Examination of Witnesses (Questions 80-99)
DEPARTMENT FOR
TRANSPORT, STRATEGIC
RAIL AUTHORITY
AND NETWORK
RAIL
26 MAY 2004
Q80 Mr Allan: I think I am following
on really from some of the points Mr Curry made on this question
about accountability and who is deciding what, and I should probably
start with you, Mr Rowlands. In terms of what we want, we want
more miles of track renewed or maintained to a higher standard
for less money; that is the public interest. Can you describe
how we exercise that public interest? Where is that money going?
If you have public money, and you are the Department for Transport,
how is that getting from you to the people doing the work, sitting
next to you now?
Mr Rowlands: You have to break
into this at some point so I will break in at the point where
the Rail Regulator delivered his interim new conclusions for the
five years running from 1 April this year through to 31 March
2009, if I remember right, a five year run, and what he has set
out in his interim review determination is a set of requirements
that Network Rail are to meet in terms of key performance indicators,
so there is a requirement by year for the number of broken rails,
for example, and there is a requirement over time in terms of
punctuality of the system and so on. He has also determined that
an efficient and economic Network Rail should be able to deliver
what in the jargon is called the OMR spend, the operational maintenance
and renewal spend, that underpins all of that, which is £22.2
billion over five years, and he has included another £2.4
billion for enhancements which are also taking place on the railway.
What then happens is that a part of those moneys flow to Network
Rail through the payment of track access charges by the 20 or
so Train Operating Companies, and they are contractually committed
to whatever the outputs are underpinned by a subsidy payment that
flows from my Department to Mr Bowker in the Strategic Rail Authority
with which he negotiates and lets franchise contracts. As it happens,
for various in a sense important and technical reasons, some of
the money flowing to Network Rail is by means of a direct grant
which comes again from the Strategic Rail Authority from a provision
we provide out of the Department. In that five year period, the
one that has just started, by agreement with the Regulator there
is no increase in access charges for the first two years—the
additional cost is supported by both direct grant and by Network
Rail borrowings—and similarly some of the payment is direct
grant, but it is for reasons of government accounting that we
need properly to recognise that some of this expenditure on the
railway is capital investment—
Q81 Mr Allan: Public sector?
Mr Rowlands: —and some is
revenue subsidy, if I can put it in those terms, and if you simply
pay it all back by access charges the way it is reported in the
accounts it underplays the level of investment in the railway,
so by paying some of it as direct grant you probably capture it.
That is a bit technical but it is quite important.
Q82 Mr Allan: Part 3 of the Report is
entitled, "Network Rail's governance and financing arrangements
are complex", but it begs the question, and I am not picking
on Mr Bowker, why do you need Mr Bowker? You have the Rail Regulator
who is coming up with all the figures. Why does the Department
not just pay the money to the Train Operating Companies and Network
Rail? Why have Mr Bowker in?
Mr Rowlands: Mr Bowker exists
because the government created the Strategic Rail Authority in
February 2002 to supply a strategic direction to the railway because
the conclusion on the basis of the experience of the privatised
railway was that an interplay of contracts and contractual interest
did not of itself necessarily reflect properly an overall strategic
direction from the railway, and in a sense, if you fund it properly,
the public interest as expressed through that strategic direction.
Q83 Mr Allan: But it could have been
done within the Department. Are you saying you are not up to it
so you have to get these other guys in to do it?
Mr Rowlands: It could have been
done, I guess, within the Department. It could have been done
by the creation of some other kind of body; that was the decision
that was taken. I think I would like to defend the Department
and say that I guess we would have been up to it had we been asked
to do it but the conclusion was to set up a strategic rail authority.
Remember, this was out of a background where there was already
an existing other body called OPRAF at the time, and it was that
body that was letting and managing franchise contracts and, in
a sense, that which was built upon, plus the residue of the British
Railways Board which actually still exists, which led to the creation
of the Strategic Rail Authority.
Q84 Mr Allan: Mr Armitt, from your point
of view, is not this just an extra layer of complexity? From Network
Rail's point of view would it not be simpler just to deal with
this Rail Regulator, who is the one who sets the targets, and
the government signs the cheques?
Mr Armitt: We deal with the Rail
Regulator on a day-to-day basis because he is there to oversee
what we do and to ensure that we do it efficiently and effectively,
and meet the targets that he sets. He is the one who sets our
financing levels. The secondary issue here is who provides strategic
direction, and that is a matter for the government.
Q85 Mr Allan: I will turn to that in
a moment, but just turning to table 4 on page 14 which tells us
about the growth in train miles operated since 1997, I see it
dips every fourth quarter. Is that because they timetable fewer
trains in winter?
Mr Armitt: That is called leaves
on the line.
Q86 Mr Allan: But it says "Timetabled
train km" in table 4?
Mr Armitt: That is the difference
between the winter and summer schedules.
Q87 Mr Allan: So they do have fewer trains
in winter?
Mr Armitt: Yes.
Q88 Mr Allan: I can understand that.
An important issue, I think, is that a lot of customer dissatisfaction
is that services are not growing as fast as customer demand is
growing, which I guess is firmly in the Strategic Rail Authority's
domain, and an example of something which people ask is that from
Sheffield to Leeds we have no good service and Virgin Trains are
getting very upset because theirs is the only fast service from
Sheffield to Leeds, so everyone piles on to the Virgin train which
is supposed to be going from Plymouth to Newcastle and not carrying
local passengers, and everyone says, "Why can we not have
a decent train service between those two points?" I am still
confused because presumably that is what you are supposed to be
doing as the SRA. You should be delivering us this train service
if there is demand.
Mr Bowker: Not only should we
be doing it; we are doing it. That is why we published a route
strategy for the Midlands Main Line which identified what people
wanted, and we are working with South and West Yorkshire PTE and
the network and rail operators to look at what it would take to
deliver that. That is happening.
Q89 Mr Allan: And if there is a need
for improved track or alterations to the track to do that, then
you decide because it is one of your priorities to give the money
to Network Rail to deliver that?
Mr Bowker: If it involves enhancement
of the network in order to deliver that then we have the ability
to contract with Network Rail to deliver those enhancements, yes.
Q90 Mr Allan: So you are the people we
should come to if we want to press for new and enhanced services?
Mr Bowker: Indeed.
Q91 Mr Allan: Is it therefore your impression
that you are keeping up with demand or are you little boys with
fingers in the dyke, just stemming things? Because there is a
perception out there that demand is growing much more than capacity?
Mr Bowker: It is not growing evenly.
If you look across the network you can find parts of the network
where demand has grown very significantly. The line you would
be aware of, Thameslink Services, has grown dramatically around
60 and 70% over the last few years. Now, there is a limit to your
ability to keep pace with that level of demand without investing
in major infrastructure. At some point you have to correct staff
change, and that is why we are looking at Thameslink 2000 to do
precisely that. In other parts of the network there has not been
that level of demand. The point really is that somebody somewhere
has got to take a long term, strategic view of the rail network
and how it interacts with wider economic issues. That is a matter
for government. The Strategic Rail Authority is a creature of
government, and that is what we do.
Q92 Mr Allan: Finally, Mr Rowlands, you
talk about the safety issues here which we know are things that
have disrupted the network to a large degree, and the frightening
thing about this is that the value per preventable fatality is
£1.2 million for the roads and that is going to be applied
to the railways, but I guess the point that comes out of this
is that there is a potential conflict between safety and government
service. We may want a new service but that may, in the opinion
of Network Rail, be more than that particular bit of line can
take. Who referees that and how are those priorities set?
Mr Rowlands: Can I come from a
slightly different direction? In a well run industry there is
not, in the sense that perhaps you meant it, a conflict between
safety and performance. To pick up the point about British Airways,
I do not think anybody would claim within the aviation industry
that there is a conflict between safety and performance. There
are some issues to do with prioritisation, and that is as true
of, say, the roads programme from my Department as it is from
investment on the railway, and that is why my Department uses
a notional so-called value for life figure in order to prioritise
highways expenditure, because there comes a point—and this
is all terribly difficult because it sounds heartless—where
the monies you are expending on safety are not producing the benefit
incrementally and you should not be spending it, so one of the
issues for railway is the need to arrive at a basis on which to
prioritise railway expenditure, including safety. Historically,
I think it would be fair to say that the railways have used a
rather higher figure than the one that my Department uses for
roads, and the justification for that has been what I think the
HSE would call in the jargon societal value of life in terms of
public transport as opposed to a driver driving his own car. It
is an undecided issue as to what the value for life should be
for the railway, and I think ultimately it has to be an issue
both for Network Rail in terms of investments they make backed
off against any Strategic Rail Authority requirements but also
particularly the Regulator's position. What I would stress is
that I do not think on the railway there is a definitive single
value that, if it does not meet this test, we will not make the
expenditure. It is a decision tool. You can clearly see at some
values it is not sensible to spend the money, but for other safety
related projects it is really sensible to spend the money.
Q93 Mr Allan: Network Rail, do you understand
you have the same kind of potential legal liability for deaths
on the railways that people have suggested in the context of contractors
who have worked on the railways and then caused accidents, and
is that a limiting factor, because fear of corporate manslaughter
charges is referred to in the Report?
Mr Armitt: We accept the simple
fact and responsibility that whatever happens on the railways
as the owner of the infrastructure it is our responsibility and
we have never shied away from that. As David has just been explaining,
in making our judgments and decisions about what we should and
should not do we do have to take into account these figures. We
take a higher figure into account very often because the potential
of an accident could result in multiple deaths rather than a singular
death, and because of the multiple death aspect we typically might
be using a figure of £3.5 million as opposed to £1.2
million.
Q94 Mr Jenkins: Mr Rowlands, when you
got the Report, were you surprised by the findings of the Report?
Did you expect it, or do you know about it?
Mr Rowlands: I was not surprised
because I think the Report in a sense rightly reflects the position
that Network Rail and, indeed, the railway industry finds itself
in. This is unfinished business and it comes down to this Report
and I do not think the Department will either want to pretend
that it is anything other than unfinished business. It is a fresh
start; it has clearly made, particularly Network Rail, progress
in the last 18 months since it came out of administration, but
there is still a way to go in terms of performance, in terms of
cost control and issues like—
Q95 Mr Jenkins: Yes, very much, and it
is about how and why we got into this mess to start with and the
fresh start was needed. Railtrack put us in this mess and the
Department was overseeing this system at the time. Can you tell
us what your job and role was from 1996 to 2003.
Mr Rowlands: I was, prior to becoming
Permanent Secretary in June last year, six years as Director General
responsible for railways, aviation, logistics, maritime and security.
Q96 Mr Jenkins: Let us get this clear.
You were the person responsible for the running and the well being
of our railway system.
Mr Rowlands: No. I think the strict
and accurate position was that the private sector companies in
the industry had the immediate responsibility and, in terms of
Railtrack as a regulated monopoly, the responsibility thereafter
rested with the Rail Regulator and not directly with the Department.
Q97 Mr Jenkins: So, the Director General
of Railways was merely a title.
Mr Rowlands: I think it was a
little more than that. Let us be clear. The Regulator was responsible
for regulating the performance of Railtrack as it was.
Q98 Mr Jenkins: Blame the Regulator,
blame somebody else, but the Department is responsible for running
the system and the buck stops somewhere, so where does it stop?
Mr Rowlands: What happened was
that, in 2001 after the Regulator had reached what was then his
five year review conclusions, Railtrack asked on more than one
occasion for additional funding and other things and it was on
that basis that ministers concluded that they did not wish to
give further finance to Railtrack and made application to the
High Court.
Q99 Mr Jenkins: Mr Armitt, in the Report,
it mentioned several times the new increased level of funding
and it mentioned that the pre Hatfield levels are now 30% higher,
but nowhere in the Report—and you have had your chance to
look at this Report, alter this Report or put forward your comments
on this Report—did you point out where it says it was the
pre Hatfield level of funding that caused us to have a decaying
railway system.
Mr Armitt: It is obviously not
for us to write the Report. I think it is well documented and
many people have commented for several years now that there has
been a very significant under level of investment in the railways
pre privatisation let alone post privatisation and the level of
investment was actually increasing, I believe, in Railtrack's
defence, from a low in 1993-94, it had actually increased through
1995-96. The level of investment now is clearly significantly
greater and I think does reflect the much greater understanding
that we have of the overall state of the infrastructure and the
need for investment than clearly existed at that time.
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