the basis that it claims the transfer from mail to road will actually reduce vehicle emissions. Lord Whitty's letter demonstrates that DEFRA clearly have a different view in terns of the environment and transport policy. This raises the fundamental question of policy of why, when the government has a majority shareholding in Royal Mail and one of its own departments has "grave concerns", Ministers will not intervene. The Committee should also be aware that Royal Mail has been in discussions with alternative rail operators to EWS including Freightliner and GB Rail Freight, Virgin Rail, Advenza and two other unnamed companies.

November 2003

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