APPENDIX 1
Memorandum submitted by the South Hampshire
Rail Users' Group
What should be the purpose of passenger rail franchising?
In a DETR leaflet of January 1995, the Conservative
Secretary of State Dr Brian Mawhinney justified privatisation
in these terms: "We want responsiveness to passengers' wishes.
We want, in the railways, all the characteristics of the best
of British industry. The Sainsburys of this world respond rather
well to their customers' changing demands without any help from
the state, thank you very much. We want that responsiveness for
the railway too".
The purported principle of rail franchising
therefore was that private expertise should improve on State provision,
give passengers the product they wanted, adjust that product to
reflect changing demand, and aim for financial self-sufficiency.
This vision was fine but unrealistic. The success of the supermarkets
was based on strong competition, aggressive expansion and economies
of scale. Rail franchising brought very limited opportunity for
competition or expansion, but substantial extra costs from fragmentation.
Although the franchised railway can cite success
stories, overall it is doubtful whether it has delivered improvements
which British Rail would not have delivered more cheaply. Operating
costs have generally expanded in line with, or even ahead of,
the additional resources which Government has made available.
The development and introduction costs of a wider than necessary
range of rolling stock are an obvious example of waste.
The evidence suggests that franchising has resulted
in widely varying standards of leadership and ethos. BR had the
advantage of some inspired leaders and a deeply-ingrained public
service ethos. It was never likely that some two dozen train operating
companies would simultaneously match BR's best. In our Group's
response to the Committee's 2001-02 Inquiry, we therefore contended
that the railways needed a supremo to drive up standards in all
areas of activity.
The Strategic Rail Authority brought the opportunity
of a supremo which we envisaged, but failed to grasp the nettle.
Handouts to the worst performing private operators soared. Stagecoach
was given an extra grant of £29 million for a few enhancements
on South West Trains such as additional evening services. Evening
cancellations then became routine because the company failed to
provide sufficient trains or crews for a robust service.
Responsiveness to passengers' wishes has been
patchy. Among the successes, GNER gained a formidable reputation
for its customer service standards, with Chiltern and Anglia also
widely acclaimed. To highlight its readers' aspirations, the Yorkshire
Post newspaper ran a campaign for Sea Containers to keep the
GNER franchise when the original term expired. Passengers got
what they wanted.
By way of contrast, Stagecoach's South West
Trains franchise was controversial from the outset, as recorded
in Christian Wolmar's book, "Stagecoach". The company's
profiteering soon led to the cancellation of dozens of trains
on a daily basis, followed by a reduced timetable. Stagecoach
director Brian Cox referred to critics as "Fully paid up
members of the Hindsight Club". Chairman Brian Souter attributed
hundreds of letters of complaint to commuters being bored with
having nothing to do in their offices. There was a stark lack
of public service ethos.
The outcry when Stagecoach got a second term
was predictable. It can be summed up by the words of the BBC's
transport correspondent, Paul Clifton, when he wrote in the May
2001 edition of Rail Professional magazine, "Here's
the opinion of one regular SWT commuter, sent to me by e'mail:
`The award to Stagecoach is the cruellest betrayal of passengers
departing from Southampton since the unsinkable Titanic set sail'".
How well does the process for awarding franchises
work?
Under the SRA, the franchising process was opaque,
but there was compelling circumstantial evidence of an uneven
playing field, which raised ethical questions. Stagecoach Chairman
Brian Souter had once told the Scotland on Sunday newspaper
that "Ethics are not irrelevant, but some are incompatible
with what we have to do because capitalism is based on greed.
We call it a dichotomy, not hypocrisy". As recently as February
2005, South West Trains' e-motion magazine referred to
him as "the tough Scots bruiser who came to dominate the
UK's bus services by ruthlessly driving rivals off the road",
despite the Monopolies and Mergers Commission having in August
1995 condemned this activity as "deplorable, predatory and
against the public interest".
Persistent research by Private Eye established
that the father of the SRA's chairman and chief executive Richard
Bowker was a Stagecoach director and that Mr Bowker once worked
with Graham Eccles, who became head of Stagecoach's rail division.
In the circumstances, Mr Bowker might have been expected to be
particularly careful to demonstrate neutrality towards Stagecoach.
However, Private Eye further established that he once attended
Brian Souter's church (a round journey of 1,000 miles from the
SRA's London base), and helped Stagecoach enter bidding for the
Integrated Kent Franchise a second time. Mr Bowker also reportedly
stated before your Committee that a £106 million grant to
Virgin Trains had been to stabilise both Virgin and Stagecoach
(which has a 49% interest in the company).
Against this background, the switch of franchising
responsibilities from the SRA to the Department for Transport
is welcome, and it has brought a more obvious willingness to take
account of passengers' interests. The Department's franchise consultation
and Network Rail's Route Utilisation Strategy consultation for
the South Western Rail franchise provided an opportunity for rail
users to comment on what they needed for the future. Some major
changes to the original proposals, particularly in respect of
service patterns in South Hampshire, have resulted from the consultation.
Turning to the bidders for the new South Western
franchise, members of our Group have attended very constructive
meetings with Arriva, First Group, MTR/GNER and National Express.
We gained the impression that these companies were genuinely interested
in passengers' views. We were not contacted by Stagecoach.
It is disappointing that passengers and other
interested parties are not asked their views on how existing operators
have performed. The patchy picture of achievement across the national
network suggests that past performance is highly relevant to getting
best value for money in the future. Official statistics play a
role, but regular commuters are in the best position to comment
on the facts behind the figures. As far back as August 2000, the
Guardian reported that the National Audit Office was calling
on the Shadow Strategic Rail Authority to get passengers to "snoop"
on poor performing train operators.
Some aspects of the rail franchising process
remain opaque. We had no idea how franchise bidders were chosen
at the pre-qualifying stage until "Rail" magazine
recently reported that 80% of the available score is awarded for
"demonstrating a proven track record of service delivery
and sound financial management".
On this basis, it is remarkable that Stagecoach
has pre-qualified to bid for the South Western Franchise. Recent
reports indicate that over the past decade the franchise has received
£499 million from public funds whilst building up the highest
performance penalty for any franchise, of £54 million. In
2002, confirmation of the second SWT franchise period was delayed
when Stagecoach shares dipped to 10p and SWT's performance continued
to deteriorate.
The fact that users are not consulted in more
detail about their experiences of existing franchises creates
vulnerability in the franchising process. It is difficult to imagine
Department for Transport Ministers or officials developing the
working relationship which apparently existed between Richard
Bowker and Stagecoach. However, Secretaries of State come and
go, and the Strategic Rail Authority was short-lived. What if
an ethically-limited operator seeks advantage from re-writing
history?
The kind of lines Stagecoach is taking in public
in support of its bid are exemplified by SWT's tenth anniversary
press release. This states, for example, that "When we took
over in 1996 the first few years were by far the hardest, but
we put our heart and soul into delivering a railway to be proud
of". In fact, the company immediately sought to maximise
profits by disposing of train crews and cutting services. Transport
Minister Steven Norris commented, "We in the Conservative
Party were very happy at the way rail privatisation was going—new
investment, new ideas, new services . . . SWT instantly unwound
all that".
SWT claimed in the same press release that "Safety
and security is our number one priority". Commuters have
watched with disbelief as SWT has carried off successive "secure
station" awards at stations where the barriers are left open
in late evening when there are fewer fares to protect but passengers
are more vulnerable to attack. The Evening Standard campaigned
on the broader issue of station security, and bidders for the
South Western franchise have been warned that they will be required
to step up station security.
The Department for Transport's franchise consultation
document highlights the issue of capacity. Yet it contains a glaring
error in using Stagecoach's standard line that: "SWT have
recently completed the single largest order placed for new stock
since privatisation (worth £1 billion)".
Under the original order SWT was to hire 785
new coaches, worth £644 million. Only the addition of the
long-term maintenance contract brought this figure to £1
billion. Euston and Northampton services then received 120 of
the coaches. This reduced the pro-rata value of the 665 coaches
which SWT has actually accepted to about £540 million, a
little over half the value suggested in the government document.
The term "single largest order" appears deliberately
phrased to be misleading because Go Ahead ordered and accepted
742 coaches for their Southern franchise.
SWT's improved performance isn't a great triumph
either. From its December 2004 timetable, it slowed services even
further, a phenomenon which has not happened with operators of
comparable services. By way of example, in 1990 Brighton-Victoria
fast trains required 52 minutes and Southampton-Waterloo fast
trains 66 minutes, each with one intermediate stop. This represented
average speeds of about 60 mph and 70 mph respectively. Currently,
the times are Brighton-Victoria 51-52 minutes with two intermediate
stops and Southampton-Waterloo 79 minutes with three intermediate
stops, with an average speed of about 60 mph in both cases.
Despite the introduction of such a slow timetable,
train doors close before departure time, and stops are omitted
and trains curtailed short of destination on a daily basis. This
helps disguise late running but makes services very unsuitable
for vulnerable passengers like frail and disabled people. Provision
for disabled people is at times farcical. For example, the down
platform at Totton station is not wheelchair accessible but has
a wheelchair loading ramp.
It sometimes seems that Stagecoach is paranoid
about its record on SWT. It has resorted to advertisements exhorting
passengers to talk to the company rather than to each other. In
addition, it has largely conducted consultation through "Meet
the Managers" sessions on trains and at stations. This means
that passengers have not learned one another's views as they have
at meetings arranged by rival bidders.
Since MPs are likely to recall constituents'
complaints against SWT, the company apparently doesn't want commuters
talking to them either. SWT's e'motion passenger magazines
contain what are purported to be the views of its "Passengers
Panel". The Panel is attributed with this suggestion that
MPs who claim to support their constituents' aspirations are as
trustworthy as petty thieves: "Counting the spoons:
As the voice of train passengers on SWT, it's vital that we understand
the issues that really matter to you so that we can protect your
interests and ensure your views are strongly represented. The
politician faced with a rail problem and little idea of how to
deal with it cries `We have to put our passengers first'. If they
have no idea at all, `have' becomes `determined' and they shout
even more. Isn't there a saying `the louder they shout their innocence,
the faster we count the spoons?'"
E'motion appears essentially to be a
vehicle for manipulating public opinion. The number of published
letters attributed to individual members of the public is limited.
Instead, the Passengers Panel puts forward the "most frequently
asked questions", like: "I think that South West Trains
has done a pretty good job recently and deserves a new franchise,
and I'm not alone in this. Before all of you at the Panel groan
and consign my letter to the waste-paper basket as just a note
from another sycophant, let me hasten to add that there are a
number of my fellow passengers who would not agree, which is exactly
why I am writing. What can the ordinary passenger do to make his
or her views heard by whoever awards the new franchises?"
What passengers don't hear is comments like
that of Stagecoach director Rufus Boyd, as recorded on CD at the
February 2005 meeting of the Hampshire Economic Forum. He opined
that performance across the rail network was fine and the only
problem was poor press coverage due to long-distance commuters
who made the "ultimate distress purchase" in buying
a home remote from their workplace.
The overall impression therefore is of a company
hell-bent on profiteering and still without public service ethos.
Even with the projection of a false facade of achievement on SWT,
official customer satisfaction statistics have struggled from
64% to 84% over four years—with 162 million passenger journeys
a year, this equates to an improvement from some 135,000 dissatisfied
passengers a day to 70,000.
Are franchise contracts the right size, type and
length?
In practice, the Government seems to have decided
that franchise periods of around six to seven years, which can
be extended to 10 years if performance is satisfactory, will in
future be the norm. This seems ample, given that operators are
no longer expected to undertake major enhancements.
With a booming economy, increased mobility and
climate change, it is hard to imagine that franchise bidders have
hitherto worried much about risk, especially while SRA handouts
have been generous. Now that the Government is requiring operators
to move from subsidy to premium, competition is likely to be restrained
even in the context of bidding. For example, in the current South
Western franchise exercise, Go Ahead, National Express and GNER
have withdrawn their bids in order to concentrate on other, recently
awarded, franchises. There is already speculation in the press
that Stagecoach may retain the franchise, effectively by default.
If that happens, it is difficult to see how the process will have
achieved a good outcome for passengers.
Do we need more competition and vertical integration?
Competition was supposed to drive up standards
and offer variety. With a few exceptions, as for example between
London and Birmingham, there is little scope for competition on
the network, so the question of whether we need more is probably
academic. The award of franchises appears to ignore service competition
with even the two busy commuter routes between London and Southend
now operated by the same parent company. The underlying problem,
however, is lack of capacity. In theory it is fine that an open
access operator should be bidding to run direct services between
Sunderland and London, but it makes little sense that this would
use capacity which has been promised to GNER for extra London-Leeds
trains.
The Integrated Kent Franchise will bring a new
element of competition. However, it is open to question whether
Kent commuters will want to pay premium fares for fast services
to St Pancras, and probably Tube or bus fares on top, when normal
fares are already about the highest in Europe. The existing slower
services direct to the City and West End may well retain most
of the custom. London commuters typically like trains which take
them to work without onward journeys by bus or Tube. This is apparent
for example in the well-recognised aspirations for more SWT trains
to stop at Clapham Junction for Victoria connections.
On the Cross Country routes, Virgin now runs
an improved service, but with trains often too short to cope with
demand. If competition is desired, the Cross Country franchise
should logically run fewer and longer trains, and give up some
of the track capacity to other potential operators. It may be
that the Route Utilisation Strategies which are now in vogue should
be complemented by a national utilisation strategy to identify
where longer trains or dual portion trains could help meet demand
and extend rail markets into areas which have traditionally been
excluded from good rail services.
Vertical integration would be just another step
in the fragmentation of the rail industry. Network Rail has taken
maintenance in-house because problems with sub-contractors led,
literally, to disaster. The normally good safety record of rail
travel relies to a considerable extent on proper standards of
infrastructure maintenance, and this is an area where best practice
is essential.
SUMMARY
— The original vision for the franchised
railway was unrealistic. Despite pockets of success, the rail
network is more costly and no better overall than British Rail.
— There is little scope for service
competition, because of lack of capacity and infrastructure. In
future the premiums required of operators are likely to restrict
competition in the bidding process also.
— The process for awarding franchises
is tending to become more transparent since responsibilities were
transferred from the SRA, but the Department for Transport does
not consult regular users on operator issues. This will tend to
impede any goal of getting best value for passengers and other
taxpayers.
— There are issues around the integrity
of the franchising process. The evidence suggests that Stagecoach
was unfairly favoured by the SRA in the first South West Trains
re-franchising exercise and is seeking advantage in the current
exercise by re-writing history and manipulating public perceptions.
CONCLUSIONS
— The case for franchising is not made,
but we assume that franchising will remain. A tightly regulated
railway therefore offers the best route to good value, for example
through economies from having fewer types of new rolling stock.
— There is little capacity for competing
services, but better value might be extracted from the network
by adopting a national utilisation strategy to identify demand
for longer trains and promote inclusivity through dual-portion
trains.
— There should be consultation on operator
issues in the course of franchising exercises, so that Government
knows the facts behind the figures from regular users who are
best equipped to provide informed opinions. This would help remove
the risk of an ethically-limited incumbent operator bolstering
a bid by re-writing history.
— If the franchised railway is to be
more joined up, but there remains little scope for more competition
and the pool of potential operators stays small, it is difficult
to see the sense of having individual operators' franchises scattered
around the country. It would seem preferable to merge adjacent
franchises (such as ONE and C2C). This could create a structure
like the old BR regions.
— Vertical integration shouldn't be
considered because of the potential risks to safety in the event
of deviation from best infrastructure maintenance practice.
14 June 2006
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