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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 1354-i House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE TRANSPORT COMMITTEE
Wednesday 5 July 2006 MR CHRIS AUSTIN, MR PAUL FURZE-WADDOCK, MR JONATHAN METCALF, MR TOM SMITH, MR DAVID FRANKS, MR ADRIAN LYONS MR DAVID BLAINEY, MR COLIN FOXALL, MR MICHAEL HEWITSON, MR PETER COUSINS, MR RICHARD POUT Evidence heard in Public Questions 1 - 102
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Transport Committee on Wednesday 5 July 2006 Members present Mrs Gwyneth Dunwoody, in the Chair Mr Jeffrey M Donaldson Clive Efford Mrs Louise Ellman Mr Robert Goodwill Mr John Leech Mr Eric Martlew Graham Stringer Mr David Wilshire ________________ Witnesses: Mr Chris Austin, Director of Public Policy, Association of Train Operating Companies (ATOC), Mr Paul Furze-Waddock, Commercial Director, First Group, Mr Jonathan Metcalf, Chief Operating Officer, GNER, Mr Tom Smith, Planning Director, Go-Ahead Group, Govia, Mr David Franks, Chief Executive, Train Division, National Express Group, and Mr Adrian Lyons, Director General, Railway Forum, gave evidence. Chairman: Good afternoon, gentlemen. You are most warmly welcome to this session. Before I begin, there are some bits of housekeeping. Members having an interest to declare? Mr Martlew: I am a member of the Transport and General and General and Municipal Workers' Union. Clive Efford: I am a member of the Transport and General Workers' Union. Graham Stringer: I am a member of Amicus. Chairman: Gwyneth Dunwoody, ASLEF. Mrs Ellman: I am a member of the Transport and General Workers' Union. Q1 Chairman: Before I start, I would like to remind everybody that when we hear evidence in public we are bound by the resolutions of the House of Commons of 15 November 2001 that no matter currently before a court of law should be debated. There is a case currently before the courts concerning open access on the rail network. I wish to make it clear I shall allow no reference whatsoever to this case in the forthcoming evidence session. Gentlemen, may I ask you first to identify yourselves for the record? Mr Lyons: Adrian Lyons, director general of the Railway Forum. Mr Franks: David Franks, National Express Group. Mr Smith: Tom Smith, Govia. Mr Metcalf: Jonathan Metcalf, GNER. Mr Furze-Waddock: Paul Furze-Waddock, First Group. Mr Austin: Chris Austin, Association of Train Operating Companies. Q2 Chairman: Does anybody have any general points to make before we go into questions? Mr Austin: No. Q3 Chairman: In what ways is the current franchise system better than a unified, state run railway system? Mr Austin: One of the benefits for passengers is that train operating companies focus on passengers. That is what we deal with. We do not deal with engineering; we deal with serving passengers. I think the benefit for the government is that it provides regularly a competitive process to ensure that the services it is specifying and paying for offer best value for money. Those are two initial thoughts. Q4 Chairman: Anybody else? Mr Franks: It has certainly enabled much more innovation to be brought into franchising. Q5 Chairman: What specifically? Mr Franks: There are a number of issues. Perhaps I will touch on a very simple one. Revenue protection for me is a good example. I recall as a managing director of one of the franchises the ability, as a manager in the private sector, just to literally put £1 million on the table to put additional resources in place to manage revenue protection and drive the revenue at risk element. Q6 Chairman: How often did you do that? Mr Franks: That is an example. There are a number of examples in terms of how we have invested in the railway to drive up customer benefits. Mr Metcalf: I would agree with the point about innovation and the other thing I would add is about culture. We have worked very hard in GNER to train staff and we very much focus on customer service. I think that has been partially a contribution towards the numbers. Mr Smith: Everyone of the four TOC representatives here has had the experience of losing a franchise. Q7 Chairman: Is this part of your training? One of the advantages of the franchise system is that you lose your franchise and you are better next time. Mr Smith: Exactly. That is the point. It really does spur you on to make improvements and to offer something that is going to beat the others next time. Q8 Chairman: You think these objectives are different from a unified state system. You do not think the state run system is interested in its customers or you do not think that they train people? Mr Smith: I was not seeking to make that point. The absence of competition within a unified state system is a marked, factoral difference. Q9 Chairman: The Association of Transport Coordinating Officers said that franchises are not putting passengers' interests first; they are driven by financial objectives and are constrained severely so that the specifications from the Department for Transport restrict innovative thinking. Do you recognise that? Mr Franks: I certainly do not recognise a number of the points made there. The purpose of the franchise is to grow the railway in a way so that we get more customers and happier customers travelling with us. If you then look back and see what has been achieved in the last ten years, I will quote an example of one of our franchises on National Express. Midland Mainline have seen 92 per cent revenue growth on that business. It has seen twice as many trains operating than at privatisation. If I am right that the purpose is to grow the railway in a way that makes people happy, Midland Mainline is a very good example of it. Q10 Clive Efford: On the length of rail franchises, the average length has been eight to ten years on the most recent franchises that have been issued. How do we strike the balance between the need to deliver an efficient service, get value for money for taxpayers and the need to encourage innovation and investment in our railways? Perhaps Mr Austin would like to start. Mr Austin: On franchise length, we would certainly support a move from the norm which has been five to seven years with the possibility of extension to something closer to ten because it gives a much better chance for you then to invest and for investments to come through in the period of the franchise. Also, picking up Mr Metcalf's point, it gives you a chance really to focus on serving customers' needs, particularly in terms of staff training and motivation. For all of those things you need slightly longer than the current franchise length allows. Q11 Clive Efford: I have heard that said a lot. Exactly what investment are we talking about? What would we miss out on if the contract length were too short? Mr Metcalf: I do not think there is one single answer to this. The franchise length may vary from one franchise to another, dependent on the nature of the investment required. In a big franchise that requires a lot of investment, that is where I think a longer franchise of ten to twelve years is more sensible because it gives the ability for the franchisee to make that sort of investment. In our case we have brought in all the refurbishment of the rolling stock and major redevelopment of stations at around £140 million in the first franchise and about £125 million committed in this franchise. With a shorter franchise we certainly could not have done that. I think there is also more that could be done. Q12 Clive Efford: You have invested in the infrastructure in railway stations and also in the rolling stock. The rolling stock is not owned by your company. Can you tell us a little bit more about how the length of contract affects your investment in that? Mr Metcalf: The way it works is that we agree the level of investment - for example, a complete refurbishment of a particular set of rolling stock. We then enter into an arrangement with the ROSCOs who own the trains to repay that investment over the duration of the franchise. The longer the duration of the franchise the more able to accommodate a greater slice of investment we are. Q13 Clive Efford: The lifetime of the rolling stock may go well beyond the length of the contract. How reasonable is it of a ROSCO to expect you to repay that investment during the course of the lifetime of your contract? Mr Metcalf: It depends on the size of the investment. The system has changed. In the earlier franchises there was not a great deal of investment and it rolled over the end of the contracts. In the current round there is now the arrangement whereby the investment can continue into a future franchise so it is spread over a longer term. Q14 Clive Efford: This issue about investment in rolling stock is a bit of a red herring? Mr Furze-Waddock: In the First Great Western franchise we have just committed to an investment profile of 220 million. Over half of that is in rolling stock. That is predominantly rolling stock assets in the form of the high speed trains which are coming to the end of their life and we are into life extension. That investment is something that First Group has primed the pot with. There is a joint contribution, some going in from the ROSCO of about 40 million but over 60 million is being injected by First Group. Q15 Clive Efford: You are only going to invest in that for the length of time that you are likely to be using that rolling stock. You are not going to make a donation to someone who is going to use it later on. Mr Furze-Waddock: It needs to be amortised over a reasonable period of time so that you can keep the cost to a reasonable level, so that you are not faced with trying to recover it over a very short period of time which would result in having to put fares up to passengers if you are trying to recover a huge investment like that over too short a period. Q16 Clive Efford: I am still not clear. It is not your worry, is it? You need to pay the ROSCOs for the length of time that you use the rolling stock. It is the problem of the ROSCOs as to whether they get the return on their investment, is it not? Mr Furze-Waddock: In this case this was our worry because we had difficulties getting a competitive quote from one of the ROSCOs in question and so First Group made the decision to put its own money in. Q17 Chairman: It was your decision for your own personal financing reasons, not something directly connected with the government's grant of a particular franchise. Mr Furze-Waddock: No, quite the reverse. It was designed so that we could put in the most competitive, lowest price bid and pass on all of those benefits to the department. Q18 Chairman: Which would be normal commercial practice because you wanted the franchise. Mr Furze-Waddock: Yes. Mr Lyons: It is not just about cash investment; it is about investment in the people who run the franchise and the inevitably lengthy process involved in all infrastructure to get change achieved. You have a large number of stakeholders, not just Network Rail. You have local authorities and other groups. Five years is just too short. The process of bidding for franchises is both exhaustive and exhausting and takes a great deal of time. If you are in a relatively short cycle franchise you will probably your team is already thinking about the next bidding process a few months into the franchise. What we need is a sufficient length of time that allows the owner, when he takes over the franchise, to invest in the people who are really going to make an improvement. I am convinced that a longer period of franchise has a better chance of achieving that. Q19 Mr Martlew: I can see why you gentlemen would want longer franchises because they are better and give you more security. It does not seem in the interests of the passenger. The reality is you have all had the shock of losing a franchise. The longer the franchise is the more comfortable the companies will be. To disagree with Mr Lyons, a short franchise means that you have to train your staff up to a peak very quickly. Is there not the view that if you get a longer franchise at the beginning of it, at the very least, you can be complacent? Is it not against the passengers' interests to have long franchises? Mr Metcalf: I really do not believe so. If we take the training with Virgin as an example, those things take about two to three years for all the design, the rolling stock and specification changes and approvals and then taking the trains out of work to have them rebuilt. The purpose of doing that is to give the passengers a better train. Hopefully by giving them a better train and upgrading something that is 15 or 20 years old and starting to look very tired and old, that is going to attract more passengers, more patronage and grow the railway. I think passengers do benefit enormously by having that earlier, up front investment. The longer it is left into the franchise with a few years remaining, they get fewer benefits. Q20 Mr Martlew: Why do we not have 20 year franchises? Mr Metcalf: There is an optimum balance. We moved to eight to ten years. There is an argument in some cases that it could be 12 or maybe 15 years in some circumstances with leverage in big investments. There is an understandable worry that 20 years is just too long in terms of the balance and the risk. Q21 Mr Martlew: You are against 20 years? Mr Metcalf: I think probably 12 to 15 would be the optimum for a big, heavy investment franchise. Mr Furze-Waddock: I would be against 20 years unless there were defined review periods as Network Rail would have. For us to take a 20 year view on such things as revenue growth is pushing it out an awful long way so the risk increases as time goes by. Q22 Chairman: You do not have any faith in your company still being there in 20 years? Mr Furze-Waddock: It is more not having the faith necessarily in the economy for that length of time. Mr Austin: To reiterate that point, having worked previously in the SRA where we did propose 20 year franchises and indeed secured one in Chiltern which works well, in general the problem of managing risk over such a long period means that the optimum period is probably, as my colleagues have been saying, somewhere between ten and twelve rather than as long as 20 but it is certainly longer than the three years you suggested, Mr Martlew. As you know, coming from a railway town, it takes a long time to change things in the industry. A lot of these investments take a long time to come on stream. Q23 Clive Efford: Is not the answer to the length of the contracts that you need to be very specific - or the government needs to be very specific - in what the contracts must deliver so that the length of the contracts is irrelevant? Mr Lyons: We come to the nub of the question. When the government is thinking about letting a franchise it has to take a very large number of factors into account. What is the state of the market it is looking at? What is the state of the condition of the infrastructure and so on? It can then reach an outcome which suggests what the ideal of franchise is to let. At that point it can then determine the conditions that it wishes to see the franchise perform but I think it should be the outcome of an iterative process that analyses what the basic business being let is about. Q24 Mr Leech: I thought Mr Austin made a very interesting point when he said the industry sometimes take a long time to get things moving. Do you not think that that is an argument for shorter franchises to encourage the industry to change its ways? Mr Austin: No, I do not, because a lot of the length of time taken is for very good, structural reasons. It was no different under BR. Planning and implementing major projects involving many disciplines and many parties, even in BR days, took a long time to achieve. New lines can take a generation, as we have seen. Q25 Chairman: You are there because you are not going to be like BR. You have been telling us how innovative, imaginative and stimulating you are, so you cannot possibly say you are going to behave like BR because you do not want to behave like BR. Mr Austin: There are a number of structural issues which mean that it takes longer to implement projects. Chairman: That will not wash because that was the whole reason we got a franchise system in, so there would be different structures. Q26 Mr Goodwill: It seems that the present franchising system is certainly good for the government because they are selling a monopoly on many routes. We know how much GNER gave for their licence. Would it be possible to come up with ways of introducing more competition on routes in order that maybe the pricing of the tickets or the services available to passengers on trains or at stations could be improved, because at the moment it does seem that we have this wonderful reward of franchises and some people would say you then have a licence to print money during the period of that particular franchise. Mr Metcalf: I certainly do not agree that there is a licence to print money. There is already intense competition on the east coast main line. There is quite a significant number of operators up and down the east coast main line competing against each other, government franchised operators. We are also competing against the airlines and roads. Competition is good. It has lifted the game of GNER and other operators to the passengers' benefit. I think there is a wider question about the current open access situation but I am not clear whether you want me to talk more generally about that or not. Q27 Chairman: If you want to make general comments on the problem of open access, we would be interested but they must be very general. Mr Metcalf: Competition and open access per se are good things. Anything that drives new markets and improves competition is good for passengers and the industry. What I do not think is good for the industry is a competitive environment where a new operator can come along and pay different charges to existing government franchised operators that are then putting it on a totally different, unlevel playing field and also gaining the majority of their revenue without carrying extra passengers. That does not seem to make sense. Mr Furze-Waddock: The point is one of understanding the franchise process and how we are committed within that. We are given a specification and we are asked to bid against that, to generate revenue and control costs across that specification. On the back of that for ten years we commit to pay the government, through the Department for Transport, very significant sums of money that we are forecasting, driving up revenue, getting growth into that network. We have committed to do that. If you get an open access operator coming along half way through that process or even earlier in that process, who is then starting a new service with perhaps not a level playing field, who is also has a business case based upon extracting a certain amount of revenue from some of those flows, there is no flexibility in the franchise agreement to go back to the DfT and say, "We would like to adjust our service level commitment because there is now competition so we do not need to run as many services", and we will have signed up to long term leases on rolling stock. Our cost base will be very much fixed for the franchise duration. We have committed to give that revenue to the government already. If somebody else comes along and says, "We want to take part of that", it is leaving the public sector and going into the private sector because we have committed to pass that revenue on to the DfT. Q28 Mrs Ellman: What about the issue of under-bidding for contracts, a bid going in and then being renegotiated later on? How big an issue is that? Mr Furze-Waddock: I think the Secretary of State made it abundantly clear to all train operating companies and owners that that will not happen in future. There may arguably have been one or two cases in the past where there has been renegotiation. The competition is set up in such a way and the performance bonds are set up so as not to allow that to happen. Mr Smith: The department now runs a very rigorous evaluation process that it has refined and developed over the years. They will be able to tell you about it in more detail. We only see it from the other side of the table but the purpose of that is to ensure that they select realistic bids as opposed to pie in the sky ones. It goes both ways but it is something that they are seeking to improve and I believe they are being quite effective now in the rigour of their assessment. Q29 Mrs Ellman: Is everybody satisfied with the information that comes from the department and the way it is assessed? Mr Smith: When you win you certainly are. Q30 Mrs Ellman: Do you think it is a fair process? Mr Metcalf: The information is very specific and the franchises that people are asked to bid against are extremely specific. Possibly there is an opportunity for them to be slightly less specific to further encourage innovation, particularly around capacity and around the opportunity to grow new markets or new services, to try to find ways of creating new capacity on the network. Mr Franks: On the one franchise that National Express operates, when we were assessed in our bid, it was against a timetable that had five trains per hour between Ipswich and London Liverpool Street. The timetable that was successful delivered six trains per hour throughout the day and enabled more revenue to be generated. That was an innovative solution to the timetabling problems that existed on the route but we were judged in our bid against five trains per hour and that is what every bidder has to do. If you do highly specify the franchises at bid stage, it does prevent innovation if you are not careful. Q31 Mrs Ellman: Has the separation of franchise contracts into general requirements and franchise specific items been helpful? Mr Furze-Waddock: It helps in the long term because it cuts down on the amount of administration and negotiation over what are effectively some fairly standard terms and conditions and boiler plate conditions. It concentrates the bidder to look at the things that really matter to that specific franchise. Mr Smith: I would endorse that point. It is a way of ensuring that the basic commercial framework of the contract which the government proposes to enter into with the operator is well understood at boiler plate level. The specifics are customised to each franchise. It helps efficiency, market understanding and the general procurement process. Q32 Mrs Ellman: To what degree do you take into account the possibility of open access competition when you are making your bids? Mr Furze-Waddock: It is extremely difficult, especially more recently, where the route utilisation strategy that the government has launched through Network Rail is getting very good now at identifying where the capacity is. You would expect the department to fill that capacity as well as it possibly can for franchises so that they can generate premia from letting those franchises and not leave white space available that could be otherwise used. They will surely specify that in the franchise to maximise the use for that. Trying to identify outside of that process, where there could be some hidden opportunities, is very much driven by the availability of the capacity on the network, which is in a lot of areas, particularly in the south east, heavily constrained. Mr Franks: It is a risk that we have to assess and take a view on. There is one other point on open access which has not been mentioned yet and that is the whole issue about does the capacity exist. If there is some capacity, if you put more services into that capacity, does it have a negative impact on our ability to operate a reliable railway? We have a very good example at the moment that is affecting our Central Trains franchise where there is an open access proposition, where we have been working with Arriva Trains to improve the performance on the route between Wolverhampton and Shrewsbury. We have freed up some space on the route to enable the railway to work more effectively and more efficiently. That has created potentially a slot for a train operator to come in. There is a bid to use that slot. Whilst we do try to assess the risks, that is an example where it is very difficult for us because we are trying to deal with one objective, to run a reliable railway, against another objective that suddenly creates an opportunity that can damage what we are trying to achieve. Q33 Mrs Ellman: Do you feel that some steps should be taken to reduce the possibility of open access competitors? Mr Franks: I think competition is very good. We have to recognise that, if open access operators come on to the network, capacity exists. The cherry picking point which has been mentioned already is dealt with. If those two things are taken into account and resolved properly, competition is good. Q34 Mrs Ellman: Are there any other views? Mr Smith, earlier on you spoke about competition through franchising being good in that it looked at the needs of passengers but do you feel the existing franchise system really does look at passenger interests and innovation rather than the financial needs of the Treasury? Mr Franks: Could I give another example? We operate the Gatwick Express franchise which is operating in a highly competitive way with two other operators, First Capital Connect and Southern. That franchise is leading the national passenger survey scores and has done for almost two years. It is innovative; it is creative; it looks after customer needs and it delivers what airport users want. As a consequence, that business in a highly competitive environment has grown 42 per cent in terms of its revenue over the life of the franchise so far. There is an example where, if you travel on that railway, you will see a very high quality railway, recognised in this country and outside of this country as a success. Mr Smith: Despite being the owner of one of the franchises he has referred to as being in competition, I am very happy to endorse what he says both in responding to Mrs Ellman's question and what Mr Goodwill referred to earlier on about competition. I think there is competition where the underlying demand will bear it and support it. The main line between London and Brighton is a very good example where three of the four train companies here actively compete with each other. It is in the interests of passengers. Most of the franchises we have operated have been in the London and south east area and we have always been used to there being alternative train routes and opportunities for passengers. It is not something that we are shy of. I would agree with Mr Franks that it does help overall to push up standards and responsiveness. Specifically as to whether the franchising process looks to the interests of passengers or the Treasury, I am not sure to what extent it is for us to answer that but I do think it does require us to look at the needs of passengers very clearly in terms of what we have to submit for bids. We are evaluated on that from the point of view of the robustness of the service quality that we will offer. Once we are in a franchise, we are held to account by a variety of measures for how customers perceive and rate our service. Above all, we are driven by the fact that we carry the revenue risk and we need and want to get people on trains. Mr Metcalf: We are talking about competition within the railway but we compete very heavily against the airlines. An example of one of the things we did as a result of that was putting in Wi-Fi on the trains and internet access on the trains at the end of the previous franchise before we knew we had the new franchise, because we believed it was such an important thing to do, to try and do something different to the airlines and attract airline passengers. That is an example of innovation and a way we can improve passenger benefits. I also endorse Mr Smith's point. I think the current franchising model and the very clear focus on value for money and premia do make those examples of innovation more and more difficult. Mr Lyons: There is an element in the franchising process that could be looked at more closely. There is very full consultation during the process. Inevitably, when the specification comes out from the DfT, some very hard decisions have to be made. In many cases, they are as much about the amount of capacity on the network to squeeze every service that has been requested. What I think could be improved is sometimes where the groups have made bids for extra services. This does not seem to be working in a perfect manner and there is often disappointment. Services people thought they were going to get are changed, reduced or whatever. I think that is a process that the DfT could probably improve on in the next round of franchises. Q35 Mrs Ellman: Is it a really serious proposition for the department to say they would not renegotiate contracts? Do you take that literally? Mr Smith: Yes. Q36 Chairman: Are you saying it is a real threat? Mr Smith: It is clearly meant to be that. Q37 Chairman: Mrs Ellman is not asking you whether that is what it is meant to be. Civil servants are often very good at telling us what things are meant to be. Is it a real threat to you? Mr Smith: It is a real threat that we must take account of when we bid because, if we disregard it as a threat - in other words, we do not see it as a real threat - we run the risk of putting in a commercially untenable bid, which is not in our interests. Mrs Ellman: You do not somewhere in your mind think that maybe it would not happen? Q38 Chairman: Mr Lyons, if they have a problem with you, are they genuinely going to let the entire service collapse? Mr Lyons: We have had examples of that already. In the history of franchising we have seen Prism disappear in the very early days. South East Trains is another example where a franchise was stripped from an operator because of the perceived unsatisfactory service or a belief that the subsidy being asked for was unreasonable. I think there is plenty of evidence that if those operating franchises are not working well they are going to lose them. Mr Franks: I hate to admit this but we ran a number of franchises at our own cost. Scotrail, for example, at the end of that franchise time, was costing National Express Group a lot of money so we do understand the threat. Chairman: It is lovely to hear there are all these philanthropists in business. Q39 Graham Stringer: If I can go back to the very first point, Mr Austin made a comment that one of the justifications for franchising for infrastructure of the railways was value for money. Is that not at odds with the facts? The railways are costing us five billion when they were expected to cost us nothing in this year. When you compare the franchising system, say, with the bus industry where costs have gone down, in the rail industry the franchise costs are going up. Surely the answer is you are terribly inefficient? Mr Austin: I do not think so. In general terms, railway costs in terms of franchise support for the last recorded year, 2004/5, are just over a billion and that is down. It is difficult to make comparisons because of the impact of network grant which has shifted some of the subsidy from train operators direct to Network Rail. In general I would have said it is moving in the right direction. The other thing which we reflected in our paper is the difference of the balance between those franchises that receive subsidy and those that pay a premium. We have already moved from a minority position of around 15 per cent five years ago to a point today where about a third of the franchises are paying premia. Within a year or two that will be up to about half. That is the inexorable move away from subsidy towards premium. Q40 Graham Stringer: Professor Nash is talking nonsense, is he, when he says that costs have grown substantially because, with the greatest respect, subsidy is a completely different issue, is it not, to costs? Mr Austin: Professor Nash rarely talks nonsense. I would not challenge that. There are some real costs which, for example, the train operators have had to meet, partly as a result of increasing outputs, carrying more people, running more trains, which is good; partly as a result of external factors - for example, the costs of insurance, policing and fuel in particular which have gone up way beyond the rate of inflation. Mr Franks: Could I give a summary of the cost base of one of our TOCs? It has a cost base of about 450 million. 150 million of that is Network Rail charges. That is outwith the grant contribution that we do not see through the TOC. About 100 million of it is to pay for the rolling stock and true variable costs that we have within the business that we have a handle of are in the region of about 25 to 50 million of the total cost base. In terms of what we are delivering, it is all driven really by the timetable. The timetable requires a number of trains, a number of drivers and a number of staff on trains and at stations so the true variable element of a cost base for a train operating company is very small. The big costs are Network Rail and ROSCO costs. Mr Metcalf: One of the ways we measure cost is to look at costs and measure them against the number of passengers carried or the number of passenger miles operated. If you look at it on that basis, because of the extra number of services and the significant increased number of passengers, costs are reduced over time, particularly as you then build in the reduced premia or reduced subsidies as well. Mr Franks: Every time there is a franchise competition, if you do not have your cost base in good order, you do not have a chance of winning the franchise. The franchise process in its own right helps to keep the costs under control. Q41 Graham Stringer: If we exile Professor Nash to some academic cloud cuckoo land, can we do the same with Mersey Travel who say that if there were local decisions made they would save 33 million? Mr Franks: I have not seen their submission but I would anticipate that they think they can save that from the Network Rail cost base. Q42 Graham Stringer: Not from the franchise? Mr Franks: Not from the franchise. Q43 Graham Stringer: Is that the view of everybody else? Your costs are less. The subsidy to the rail system is five billion when it was expected to be nothing. Without the franchising part of the rail system, are you saying that the costs would be less and you are helping rather than hindering in the overall costs and subsidy to the railway system? Mr Franks: I would suggest if there was the same rigour and competitive challenge to Network Rail the costs to the industry would be lower. If Network Rail through their five year control period went through the same process we went through every time there is a re-franchising opportunity, there would be a much firmer challenge to the cost base of the industry. Mr Metcalf: Post-Hatfield there was a need to significantly invest in the network, in the infrastructure and do a lot of the work in investment that has gone on over the years. There was quite a backlog that has been feeding the Network Rail costs over recent years. Q44 Graham Stringer: You are saying that is coming out in your costs? Mr Metcalf: It is coming out in the overall, total industry costs yes. Q45 Graham Stringer: Some of it is coming out in your costs as well in charges from Network Rail? Mr Metcalf: Yes. Q46 Graham Stringer: Let us approach the question in a slightly different way. We have just finished taking evidence on a bus inquiry. Many of the companies you represent run buses as well. Why do you not make the same return as the bus arms of your organisations? Why is your profitability less? Mr Franks: Because if we were to put in margins that are higher than we currently do we would not win the franchises. Mr Smith: It is the competitive pressure of franchising. Mr Metcalf: In the early franchises, if we go back to the beginning in the mid-1990s, the margins were much higher and the equilibrium or the pendulum has swung back to the other end. That is why it is such a competitive environment. Q47 Mr Wilshire: Can I ask those who have put in a bid for a franchise what they reckon it now costs to do that? Mr Franks: In the National Express written evidence we quoted what we believe it costs to run a bid now which is in the region of £5 million. It is clearly commercially sensitive but I would at any point be prepared to run through with anybody the detail of the breakdown of that cost so that you can see exactly where those costs go. Mr Smith: Our view would be that it costs a little less than that, based on what we have spent in bidding for franchises. We are certainly talking about £3.5 to £4 million for a bid for a franchise. Mr Metcalf: That is our experience: between £3 million and £4 million. Mr Furze-Waddock: Similarly, closer to David's estimate of five million. It will depend to some extent on the franchise you are bidding for and how much information is necessarily provided in advance as to how much cost you incur in developing the bid. The Committee suspended from 3.29pm to 3.37pm for a division in the House.
Mr Wilshire: I am sure our witnesses have had time to work out the next question so I will not ask it. I would just say that if we were to pursue the matter of how those costs are made up it would use the rest of the time. I wonder whether it would be appropriate if those who have given us a figure would be willing to submit a written note on exactly how those figures are made up to save us the time of wading through a lot of information. Q48 Chairman: Would you be prepared to do that? If you do not want any of it published you would have to make that clear when you give us a supplementary note. Mr Franks: That is fine. Chairman: We would need a fairly good explanation for why you did not want it published, so it is no use just saying "I don't want you to say this". Q49 Mr Wilshire: What I want to ask is when we see that information I would like to ask, if those are significantly bigger figures than the costs some while ago, why have they gone up? Are there things that you are having to spend money on that you think you should not have to spend money on? Mr Franks: Can I make one very important point about why I think maybe that is the case for First Group and National Express Group. I will let Mr Furze-Waddock answer for himself. One of the big differences for us is the Competition Commission costs. It seems every time there is a franchise proposition there is a referral to the Competition Commission and for us, in the number I quoted, that is almost £1 million estimated for the next round of franchising, so that is a big number and growing. That is one issue. The other issue is it is a competition, you do have to prove to the Department for Transport in the bid process that your bids are deliverable and to do that there is a very onerous requirement through the bid process. I have brought with me, and you may or may not have seen it, a copy of the South Western franchise evaluation process which actually amounts to nine pages of what you have to do to prove that your plans are deliverable. There are 22 plans in the South Western Trains' franchise tender. Each one of those is measured on three different criteria and you have to set out very clearly how you are going to do that. As I say, that process has evolved over a period of time. I think it is like that because the Department are very concerned about the risk of a judicial review on its process and that is driving the requirements higher and higher and, therefore, the costs to us go up accordingly. Mr Furze-Waddock: I would agree with most of that. There is a high level of competition costs in there. Very often it is a waste of time going through the Office of Fair Trading and that getting referred on to the Competition Commission itself, which does then handle things extremely professionally but it is an extremely costly process. We spent very nearly £1 million on one bid just going through that competition process. Q50 Chairman: What changes would you ask for? Mr Furze-Waddock: I think some recognition that the franchising process already identifies a service level that operators have to sign up to and there is no varying that without going back to the Department for Transport, that there is a high degree of fares regulation both directly and indirectly, that there is very little substitutability between bus and rail, apart from a very few exceptions where there are overlaps that could be substitutable, and also to recognise once and for all that the car is the big competition, which they singularly fail to do every time and they just look at the small picture of some small overlaps failing to recognise that our big competition is the car. Mr Franks: Can I just add to that. I support everything Mr Furze-Waddock said there. What does not happen is there is no case law, no precedent. Every time you enter into another franchise competition, if you are referred to the Competition Commission you start again going through all the old arguments that you have used and gone through previously. If there was case law and it could effectively be taken off the shelf and actually used it would save an enormous amount of time and effort. Mr Smith: Can I return to the question about bidding costs as such. The last franchise that we actively bid for was the integrated Kent franchise which was submitted a year ago. Each copy of our bid, and we had to supply six copies, consisted of 22 lever arch files, so it was very sizeable, it took up two rows of a normal cupboard, and I imagine my colleagues who bid on that franchise put in something very similar. That is driven by the Department's requirements which in turn is the major driver of the costs. You asked are there areas that we think should be reduced and I think the answer to that is yes. I do not believe the Department needs a complete encyclopaedia of how to run a railway in order to evaluate a bid. It certainly needs detailed and robust financial information and it needs to be able to satisfy itself that a prospective franchisee, a bidder, has thought about the operational and commercial challenges of the franchise in question to a sufficiently robust degree to be able to pick up the threads of running the business and make a success of it and deliver their financial outcomes. I do not believe they need the volume they are requiring at the moment and personally I feel it has gone that way because the Department have allowed themselves to be consultant led, consultant driven, in terms of specification of requirements, and if they could wean themselves off that I believe ---- Q51 Chairman: It is not just the Department, is it? There is evidence from Govia saying bidders often spend £2 million on consultancy fees alone in the course of bidding for a franchise. Is that typical? Mr Smith: Yes, it is. What I am talking about is what is it that has produced a system that requires us all, including the Department, to spend that much money. I believe it is the Department's approach and specification of what they want in bids returned to them. If we could get back to some midpoint between where we are today and the very first round of franchising undertaken by OPRAF when bids were one lever arch file, if that, then I think ---- Q52 Chairman: There were problems with that, Mr Smith, as you know. Mr Smith: That is why I am not suggesting we go all the way back to it but I think there must be some middle point that reduces the burdens on the players on both sides of the industry and reduces the costs. Mr Metcalf: I would certainly endorse the point about some sort of equilibrium or balance because it has swung from one volume maybe half an inch thick to 22 ring binders and I think the answer lies somewhere in the middle. If you look at the straightforward example of KPIs, the original franchises did not have KPIs and current franchises have anything up to 122 KPIs. Again, I think it is the extreme swing and it is finding the right balance in the middle of all that. Q53 Mr Wilshire: Could I ask Mr Lyons and Mr Austin a question that arises out of what we have just heard. Is this escalation of paperwork anti-competitive in that it makes it ever more difficult for others to break into this system because of the amount of cost the first time they try and enter the bidding process? Mr Lyons: I have to be quite honest and say at this stage there is no evidence of that as you can see from the recent franchises. I think something has to be done about it just as a matter of sound process, not however to discourage people but to make sure that when you are tendering for franchise and the DfT is specifying it there is much greater clarity of what is required. I think the sheer bulk of information the DfT is asking for often gets in the way of that particular aspect. Mr Austin: I think it is one of the barriers to entry or one of the things which make it more difficult for completely new operators to come into the industry because it is quite a daunting amount of information which is required. I think the answer to your question is yes. Q54 Mr Leech: Just following on from that, is there not an argument to make completely the opposite argument by saying if you have all got to put in all the information every single time then existing operators who have existing franchises are not going to have a competitive advantage because they will have already given the background information about running franchises whereas a new operator might have to do all the existing work and all the pre-work that you have already put in? Mr Furze-Waddock: In the new template franchise agreement the Department has modified it substantially to make it a requirement of the incumbent franchisee to provide all of that information on a very regular basis. That is probably something we will end up coming back to because, again, they have gone from one extreme to the other and we now have a monthly meeting with the Department to monitor performance, both financially and operationally, and as time goes by that is going to become extremely onerous for the Department to resource that and for us to resource it. Again, it has gone from one extreme to the other. So long as there is a requirement for the incumbent operator, as there now is, to feed information into a repository so that when it is time for re-letting that franchise there is a source of data then that will make life easier and at that stage it will reduce cost, I suggest. Q55 Mr Leech: What, in your view, is a happy medium? Mr Furze-Waddock: We are now testing the new franchise agreement. Certainly in the early days - we are now in the first three or four months of two new franchises - meeting on a monthly basis is not unreasonable because there are so many issues to manage through and commitments that have to be managed with the Department, but as we get into a steady state to have to meet and the risk of micro-management on that degree of regularity with two franchises that are there to deliver premium, to generate revenue, that puts a tremendous onus on us to generate that sort of growth and put the quality into the business, is probably going to become far too difficult for both parties to manage. Q56 Mr Goodwill: It is obvious there are many obstructions to new entrants coming in. Would you say that the reliance on track record in the pre-bidding process - 70 per cent of weight is given to track record - is another disincentive and obstacle to new entrants coming in as we have seen since privatisation very few new entrants coming, other than one or two from abroad maybe? Mr Metcalf: I think the whole issue of how existing incumbents are judged has moved around quite a lot over the last few years and there have been times when existing incumbents have had no benefit or real advantage over anybody else bidding for a franchise. There have been some changes to that to try and reflect the reality that the existing incumbent does have experience. I guess my wider worry about people bidding and new entrants is partially about the cost and complexity of bidding but it is also about the very tight, very competitive nature of franchises now and the very long margins driven by the very clear focus on lowest subsidy or highest premium and there is a wider question about the appetite and extent to which people will move franchises going forward, and I think that comes back to the issue about balance and equilibrium in the cycle. Q57 Mr Goodwill: You mentioned one of the major costs borne by the rail industry is the cost of Network Rail, particularly post-Hatfield. Have the operators looked at the possible feasibility of including the maintenance of the track by the primary operator running on that track within the franchise operations so that maybe you could be more successful in controlling costs and improving standards of maintenance and improvement than Network Rail which, once again, has come cap in hand to the Exchequer for £8 billion this week? Mr Austin: Can I start off with a general point and then colleagues can come in with specific examples. In general, no, we have not. We are happy with a system which enables us to focus on the passenger rather than the engineering. I think that is the first point to make. The second thing is working together rather than taking over has been an important direction so the establishment of integrated control centres, or joint control centres, has been one area where a lot of the practical benefits of integration have been brought about without any transfer of structure or ownership. Mr Franks: I would make a similar point that one of the real benefits of the franchising process is that our job is to look after the interests of passengers. That clearly is right at the forefront of our mind, it is what enables our business to survive and it is there for us to do. That said, in the past it was possible for any train operator or any other company to bid to do the maintenance of the infrastructure but that is not a possibility now because Network Rail by policy has decided not to let that be outsourced but to do it within their own organisation. Q58 Mr Goodwill: Do you feel that Network Rail is a lean, mean machine that is delivering value for money in terms of the amount of improvements that we are getting for the amount of cash going in? Mr Franks: I made a point earlier on about that. If Network Rail went through the same competitive process that train operators had to go through it would be probably leaner than it is now. Mr Furze-Waddock: I would agree with that. I can give an example of a Network Rail system and process which I think typifies an approach, which is the moment they cost projects it has to go through what is called a Grip process, Grip 1, 2, 3, 4, and up until the third stage of this they factor in a 35 per cent contingency. You are talking about projects of maybe five million, 20 million, 100 million, and to have a 35 per cent contingency within that sort of number might be prudent, it might be necessary in some cases, but it strikes me as being a very lazy way of coming up with quick, reliable estimates to put infrastructure change through. It takes a long time, it is a very cumbersome process, it costs quite a lot of money and even at stage three, which is what we would normally consider to be about to press the button, you end up still with a huge contingency built into the numbers so you cannot really rely upon it. I think that is an example of how they have got this cumbersome process. Q59 Chairman: You do not think that is dictated by experience? Mr Furze-Waddock: They would no doubt argue ---- Q60 Chairman: No doubt. Mr Furze-Waddock: ---- that might be mismanaging projects previously. Q61 Chairman: Did you complain about Railtrack beforehand? Did you have the same problem with Railtrack or were they a lean, mean machine capable of carrying out astonishing, high quality services? Mr Furze-Waddock: They were mean. Q62 Chairman: One of you? Were you pleased with Railtrack? We all remember Railtrack, do we not? Mr Metcalf: I think that Network Rail have done a very good job in terms of concentrating back on the engineering. Q63 Chairman: So they are actually doing what they are asked to do, like repairing the infrastructure and doing things that Railtrack did not quite bring itself to do? Mr Metcalf: I think Network Rail have very much focused on the engineering, on the assets and brought maintenance in-house. Q64 Chairman: What they are supposed to do? Mr Metcalf: Yes. Q65 Chairman: Astonishing! Mr Metcalf: Equally, I think we are all concerned about the scale of the cost that has brought with it and, therefore, we all think there are improvements that could be brought about. Q66 Chairman: So you want it reviewed but you do not want it to cost anything. Mr Metcalf: We want it done efficiently. Q67 Chairman: Oh, well, nothing changes. It has been argued that risk has not been transferred to the private sector through rail franchising, do you agree? Mr Furze-Waddock: No. Mr Smith: No, I do not think that is true. Risk is transferred to train operating companies. Each franchise agreement is a commercial contract with a balance of rights and obligations and attendant risks, but in general the common risks that are transferred to train operating companies surround patronage and revenue and operating costs. In addition, there are obligations on us that relate to performance, that is punctuality and reliability, and risks attached to those, and in certain franchises, which would include the ones that we hold, there are project or programme risks that we assume. We have to deliver certain things and if they are not delivered we will suffer either some liquidated damages that we are obliged to pay or some other commercial disadvantage, such as not getting the benefit of the investment that we have factored into our bid in terms of increased revenue. There is quite a range of risks that are placed on us and they are the ones that in our memorandum we have said are broadly at the right level at the moment. Having settled down from differing degrees of risk allocation in the past, they are the risks that we feel comfortable with and are happy to take. Q68 Chairman: With respect, Mr Smith, train operating companies being comfortable is not always in the interests of either the passenger or the taxpayer, is it? Does the 'cap and collar' scheme place too much of the revenue risk with the public sector? Mr Metcalf: If I could give an example of one risk that we as an industry absorbed, which was the issue around the London bombs last year. Within the company that I am involved with, the impact of that was between £10 million and £20 million. The 'cap and collar' regime does not give any benefit because that only comes into effect after four years of the franchise. That is one example of a very significant risk that a franchise and its parent company has to absorb and you cannot really foresee some of those risks when you are bidding for a franchise. Q69 Chairman: So you would say that when Christian Wolmar says: "80 per cent of any large shortfall - or excess profits - will be borne by government", he is wrong? Mr Furze-Waddock: In my opinion. Mr Smith: It sounds too simplistic. Q70 Chairman: He says: "The formula is that First takes the whole risk of the first two per cent shortfall..." he is talking about a particular company, of course, "...then half the risk of the next four per cent but only 20 per cent of the rest". It is not a lot of risk element for a big company, is it? Mr Smith: I think it is if you set it against the margins that the TOCs are bidding and earning and what that represents against the percentages he is talking about there. I think it is a significant commercial risk. Q71 Chairman: What would you expect to bid for as a proper rate of return? What rate of return are you expecting? Mr Smith: This is something that is part of the competitive nature of bidding. In the most recent franchise that we have won ---- Q72 Chairman: Let us use an Americanism: what ballpark figure? Mr Smith: Below five per cent in the early years of a franchise when the risk is less, which we recognise. Q73 Chairman: And? Mr Smith: Rising to no higher than five per cent towards the end of the franchise. Q74 Chairman: Does anyone else want to have a wild guess at that? Mr Franks: That is in the region of bids that we have been involved with. Q75 Chairman: So you are seriously suggesting that these are the sorts of figures that you are going for when you go for a franchise? Mr Franks: Yes, and it is the 'cap and collar' mechanism that enables the margins to be kept at those sorts of numbers. Q76 Chairman: Is there any particular reason why the taxpayer should indemnify train operating companies for losses incurred through industrial action? Mr Franks: It does not. Q77 Chairman: Well, who has got the £23 million that the Government has spent so far on compensation payments? Mr Franks: I have no idea. Q78 Chairman: Were they not train operating companies? Mr Franks: It is not National Express Group. Q79 Chairman: Oh, you have a shadow group somewhere with this highly successful franchise getting £23 million compensation out of the government that none of you know about. Mr Franks: No. Q80 Chairman: I see. So you do not think this exists? Mr Franks: There is a provision within our agreement that enables the DfT at its discretion to actually provide some support but that support has not been forthcoming. Q81 Chairman: Let us try a little game, shall we? Mr Lyons, have you had any compensation from the Department for industrial action? Mr Lyons: No, we have not. I do not operating a train operating company. Q82 Chairman: Then we will go down the line. Mr Franks? Mr Franks: No. Q83 Chairman: Mr Smith? Mr Smith: No. Q84 Chairman: Mr Metcalf? Mr Metcalf: No. Q85 Chairman: Mr Furze-Waddock? Mr Furze-Waddock: No. Q86 Chairman: I know Mr Austin has not had any compensation. Mr Austin: No. Q87 Chairman: Well, this is interesting. We must ask around more. Have you taken into consideration the possibility of open-access operators in your pricing? We did ask you that before but that was in terms of space. Do you add that in? Mr Franks: You certainly have to take a view and price it. Q88 Graham Stringer: I would just like to know whether you think that PTEs should play a greater role in franchise design and specification. Mr Franks: We work with Centro PTE. I think they add a value. It is a DfT decision that they should not be party to future ---- Q89 Graham Stringer: This is the 2005 Act? Mr Franks: Yes. There is still a discretionary element to allow a PTE to be a co-signatory to an agreement in the future if they choose to. Our relationships with Centro PTE have proven to be very beneficial, we work together very, very well. Q90 Graham Stringer: They have not changed since the 2005 Act? Mr Franks: We have had an additional contract to enable the new franchise mapping to take place and that is still with the co-signatory of Centro PTE. Q91 Graham Stringer: So your relationship has not changed? Mr Franks: No. Q92 Graham Stringer: What about the other companies? Mr Smith: We have no relationship with PTEs because of the location of our franchises. Mr Metcalf: The same. Mr Furze-Waddock: We have a very strong relationship with Transport for Scotland through the ScotRail franchise, which works extremely well. We have relationships with several of the PTEs in the north-west and north-east through the TransPennine franchise but the TransPennine franchise obviously is not the predominant operator, that would be Northern. Q93 Graham Stringer: Has your relationship changed since the 2005 Act? Mr Furze-Waddock: Not discernibly, no. TransPennine is a relatively new franchise anyway. Mr Franks: I guess the first opportunity to see if there is any change in the relationship will be when the new Midland franchises are let because that is when the first change will come about with potential for a PTE not to be a co-signatory to an agreement. Q94 Graham Stringer: The PTEs believe that the franchises are being drawn up in a way that does not take into account local needs, that basically they take into account national priorities and they fit into the national plan but do not fit into the local transport plans of West Yorkshire, Greater Manchester or the West Midlands. Do you think that is a fair criticism? Mr Franks: I have some sympathy with that view. There is a balance to be had between what is right for local conurbations like Birmingham and the inter-city type operation and a balance has to be struck and it is of critical importance for the Department to make sure it listens to what the PTE believes is right in the Birmingham situation for Birmingham. Q95 Graham Stringer: Is that your experience? Would you agree with that? Mr Furze-Waddock: Yes, I would, very much so. When there has been a consultation process and the Department has to make some deliberations and make some decisions to arbitrate on some of the priorities between local and inter-city it is very important that they are then involved in the process of feeding that back to the stakeholders that they have consulted with to avoid any confusion over what the resultant timetable looks like. Q96 Graham Stringer: Do you think that there will be a real threat to increased capacity in those urban areas in the rail system because the PTEs are not there? Mr Franks: I think there is always a threat to capacity where you try to blend and mix stopping services with non-stopping services because it eats up capacity and that is the dilemma. If you are in the travel-to-work area of Birmingham, say, you are going to want to look after the needs of the local population, and you will have people passing through that part of the railway who are not resident or local people. That is always a tension and always will be a tension. I think the dilemma will be how you resolve conflicting needs. Q97 Graham Stringer: You are rephrasing my question. What I really want to know is whether it has rebalanced that conflict. The conflict will always be there between people who want to go through and people who want to go two stops on the train to go to work in the morning. What I am asking is do you think that balance will be changed in favour of the inter-rail journeys compared to the local journeys? Mr Franks: I guess there is no lever any more. Ultimately, in the past the PTE would have had to sign a franchise agreement and they had a lever to force through some changes and that lever perhaps has gone. It is going to have to come down to very tough dialogue between the PTEs and DfT in future to make sure the specification that is agreed, that goes out to tender, is right. Q98 Graham Stringer: Can I have one last question. I have had time to go back to Professor Nash and get the details out. If I can bring him back from cloud-cuckoo land for a minute. He says that your costs have gone up by 47 per cent but your kilometres travelled have only gone up by six per cent. That is an indication of inefficiency, is it not? Mr Lyons: I am sorry, I have not seen Professor Nash's submission but I have great admiration for his work. The figure of a six per cent increase in kilometres is not one I even begin to recognise. The generally accepted figure is total train mileage has gone up by 20 per cent since privatisation. I think also Professor Nash is clearly focusing on the very substantial rise in infrastructure costs. If we look back to the immediate post-Hatfield period and the time when Railtrack was in administration they were even higher. At least the trend line is downwards. I think no-one would accept that the present infrastructure costs on the railways are at a desirable level. As we made clear in some of the TOC submissions, the fixed costs of the infrastructure loom very large in the train operating companies' budgets and are costs that are arbitrated between the train operating companies and Network Rail by the regulator and the government. Q99 Clive Efford: I would like to go back to the 'cap and collar' scheme. We have heard how the government indemnifies you against loss, but if you exceed your expected profits does the government also benefit from that? Mr Franks: It works in reverse. Mr Furze-Waddock: The reverse works from day one, so the revenue share is there from day one. The support only kicks in in year five. Q100 Chairman: Can I ask Mr Metcalf, we have had an email which has pointed out that when it suits you you do wallop up your prices because apparently you have increased car park prices at Newark North Gate by 89 per cent. Not surprisingly, this has not gone down very well with those people who use your services every day. This particular gentleman points out that he has to use the car to get the station otherwise he would not get the train and he has to get the train to go to work otherwise he would not get paid, but he does not know how he is going to find an extra £50 a month. It is not an unreasonable remark, is it? Mr Metcalf: I do very much understand and recognise the concern being expressed. The reality is when we bid for the franchise we were very clear about what we would do in terms of investment and putting in the £125 million of investment, including £28 million investment into stations and car parks. What we have done is to bring car park prices up to the same prices as city centre/town centre car parking prices. We have looked at what other car parks charge in the vicinity and we have moved our prices in line. What we also say, however, is having done that we will now maintain our prices in line with inflation broadly going forward. We have brought them up to the market rate and we will maintain them in line with inflation. Q101 Chairman: You do not think £4.50 to £8.50 a day is quite a large increase and might have been noticed? Mr Metcalf: It is a large increase but I think there is a degree of inevitability in terms of the commercial reality and focus of the franchise now and the premium that we now pay back to government. Q102 Chairman: So it is not true that companies are seeking all the time to limit the amount of people using their services by making them more and more expensive, is it? That is not what any of you want to do, is it? Mr Franks: No. Mr Metcalf: No. Mr Furze-Waddock: No. Chairman: No. I am sure Her Majesty's Government would like to run the National Health Service in the same way with the same degree of efficiency! Gentlemen, you have been very helpful. Thank you very much. Memoranda submitted by Association of Transport Co-ordinating Officers, Passenger Focus and Railfuture Examination of Witnesses Witnesses: Mr David Blainey, Chair, Rail Sub-Committee, Mr Kevin Williams, former Chair, Association of Transport Co-ordinating Officers; Mr Colin Foxall, Chairman, Mr Michael Hewitson, Senior Policy Officer, Passenger Focus; Mr Peter Cousins, Member of Passenger Committee, and Mr Richard Pout, Secretary, Railfuture, gave evidence. Q103 Chairman: Good afternoon. Could I ask you to identify yourselves for the record? Mr Pout: Richard Pout, Secretary of the London region of Railfuture. Mr Cousins: Peter Cousins, acting Secretary of Railfuture's Passenger Committee and also a member of the West Midlands branch. Mr Hewitson: Mike Hewitson, Passenger Focus, Policy Manager. Mr Foxall: Colin Foxall, Chairman, Passenger Focus. Mr Blainey: David Blainey, Chairman of the Rail Sub-Committee of the Association of Transport Co-ordinating Officers. Could I just say I have got a problem in that I said when I said I could come that I had a prior meeting with the North Wales MPs at 4.30, so could I do a swap with my colleague, Kevin Williams, at half past four? Q104 Chairman: They are a very ferocious lot, the Welsh MPs, we would not like you to come to a bad end. Mr Blainey: Yes, I know. Q105 Chairman: Would you like to sit at the table and identify yourself? Mr Williams: I am Kevin Williams, I am the former Chairman of the same group. Q106 Chairman: So you are going to box and cox for a minute. Does anybody have anything they want to say to start off? Mr Pout: May I just make a very quick observation. I am also a member of the Institute of Logistics and Transport Strategic Rail Group and I believe they are seeing you next week. I have seen their submission, although I have not been a party to it, and I am aware of the work that has been done by Professor Chris Nash through that group. Q107 Chairman: Thank you, Mr Pout, that is helpful. In what way is the current franchise system better than a unified state controlled railway system? Mr Foxall: I think it is very difficult for us to judge. It is difficult to know what we are comparing. The present system is an opaque one, it is very difficult to know what is in those franchises, how they are run and precisely how they are negotiated. What we do know about the present system, at least so far as passengers are concerned, is that until very recently there has not been a direct interest fed into the process of determining franchises by any passenger organisation. We have recently been, I suppose, elbowing our way into that process and trying to get more consideration for what passengers want. Mr Blainey: I think it would be fair to say that the current system has introduced a degree of innovation that perhaps was not there before. Again, we do not know if that would not have happened anyway, but I think it would be wrong to say there have been no improvements and certainly getting down from Chester in two hours is something that you could not have done prior to the present franchising system coming in. I think you have got to recognise that there has been some innovation, some new thinking, which is of benefit. Mr Pout: There have been innovations indeed, but I think one of the problems is the involvement of users' organisations like us, who are now delightfully called the third sector. There is very little involvement with this third sector, whether it is the funded third sector or organisations like ours which are entirely subscription-fed. Transport 2000 and ourselves are not in the statutory lists of consultees, which you find in the back pages of the franchising documents. There are very few of those kinds of organisations and the only one I have consistently found is ACoRP, building on the work that was done by Paul Salvesen. Whether this can be developed regionally through the role of transport user forums, and I say this with greatest respect to Colin, obviously the demise of Passenger Focus in its regional network creates problems. They are doing their best with what they have got but regionally there is a very serious problem with consultation. There are a number of examples that I could give you. Q108 Chairman: Mr Foxall, is there any difficulty with the business of not having the regional set-up that you had before? Mr Foxall: I would not say there is in the sense that we have passenger link managers all over the country and they have links with those organisations. Clearly it is not the same as it was before and we have never claimed that it would do exactly what was done before. Those passenger link managers, for example, and Passenger Focus at its centre, have been organising wide and proper market research and analysis on what customers have wanted on the Cross Country, on East and West Midlands, and produced that information, and that information has gone into the DfT and we have had extensive discussions about it. I am not claiming it is perfect but ---- Q109 Chairman: You are saying it is a different format? Mr Foxall: It is a different format and I have substantial evidence that we are inputting. I am not arguing we have been listened to but I am arguing that we are putting information in. Chairman: Mr Foxall, you and I both know that getting yourself listened to is rather different from actually getting the chance to say something. Q110 Graham Stringer: I cannot resist Mr Pout's lead-in. I would ask him to give the Committee his interpretation of whether Professor Nash's work about the costs of the franchises should be taken seriously? Mr Pout: I do not have that much experience in dealing with that aspect of the industry, I am more a users/consumers' representative, but, from what I have seen, there does seem to be a very serious problem over the increasing levels of cost but without necessarily that being translated through into service delivery. Q111 Graham Stringer: I am going to paraphrase the case put by the train operating companies. They were saying, "We are getting more efficient, the reason the costs are going up is because the increased costs of transport infrastructure is being put on to us". Do you think that is fair or do you think there are inefficiencies within the train operating companies which in themselves are contributing to the cost of £5 billion to the Treasury which the railways are costing us all at the moment? Mr Pout: As an economist I would say that the present structure reduces economies of scale, therefore there are certain diseconomies from the fragmented organisation of 22, or however many it is these days, railway operating companies as opposed to 12 years ago when there was one and it was called British Railways, which for all of its inefficiencies achieved very important economies of scale in certain areas. Now with rolling stock refurbishment the same train can go through two different workshops and have two completely different refurbishment packages, so there may not be those same economies. They may be done at a reasonable price, they may be getting reasonable value for money, but I do not see the same structures within the industry achieving the best value necessary for however many companies it is now. Is it 15/16? Q112 Graham Stringer: That is a reasonable qualitative answer. Would you be able to quantify the cost of that inefficiency into the system as a contribution to that £5 billion or is it just a gut feeling that is how systems that are this complicated always operate? Mr Pout: I have not got that knowledge, Mr Stringer. Ask Professor Nash or my colleagues from the Institute when they come. Q113 Graham Stringer: A final question along these lines, and it is one I asked the train operating companies, is the opposite argument to the economies of scale. What people in Merseyside are saying is, "Give us the choice locally and we will take 33 million out of the costs". Do you think that is a reasonable assertion? Mr Pout: Yes, I do. Again, this is from my own personal knowledge of Liverpool. This is an example that is rather like a small version of London Transport. It is a very specific type of operation with one or two types of trains and, therefore, it can be maintained to meet a local need. There will be exceptions to the rule, so I would hope the Committee, as you move on, will look into that one. I think that is one case where vertical integration could work and Merseytravel could achieve savings. I have certainly put that in my evidence and I think colleagues have as well. Q114 Mrs Ellman: What would you say is the ideal length for contracts, the length of time they should be let for? Mr Blainey: If I could start. I think it needs to be a long time, maybe 20 years, to give the incentive to invest money with the opportunity to make a return on it. Within that 20 year period you need to have, perhaps every five years, a review to make sure that the franchise is working and that the train operator deserves the extension for the remaining period. I think ATCO would favour a longer rather than a shorter franchise period. Q115 Mrs Ellman: What other views are there? Mr Foxall: I think it is difficult to see the sort of average franchise period coming down, being shorter, producing a satisfactory railway from the point of view of the passenger simply because if you think of the number of things that would change, you could imagine the fares systems might change, bits and pieces of timetable might change, and if you do not change those things and shorten the process what you let is a management contract and that is a different thing. I suspect where it is now may well be reasonable. The arguments for a longer franchise are there partly because of investment experience with someone perhaps who is doing well, but it only works if you have those reviews. Whether a five year review would be too soon or not, I do not know, but the review is an important part of the process in any longish franchise. Q116 Mr Leech: I think a number of you were in the audience when we had people from the train operating companies. They were not asking for 20 year franchises. Why do you think they were suggesting that the optimum period was 12-15 years? Mr Foxall: I do not know and I cannot guess. It is their business. If you ask me to guess I would suspect it is because it gives them an opportunity to change arrangements which might or might not be satisfactory to them and gives them a chance to move on and renegotiate. From one point of view, I am not sure I think 20 years is a good idea either because people get stale and there is a good reason for changing them. If you do think 20 years is good for any reason, if you are convinced that there is an investment argument, and there is some but I think I agree with Members of the Committee who are questioning how high that is, but there is some, you definitely need the reviews in the process, it would be wrong to go ahead without those reviews. Q117 Clive Efford: What should determine the length of the contract? I would be interested to hear the views of others about what we would miss out on. You started to say fares, Mr Foxall, but what would we miss out on if the contracts were shorter, bearing in mind that the investment is in rolling stock that would outlive the lifetime of the contract, it is not owned by the train operating company? Mr Cousins: One of the problems with a short franchise is that there is inevitably a period at the end when the company ceases to invest. One of the things that we as passengers expect to get from a rail operator is continuing investment in refurbishing rolling stock and in refurbishing stations. They are obviously not going to get very much back for their money in the last year of a franchise, or even the last two years. Q118 Clive Efford: Could you not specify that in the contract so that you would not allow that petering off of activity or investment? Mr Cousins: It does not seem to work that way. I think we can appreciate that it would be difficult to transfer an appropriate value with that investment on to a new franchisee who might want to do things differently. Mr Foxall: If you change the leasing arrangements with the ROSCOs maybe you could create the sort of situation so you effectively deliver to the train companies the kit they are going to use in a refurbished state. What I think you end up with then is a management contract. If they are in the business partly of specifying the kind of trains they want and the standard of refurbishment they want and so on, I do not want to end up speaking for them - there is a danger of that - if you are not careful they get such a short period to amortise that in terms of the relationship with the ROSCO the annual price goes up too high. Chairman: I think they made that argument. I want to come back to Mrs Ellman. Q119 Mrs Ellman: How common is under-bidding where companies submit bids that are too low and then renegotiate? Mr Hewitson: We do not get that type of information so it is very difficult for us to know. We do talk to bidders and bidders are very interested in getting our views but they are rather constrained and unwilling to let too much out in return. Some of the evidence of train companies getting their cost base and their assumption wrong is well-documented; the question is could that have been avoided. Some of the first round franchises were bid on the assumption of a static, declining railway and look what has happened. It is very difficult sometimes to look into the future. Mr Pout: We have only got to look at Mr Efford's home patch and the famous case of Connex who simply did not deliver and went back twice cap in hand and in the end Mr Bowker said "enough is enough". This was a case where they just did not realise what the revenue flow and their costs were going to be. That impinged on passengers where there were appallingly poor declines in service and the condition of the stock with both the franchises that Connex operated. They were dire. Q120 Mrs Ellman: The operators have told us that the current system has led to a better service for passengers and more innovation. Do you see that in terms of the passengers that you represent? Mr Foxall: There is some evidence, but only some evidence. We have evidence of standards being set for stations and so on, but we have to bear in mind in this when we are talking about franchises - my colleagues have mentioned it - there are lots of different styles of franchises from the very first to the current ones. There is some evidence of improvement but it is hard to say that those improvements would not have arisen in other ways in other circumstances under other systems, but they are undoubtedly there. On the other hand, there is evidence of other difficulties arising. If we look at the high premium franchises that are now in vogue that have been put in place, they are clearly putting under pressure benefits that passengers are going to get. They are putting fares under pressure. The Chairman raised the question of the car parking charges, a very good example of something being put under pressure. Car parking charges have been raised and the train operating companies have said absolutely openly to us, and they have said to you, "We have to do that because that is part of the consequence of a high premium franchise". We have seen some benefits and we have seen some disbenefits. Mr Blainey: I think I would agree it is very dependent on the franchise. There are good franchises where things have improved but we still have a lot of stations with very poor security, poor lighting, lack of information, poor car parking, and very often it seems that it is left to the local authorities to find the funding to improve those elements because the franchise operators say they have no money to do that. Q121 Mrs Ellman: Do you think that the PTEs or local authorities should have more involvement in the specifications? Mr Cousins: We have benefited very greatly in the West Midlands for the last 20 years from Centro's involvement. They have invested a great deal of money in refurbishing stations and providing access to their stations throughout their region to the extent that there are now very few stations that are not up to a good standard. They also specify staffing ratios and that staff should be on duty from the first train to the last train. As soon as you go outside the old West Midlands' PTE area, which was the West Midlands County originally, that starts to change. The Shire Counties have not had the funding to invest in a similar manner and, sadly, the train operator has not been able to keep in step either. Parking is a particular problem because as you go over the boundary you hit car park charges for the first time and the result is that people just go over the boundary driving miles farther than they need to. Q122 Chairman: Was it Mr Blainey who said something just then? Do you want to come in? Mr Blainey: I did, but I cannot remember what I wanted to say now! Q123 Mrs Ellman: How do you think passengers could have a greater input into letting franchises or specifications? Do you think it is time to let passengers have a louder voice? Mr Foxall: What we wanted to do was exactly what we have done, which is do research on what passengers want, ask them what services they want, ask them how the current franchises are working, survey their priorities and get those into the franchise process. I would like to see us become more involved in that. I do not want to get to the point where I am getting involved in negotiating a franchise because that is not our job and it is dangerous for us to get into that area, but I think it is important that we should be a major consultee. I think it is true that we have been encouraged to become that, so we ought to give some credit to the new system, that is there, and I hope it works out in practice and I hope it works out more and more. We have to have the funds to do that and we have to have the invitation or the access to do that. We can help in that way. I think this is very important: we are very ready to involve the other groups. Passenger Focus is a focus, that is the point, so we can focus what the other groups are saying and help to get those messages through. I am all in favour of getting passenger groups more involved in specifying franchises, after all that is the purpose of the franchise, it is to deliver services to passengers. Mr Williams: Basically, from the local authority perspective in the Shire Counties we do have a perspective on passenger needs because we are consulted by the Department for Transport on the franchise specification, but it goes no further than that. We do often act as their eyes and ears out in the regions where they do not have that sort of information, yet we still cannot specify it unless we are prepared to pay for that ourselves, which seems bizarre. We do not want to get involved in the actual letting of the franchise completely but we do not have any extra locus even though we put money in the system. Q124 Chairman: The same point? Mr Pout: No, slightly different insofar as the DfT appear to do rather less consultation work within England. My Welsh colleagues are telling me that they have been far more positive under the direction of the Welsh Assembly towards specifying and consulting in those areas rather than in England. Again, it may be a route the transport user forums which are being set up informally can use to ensure that they have some recognition so there is a channel through which to work. At the moment there is no channel. Q125 Mr Leech: I just want to ask Mr Foxall whether or not his involvement in talking to passengers about things in relation to new franchises has made its way into any new franchises yet and whether he thought that the involvement he had would make a positive difference in terms of the franchises that are going to come about in the future? Mr Foxall: It is difficult to say. I would have to not do it and then compare. There is no control, so I cannot be absolutely certain. I think there is some evidence that the answer is yes, it has, but how much I do not know. So far it is encouraging. Mr Hewitson: The two that we are focusing on is the Midlands franchise and, of course, Cross Country that are ongoing, so it is almost too early to say. We will know when we see what we have listed as the priorities reflected in the new franchise, then we will be able to assess. Chairman: Gentlemen, where you agree I would be very grateful if you would not repeat what somebody has already said. Q126 Mr Leech: Have you actually been receiving any positive feedback from the Department? Mr Foxall: Yes. Mr Williams: Yes. Q127 Clive Efford: It has been argued that risk has not really been transferred from the public sector to the private sector under rail franchising. Do you agree with that? Mr Foxall: There is a limited amount of transfer. You were right to draw attention to the arrangements which protect the companies in certain circumstances, although we do not know in detail what those are or how they work out. Clearly there is a transfer of some risk. They run a certain level of commercial risk in terms of the volumes that they attract and so on in normal circumstances, and they gave the example of 7/7, so clearly they bear some risk. The amount of risk they bear is going to be commensurate with the amount they are going to invest and the amount they are going to get out of the whole thing, and until we can expose that whole we cannot judge how much risk they are properly bearing. Q128 Chairman: Mr Pout, do you want to add to that? Mr Pout: No, thank you. Q129 Clive Efford: Does the 'cap and collar' scheme place too much revenue risk on the public sector? Do you have a view on that? Mr Foxall: No, I do not. What I cannot tell you is how much risk the government is seeking to avoid by putting the collars there. It works to the advantage of both parties in a sense. Q130 Clive Efford: We have been informed that £23 million has been handed over to the train operating companies to compensate them for industrial action. Is anyone aware of money being paid to them to indemnify them against loss due to industrial action? Mr Pout: No. Mr Hewitson: No. Chairman: Someone is walking away with a lot of money. It is quite interesting that none of you know who it is. Q131 Mr Goodwill: To what degree are there differences between the level and standard of service and prices between routes where a number of franchisees are operating in competition either on the same track or between the same locations, and other routes where there is in effect a virtual monopoly where one franchisee has control over that route to a greater or lesser extent? Mr Hewitson: There is some competition on the Brighton Main Line, Gatwick Express, Thameslink and Southern. There is a common fare structure, so they compete largely on train company specific prices. Certainly we have seen new fares come in because of that. It is an advantage to those passengers who can get hold of them but it has made a very confusing fare structure down to Gatwick. It has its pluses and minuses. Because we have a regulated fare structure it is quite hard to plan some of the impacts of competition. It does tend to create this Apex, pre-book type ticket culture and you can get some really good deals, but you can get some immense complications as well. Mr Williams: I would endorse that but also add that some franchisees are more focused towards increasing their patronage and not just trying to get as much money out of the commuter or business passenger. I am from Derbyshire County Council and we have had instances of people driving from the West Coast Main Line on to the Midland Main Line to save themselves £50 difference in fare from a similar distance from London. Q132 Chairman: Did they actually give you a detailed breakdown of the cost or is this done on the basis of what the petrol cost is as opposed to the real cost of motoring? Mr Williams: I think it was down to the petrol cost rather than the real cost. Q133 Chairman: But it was a genuine case of people saying they do that in order to save 50 quid? Mr Williams: Yes, absolutely, but people are very fickle and they have gone back if the fare structures change, of course. Q134 Chairman: Can I ask you very quickly: Railfuture Northeast has argued - this is particularly for Passenger Focus and ATCO, of course - the financial returns to Government of certain franchises represent an excessive extraction of money from the railway. Is that right? END OF TURN 02 Mr Foxall: It poses a risk and a threat because it poses a risk in terms of the pricing structure, the fare structure and overcrowding. I cannot say whether it is excessive or not, but what I can say is that it poses a threat because if you have to deliver premiums they have to come from somewhere and the only place they can come from is by cutting back on costs, and we have heard that quite a lot of their costs are fixed in terms of the ROSCOs and Network Rail, or increasing their charges. The revenue opportunities are relatively limited in the sense that once a train is overcrowded it is overcrowded. Q135 Chairman: What is your alternative to that, Mr Foxall? Mr Foxall: The alternative clearly, it seems to me, is that we concentrate on relieving the overcrowding. That is where pricing off in order to resolve overcrowding is something that we are very obviously opposed to. We are realistic enough to know that you have to manage demand to some extent; that is understandable, but going for a crude policy of pricing off is something we would oppose. Q136 Chairman: And you think there is clear evidence that the companies do that? Mr Foxall: There is enough evidence to make you think the companies could be doing it. I think it is too soon to say they are certainly doing it. They have made it quite clear that discounted fares have been withdrawn during periods because of the overcrowding. That is clear enough. Q137 Chairman: They have also withdrawn some fares during times when presumably the trains were not overcrowded. Have you got evidence of that? Mr Hewitson: The withdrawal of cheap day tickets from the first couple of Connex services blankets trains that are crowded and equally trains that are not so crowded, so it is a rather blunt measure at times. Q138 Chairman: Mr Williams, did you want to come in on that? Ms Williams: I just wish to endorse what the gentleman on my right has just said but also that there are certain issues that we have highlighted before which are not regulated by the Department for Transport, such as car parking charges, and then you do see the excessive increases on those car parking charges brought in because they are not regulated by anyone. Q139 Clive Efford: This brings us back to the question of who we subsidise the railway for. Do you think that the Government should be more specific around issues like discounted fares in the contracts when they issue the franchising? Mr Foxall: We would want the Government to make sure that the nature of the railway we have is not changed by all kinds of factors like overcrowding. There is a danger the railway will be changed. If discounted fares start to disappear on a walk-up-and-go basis that will change the nature of the railways. The answer is yes, I think we need to be clear. I would like these sorts of arrangements to be more transparent and I would like us to be clearer about what we are trying to achieve. There is a danger after all surely that the Treasury will be able to get more money out of these franchises and less will be delivered to customers. If we are clear this is a public service being delivered privately let us leave it like that. Q140 Chairman: The department has actually indicated in the pre-application process that they give 70 per cent weight to track record, 25 per cent to plans for mobilising and operating the franchise and five per cent on the applicant's approach to bidding. Do you think that is a correct way of looking at it? Are those the right percentages? Mr Hewitson: It is difficult to comment on the precise percentages, but certainly every survey that I have ever seen of passengers puts punctuality performance top of the list, so I think it is quite right to factor it very highly in terms of the bidding process. There has certainly got to be a lot of scope in there for innovation as well in new services and new products. Q141 Chairman: Should there be greater emphasis in the criteria on bids for innovative proposals? Mr Hewitson: It depends to a degree on the amount of flexibility in the specification process. If you are being asked to cost a fairly tightly defined list of services it is very hard to add it in. If you have got a bit more flexibility, if the departments are generally willing to look at spending a little bit more money up front to get some benefits down the line, then yes, we should factor it in. Q142 Chairman: So do you think newer companies are being excluded because of the emphasis on track record? Mr Hewitson: If you look at the core companies that are bidding there are very few. Whether that is because there are barriers to entry or whether it is because other companies do not see it as a good enough return is very difficult for us to say. Q143 Chairman: Do you accept these suggestions that their costs are between £2 million and £5 million to bid for a franchise? Mr Foxall: I would not be surprised at those figures personally but that is speaking from experience of other fields of business. Can I just add to this point that you were following earlier? I have got here a quote from the SRA. I will not read it out but the substance of what it says is that the SRA, when reviewing its franchising policy, concluded that the policy of relying on commercial incentives to encourage TOCs to improve the quality of passenger services and station services and so on was not going to work and you had to put them into the franchise and had to specify them. I do not stand that up or anything, but it seems to me there is one piece of evidence. People had looked at it before. In other words you do have to specify what you want in the franchise. I think there is a danger to which my colleague has just drawn attention in terms of innovation. You pay for it in other ways. Q144 Chairman: Do you accept that there is a fear of legal challenge and that has contributed to the spiralling costs? Mr Foxall: I have no way of judging, I am sorry. Q145 Chairman: No impression? Mr Pout: No. Q146 Chairman: Do you think it is true that these bidders often spend £2 million on consultancy fees? Ms Williams: That is probably quite true, or partly true in relation to some of the issues they wish to bid for, and they do have to set up franchise bid teams to go through all of these ----- Q147 Chairman: It is not quite the same as using large numbers of consultants, is it? If that really goes on consultancy fees alone it is not really surprising that the franchise bids cost so much money. Ms Williams: No. Q148 Chairman: Have you got any evidence of that through ATCO? Ms Williams: No. Unfortunately, those costs are not exhibited by the Department for Transport after the process has been completed, so we do not get anything evidential in this at all. It is just anecdotal. Q149 Chairman: Do you think risk has been transferred from the public to the private sector through the franchising? Ms Williams: A limited amount, yes. Mr Pout: A limited amount. Q150 Chairman: Mr Pout - a limited amount? Do you want to try and quantify that? Mr Pout: A limited amount but only where an operator is allowed to experiment with a new service. Chiltern, for example, did take a risk in developing their competing service to Birmingham against the parallel operator which was the long established one, for better or worse. Therefore, they have taken some level of risk but there again they have a 20-year franchise in which to bring the money home. With a shorter franchise there will be less risk, and if we go to something like the proposed north London railway contract, that will almost certainly be a management contract rather like the DLR arrangement that TfL have already, so there may be very little risk to put into that. Q151 Chairman: Does the current system provide adequate co-ordination between specification and award of franchise contracts by the department and the open access rights that the ORR has responsibility for? Mr Pout: That I think is very difficult to judge. Because of the sub judice over one case we can only look at, say, an existing successful case, which is Hull Trains. That has delivered a very good service to a city which I spent three years in and it was a nightmare to get there, particularly from the south. I think Mrs Ellman did slightly better from Manchester, but it is not an easy place to get to. Therefore, if it is fulfilling a specific demand then open access can help, but at the moment it is still a very grey area in that users do not know what criteria the ORR or the department may apply. There are a number of comments in various of our evidence to comment on this that it is still a very grey area. We do not understand how it works either. Does the department? Q152 Chairman: I want to know whether you think the department has enough people monitoring the work of the various companies. Ms Williams: No; only on the basis, it seems to me, that the monitoring seems to be very London based. I am not aware that the department has anybody out in the provinces checking ----- Q153 Chairman: Perhaps you did hear before, Mr Williams, the evidence that they seem to think they are being called in on a regular basis much too often and are being required to give too much detail. Does that seem to chime in with your experience? Ms Williams: No. It may be on other factors of the train operators. Q154 Chairman: No, but from your own experience that is not your evidence? Ms Williams: No. Q155 Chairman: Mr Foxall? Mr Foxall: I think it is difficult to judge. The answer to this is that we would like to see the department monitoring those things which it can easily monitor, the sorts of things that are specified in the franchise. That is a good thing to monitor. I think the difficulty comes in, and I would have some sympathy with the TOCs, when you get to micro-management and day-to-day services because I am not really convinced - and I run the risk of arguing this with the Secretary of State later on - that politicians are best placed necessarily to run the railways. I think it is a good thing that the railways should be run by people who understand running railways and when it comes to day-to-day running of them it may not be a good idea for politicians to get involved day-to-day. In terms of monitoring the things in franchise, I think we would like to see that followed up more vigorously. Q156 Chairman: That is interesting. To what extent does an artificial distinction between long distance and regional franchising lead to omissions, if you think of something like London to Middlesbrough or Shrewsbury or Sunderland? Mr Pout: Very seriously. There is no doubt about it, that certain regional centres are not well served. We cannot talk about the north east, but again it is back to Hull. Chairman: Gentlemen, you have been very helpful and I am very grateful to you. Thank you very much for coming.
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