House of COMMONS









Wednesday 23 November 2005









Evidence heard in Public Questions 1 - 171




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Oral Evidence

Taken before the Transport Committee

on Wednesday 23 November 2005

Members present

Mrs Gwyneth Dunwoody, in the Chair

Mr David Clelland

Clive Efford

Mrs Louise Ellman

Mr Robert Goodwill

Mr John Leech

Mr Eric Martlew

Mr Lee Scott


Memoranda submitted by the RMT and Transport 2000


Examination of Witnesses


Witnesses: Mr Bob Crow, General Secretary, and Mr Ray Knight, member, Council of Executives, National Union of Rail, Maritime and Transport Workers (RMT); and Mr Stephen Joseph OBE, Executive Director, and Mr Dave Woracker, Operational Research Analyst, Transport 2000, examined.

Q1 Chairman: Good afternoon to you, gentlemen. I wonder if you would be kind enough to identify yourselves.

Mr Crow: Bob Crow, General Secretary of the RMT.

Mr Knight: Ray Knight, Council of Executives, National Union of Rail, Maritime and Transport Workers.

Mr Joseph: Stephen Joseph, Director of Transport 2000.

Mr Woracker: Dave Woracker, independent adviser to Transport 2000.

Q2 Chairman: Thank you very much. Did any of you have anything you wanted to say before we begin?

Mr Crow: Our submission used extensive independent research produced by Professor Michael Blakemore of Durham University. He found that privatisation has created a situation where the standard fares and city travelcards are much more expensive compared to those in mainland Europe. The train operating companies use their route monopolies to run a pricing policy which seeks to maximise revenues and profits, particularly from periods of high passenger demand. Disturbingly, the current pricing policy even treats children as economic occupiers rather than future rail travellers. Long gone are the British Rail days when, on the family railcard, our children travelled for 2 return. As we approach the festive season, when families are struggling to find money for presents, it is unacceptable that travelling between Newcastle and Bristol on December 21 and returning a week later can cost two children and two adults 172. So long as the private sector route monopolies remain unchecked, the Government will struggle to meet manifesto commitments to deliver an integrated transport system. We, therefore, believe that it is in the public interest for the Government to take the control of fare and ticketing structures and policies operating on the UK rail network. This should include an immediate review to ensure that: (1) the fares policy is geared to encourage a modal shift from road to rail; (2) train operating companies compensate customers who have purchased tickets which are more expensive than they should be in the case; and (3) honour its manifesto commitment and set a timetable for the introduction of a national railcard.

Mr Joseph: We have four points I think we would like just to draw the Committee's attention to. Firstly, we see the fares policy as related to the wider transport policy; notably, in the past 20 years, the cost of motoring has remained stable or fallen, whereas the rail fares have increased significantly, and this matters for wider policy purposes. Secondly, the reaction to fares rises, which technically we have called "elasticities", vary enormously and, in particular, we think that the work that Mr Woracker has produced for us suggests that in general rail should aim for a "pile-it-high-sell-it-cheap" policy, maximising revenues from trains rather than pricing up by seat and trying to get the most out of each seat that they run. Thirdly, fares are unnecessarily inconsistent, inflexible and complex, especially outside the south-east and they need to be simpler, more flexible and specifically, as the RMT has said, we are looking towards a national railcard which we do think would be worth having for the rail industry and the wider public. Finally, fares increases are used as a proxy for pricing revenue problems elsewhere in the rail network, particularly on the treatment of engineering works, the leasing costs of extra trains and the cost of adding capacity.

Q3 Chairman: Yes, I think we will need to have you expand on some of those points as you go along. Both of you really are making the case that rail fares should be put in a much wider economic and political context.

Mr Crow: Yes, Chair, the position that there is with rail fares at the moment is that commuter fares are regulated by government processes, but there is no regulation regarding what we call inner-city fares, so basically they can push the price up per ticket to how much people are going to pay and that is why you see such expensive inner-city travel compared to the regulation with commuter routes.

Q4 Chairman: Well, why should the rail industry be treated differently from any other transport industry? It is an industry.

Mr Crow: Well, what we are arguing is that the difference is that it receives public money and if public money goes into an industry, surely the public should have a say in how it is spent.

Mr Joseph: The Department for Transport's taking over direct control of rail strategy gives an opportunity to relate rail fares and rail pricing to wider transport policy and we think the Government should take that opportunity and use it to make sure that fares policy serves wider public benefit rather than just relate it to what individual operators can justify.

Q5 Chairman: The Department for Transport argues that, because fare structures in continental Europe are very different from the ones we have, any comparison that you have undertaken, Mr Crow, is fairly problematic. Do you agree with that?

Mr Crow: No, I do not agree with it. We believe that Professor Michael Blakemore's extensive research that he has done makes it quite clear that, kilometre for kilometre, the British network is far more expensive. If you use the German network, you can use one ticket and that will allow you to use all the German railway, whereas you have the difficulty in Great Britain of the magnitude of the companies.

Q6 Chairman: Well, there is mild disagreement with you about the basis on which you did it. You appeared to have used ordinary market exchange rates rather than purchasing power parity rates. Is that the case?

Mr Crow: I do not think that is the case at all, no. I think we can provide more information as to how we got it.

Q7 Chairman: Well, it could make a difference. You see, if you are using market exchange rates, you would come up with a different index than if you were to use, for example, the OECD comparative price index.

Mr Crow: Please expand on how that would apply then.

Q8 Chairman: Well, because then the figures that you have used would be different.

Mr Crow: In which circumstances?

Q9 Chairman: Inasmuch as the index, if we were to use that, would come up with a smaller difference, so the differences would be five and six per cent.

Mr Crow: Well, we believe that we have been comparative in how Michael Blakemore came to these figures and we believe that, if that were applied in any country, Britain has still the most expensive use of train travel.

Q10 Mrs Ellman: The statistics we have show that rail travel actually increased, so if more people are using the trains, why are the prices a problem?

Mr Crow: Sorry?

Q11 Mrs Ellman: There has been an expansion in rail travel, so if more and more people are using the trains, why is the level of prices rising?

Mr Crow: Well, for example, you do not get told when you book up over the website or the Internet what the cheapest ticket is. What happens is that when you go on to the website, they have got software now which says the best credit ratings you have got, so, for instance, someone phoning up from Hackney and someone phoning up from somewhere in a suburb, they would take the suburb quicker over the network than they would someone from Hackney because they believe they have a better credit rating. There are circumstances where you can get a first-class ticket cheaper than you can get for a standard fare if you know exactly what ticket to get. Also when you are travelling, you have circumstances where people have bought a ticket and have got to stand up and there are still seats in first class. Our view is that people should be given the opportunity, once the compartments are full, to take seats in first class rather than stand for long and arduous journeys.

Q12 Mrs Ellman: I think you are making some very important points on information and what customer choice is. I just want to go back to the major point that is made by some who ask: because more and more people are actually using trains, why is there a problem with the pricing? It would suggest that people have been priced off the trains.

Mr Joseph: If I can make a comment on this, our evidence suggests that within that broad picture of expanding rail travel, there are some very large variations which can be put down to treatment of fares. For example, our evidence includes some tables contrasting, for example, North West Trains where fares went up by 34 per cent, or something like that, over the period 1999 to 2004 and where, consequently, passenger numbers fell compared with ScotRail where fares went down by five per cent and passenger kilometres went up by 14 per cent. Similarly, you can see similar contrasts between GNER and Virgin, between the east-coast and west-coast main lines. Therefore, our argument is that, looking at the statistics that Mr Woracker has dug up for us, actually within that broad picture of expanding rail travel fares policies have to an extent changed what has happened in individual bits of the network.

Q13 Mrs Ellman: And those differences you find significant?

Mr Joseph: Yes.

Mr Woracker: For example, if you look at our table 3, Virgin Trains, what I looked at was not just the fares, but, because of what people are buying and they are travelling some distance, what I looked at was the earnings per passenger kilometre which some technical people refer to as 'yield', but I will keep calling it 'earnings per passenger kilometre', if that is okay with you. That is what people are paying for their fares, but that is also because of the computer system that distributes fares out to a number of operators. For example, a Crewe to Sandown journey, the system is called (?), it will give each of the operators the same amount per mile, if you see what I mean, so Virgin Trains will get 200 miles worth out of that ticket, whereas Island Line, for example, will get six. That is the basis we did it on. I looked at that and then put it in real terms using the Retail Price Index and I found that what passengers were paying for each kilometre or each mile on Virgin Trains increased just short of 11 per cent over the study period. The change in passenger kilometres fell a little bit, by 1.5 per cent, but the other factor for Virgin Train passengers was that the average journey length also fell by nearly 15 per cent. Now, the argument was put to me by some people in the industry, "Oh, it's the airlines that are doing that", so, if you look at GNER who also operate London to Scotland routes, using a similar basis, in real terms the amount they were charging and receiving per passenger mile fell by five per cent, but they had a 15 per cent growth in passenger kilometres, and the airlines did not seem to affect them because their average journey length stayed practically the same. I did similar comparisons for various operators in each of the sectors, ie, Network Southeast, regional railways and the long-distance operators, and from this drew the conclusion that the fares that have been really charged for passengers, because the debate tends to go along the lines where a train company will say, for example, to someone in Portsmouth or the Isle of Wight, "Look, you can go to London for a quid", and my argument or the passenger's argument is, "Yes, fine, but I do not want to get up at half past four in the morning", so what I looked at was, rather than quoted fares, what people were paying overall and that is what my charts revealed.

Q14 Mrs Ellman: What major conclusion can you come to on saying which types of journeys are actually affected by higher prices in deterring the passengers from using the trains? Is it inter-city? Is it regional journeys? What type of journey is it where people are actually put off from using the train?

Mr Woracker: It seems to me the journeys of any length because, if you like, there is Virgin Trains on one side in the inter-city camp, GNER on the other side and if you look at, for example, the regional rail side of things, there is ScotRail who have got increasing passenger numbers out of fares bought and paid for falling in real terms counterposed by North West Trains, so it spreads right across the sector, right across all of the sectors in the industry and it is what led me to look further at the data and, from that, pull out the fact that there was an elasticity of about -0.5.

Mr Joseph: Which is high in industry terms. I think you could say that certainly off-peak and leisure journeys were particularly affected by this. Business travel, apart from the airlines, might be rather less affected, but it is off-peak and leisure journeys, the kind of journeys that Mr Crow was talking about and Christmas, these are the things that are particularly affected. It is also sometimes very short-distance journeys actually where you have got a choice of bus and in some cases even walking which will be affected by some of these.

Q15 Mrs Ellman: Mr Joseph, you spoke earlier about the need for pricing policies to be related to wider transport policies. Could you say what you mean?

Mr Joseph: Well, the Government has various transport policy objectives, including reducing road congestion and reducing the pollution from road transport. We think that rail fares policy will play a part in this. There is not much point having a policy, for example, on road-user charging if, at the same time, you have got train companies pursuing some of these strategies that we are talking about here in relation to, say, North West Trains. There may be regulatory reasons, and we are not saying that the train companies are evil and bad people, but it is the way in which sometimes the system pushes them certainly. For example, the rail regulator's decisions on the pricing of the West Coast main line has clearly had an impact on what Virgin have done, for instance, but, nonetheless, the outcome of this is to price up rail travel and more people are likely to use cars and in some cases that could be very significant.

Q16 Mrs Ellman: The Department for Transport say that the fare structures here are more innovative than those on the Continent and allow more choice and more innovation. Does anyone agree with that?

Mr Crow: On what basis though? In Germany, as I said previously, you can buy a card which gives you the opportunity to use all the networks. If you look at the prices as well, London travelcards are almost twice as expensive as Berlin, five times more expensive than Madrid, and the south-east tickets than anywhere else in Holland and Germany, so how they can say it is restrictive beggars belief because at the end of the day it is far more restrictive in London because you have got different train operating companies that operate within that area and you have not got the opportunity of going across two different train operating companies.

Q17 Mrs Ellman: Are there any benefits on the current fare structures? After all, some do offer very cheap fares, do they not?

Mr Joseph: They are sometimes quite difficult to get hold of. The point we make in our evidence is about the complexity, particularly, as I said in my introductory remarks, outside the south-east and on some inter-city routes. My colleague was talking to me earlier about York to Darlington, and we mention this briefly in our evidence, where there is a huge and very complex range of fares, very difficult for anybody, and even the ticket clerks find it difficult, to deal with, and this puts people off. We would argue that what other European railways have done is to put some basics in, some basic limits, and to make the railways operate, and to think of the railways, as a network. We think that any flexibility within the system needs to be tempered by, for example, common restriction times on walk-on discount tickets and, as the RMT have been arguing, a national railcard which other countries have found can bring extra revenue to the railway, but only if you think of it as a network. Since privatisation, the tendency has been to franchise by company and not to look at fares policy on the railways as a network so that you have got some very good deals, for example, from some operators on car-load fares where four people can travel cheaply, but that only applies within those operators on a point-to-point basis, but they do not operate across the network, and we think there is a case for the Government enforcing network-wide deals.

Q18 Mr Scott: Mr Crow, earlier when you were answering Mrs Ellman's question about booking on the Internet, did you actually say they can tell where you are and you would pay a different fare if you were, say, in Hackney as against somewhere else?

Mr Crow: No, not a different fare. We understand that when people ring up now, with the software equipment they have got, they can tell in what areas people have credit ratings, so the postal code people ring up from gives them what kind of area they live in, whether it is more affluent and, therefore, they can determine, for instance, and decide whether to speak to someone from Hackney or to speak to someone from a more lucrative place like Loughton and, as a result of that, they have more opportunity to speak to someone in an affluent area because they know they will buy a dearer ticket.

Q19 Chairman: You are really saying that they are actually responding on the basis of wherever the economic area is?

Mr Crow: Well, as far as we were told yesterday, they have got the software that tells them that, so, whether they use that software or not, that software is available.

Q20 Mr Scott: Maybe I am a little bit innocent on new technology, but they can tell where you are from where you phone without you telling them where you are?

Mr Crow: No, when you ring in, they can determine what credit rating you have got from the area you rung from.

Q21 Chairman: But what happens if you are poor and you live in the City of London? That means they are going to answer my call irrespective of my income?

Mr Crow: No, they are obviously not going to say that, but there is more chance that someone constantly ringing up from that area is not going to be a pauper living in the City of London.

Chairman: I think we are going to need a little bit more evidence on that, Mr Crow.

Q22 Mr Scott: As to the criticism of the complexity of the fare structure, obviously bearing in mind what has been said about a national railcard, how would you like to see the fare structure changed?

Mr Crow: What we would like to see is more public control of how the fares apply because if there is a magnitude of public subsidy going into the railway network, to the train operating companies, that must affect the profit margins that the train operating companies are running. We believe that if the public are putting money into the railway network, they should be able to have an opportunity of persuading the regulatory bodies what the fares should be, so certainly there has to be some form of regulation in the form of a passenger group or some kind of body that allows us to sit down and talk to train operating companies over what the fares should be and what the passengers see as the problems.

Q23 Mr Scott: I do not want to put words into your mouth obviously, but are you suggesting that the same terminology be used wherever it is?

Mr Joseph: Yes, we would say that. We have suggested, and the summary at the end of our evidence says, that we want a set of uniform restrictions applying as a base across the network and that we want the same names and comparable conditions on some of the ticket prices. I think this is also important in relation to the bids for franchises that the Government receive. It has been put to us that one of the reasons why North West Trains have behaved in the way they did was simply that was a bad bid. Well, somebody needs to scrutinise that and make sure that that does not happen as a result and that it is possible for the Department for Transport now to be able to be a little bit more demanding, and the RMT has already made this case, on what they actually get train operators and franchisees to sign up to.

Q24 Clive Efford: Do you think it is reasonable to ask taxpayers to provide further subsidies to railways in order to reduce fares?

Mr Crow: Well, at the end of the day that is the case regarding road; you are paying tax for people to use the roads. The reality is that if people are paying taxes, the only way that we have of solving the problem long-term for the environment is by getting people off the road and on to rail. That can only be done, in our view, if the train operating companies run an efficient service and the fares are non-expensive for people to use.

Q25 Clive Efford: In your evidence, you talk about train operating companies not being efficient. In what ways do you think that they could be more efficient?

Mr Crow: Well, there are a number of ways they could be more efficient. For instance, at this moment in time there is no encouragement for people to use the fares early in the morning. There is less capacity, for instance, less seats available from the time that the service is open from, say, five am to seven am. After seven until half past nine, it is completely packed. If there was some encouragement to get people to use the trains between five and seven at a reduced fare, then people would be able to pick up the capacity. That would mean a two-way bid with their employers, that they are flexible allowing people to start work earlier and to finish earlier as well.

Mr Joseph: I think there is a broad and specific answer to your question. The first is that there are in some cases wider benefits from having reduced fares, not just in transport terms, but, for example, enabling people to get access to jobs and so on, and these need to be taken into account in some cases. In the more specific case, we have some analysis which comes out of the elasticity, and my colleague will enlarge on this in a minute, which suggests that there is a good value-for-money case in actually reducing fares for the public purse and that underlines the point that we made, that in some cases the evidence we have got suggests that maximising the revenue for trains by reducing fares is a better strategy than pricing up.

Q26 Chairman: In your table 3, First Great Western, why have passenger numbers gone up 30 per cent and the fares have gone up by five per cent? I am listening carefully to your arguments.

Mr Woracker: I think in general that where the amount paid per passenger ----

Q27 Chairman: Would that indicate to you that there was some other factor in that?

Mr Woracker: I fully agree, there are lots of factors that make someone decide whether they are going to travel by train, but if you look, for example, at Thameslink and my own local line on the Isle of Wight, they have pursued management strategies to get computer programs to cherry-pick the fares around that, but basically kept the stations clean, kept the trains clean and kept them running on time, and that does get passengers on the railway as well. As to the table in general, it looks like the amount paid per passenger kilometre has gone down in real terms and passenger numbers have tended to go up, but clearly it is not the case at every point.

Q28 Clive Efford: Just coming back on that, do you have any statistical analysis of the impact of reliability, cleaner trains and safer stations on increasing passenger numbers?

Mr Woracker: Not off the top of my head here, but I have at home, if you want to write to me and then I could write back.

Q29 Chairman: That is not playing the game actually! You write to us!

Mr Woracker: We will write to you.

Q30 Mr Clelland: Just on this question of more public control over the railways for the purpose of producing cheaper fares, obviously that does suggest a greater public subsidy. Have you got any idea as to what the figures are on that?

Mr Crow: No, but we would be able obviously to provide the research for that, but quite certainly there is no sort of pro forma out there about how the fares have been arrived at. It is quite clear that once you leave the commuter belt where there is some form of regulation about what the fares are, it is literally how much a person is prepared to pay, so it becomes a bit of an auction really.

Q31 Mr Clelland: I do not think your arguments are going to go down particularly well with the Government really if you say, "This is the direction we should be moving in", but you have absolutely no idea whatsoever what it is going to cost.

Mr Crow: Yes, but the reality is, going back to previous arguments, that the train operating companies are getting three and a half times more subsidy than British Rail got.

Mr Joseph: We have done a specific calculation on a specific franchise for this. We calculate that with Northern Trains, if fares were reduced by 25 per cent, this would increase the subsidy by just 2.5 per cent, achieve a 20 per cent increase in passenger numbers and the value for money for the public purse from doing that would be 17 per cent, and that is on some fairly conservative assumptions about what would happen to passenger numbers. We have not done this across the network, but that suggests, using the elasticities that Mr Woracker has been using, that there are some cases where there is a good public benefit, a value-for-money benefit in bringing fares down and it is not a big additional cost to the public purse.

Q32 Mr Clelland: On this question of the actual fares charged, we talked earlier about the comparisons between here and Europe. These comparisons seem to be based on standard fares. You have complained, Transport 2000, that there is a huge array of different fares but is it not the fact that it is because we have a huge array of different fares that people can find quite cheap fares? I understand now you can get a first-class single from King's Cross to Newcastle for 29. I do not know if there is anywhere in Europe you can travel first-class for 29, tell me if there is? That seems a pretty good deal. People may have to search around to find that but it can be found. Is it not the case that if you simplify the system, as you want, and we have a much more simple and transparent system, that actually what will happen is the cheaper fares are going to rise?

Mr Crow: First, a lot of people have not got access to the Internet to find the fares. Secondly, I do not believe that those 29 fares that you talk about, first-class, are every day of the week but far between. The reality is that the company will sell the tickets to the highest bidder. If people are prepared to pay 200 for a ticket then they will let them go at that price, that is what happens, and other people have to stand up in second-class which we find is unacceptable.

Q33 Mr Clelland: Yes, but the point is people can find these cheap fares at the moment, can they not? It may be difficult for some people because of Internet access and that sort of things but that is improving every day. People can find cheap fares. Under the system you are suggesting, where it is less complex, is there a danger we will not be able to have the cheap fares?

Mr Crow: You can find cheap tickets if you have got an opportunity where you are going to London or York or Manchester in two or three months' time but if an instant crops up, for example you get a telephone call and you have to be in London in three or four days' time, you get really walloped by a high fare.

Mr Joseph: We have not gone as far with the analysis as the RMT have. Our point is that, first, there should be some base rules that certain walk-on discount fares are nationally applicable across the rail network. We do not want to remove the freedom of operators to offer others but there should be some national basic fares. Secondly, in some cases the fare structure has got so complex that it is completely confusing and impossible for passengers to work out what on earth is going on and what on earth the fare is.

Q34 Mr Martlew: On that point, before I came up today I went up to the Travel Office here, which is very good, and asked for a list of prices for Carlisle to Euston and back. Some of them are return and some are not but I got a list of 29 different prices. Some of them are not available at all, I suspect the GNER one that goes Newcastle-Carlisle which nobody has ever used is not available either. Would you say that the system is deliberately complex to allow the companies to advertise the cheapest fare but not give the cheapest fare?

Mr Crow: There are only a few seats on the trains, there are not hundreds and hundreds of seats or a carriage where people can go at the price that we are talking about. There will be a few seats. What happens, also, is that with the software these companies know, they know what train leaves at what time, roughly how many people are going to use that train, and they will know then that the train is going to be empty so they can have cheaper fares on there but a previous train is going to be full so they know they can jack the prices up. It is not just about having the opportunity of going to your destination when you want, they will allow seats because they know they will be empty anyway so they can afford to give them at a cheaper rate, but you just cannot walk on and decide. For instance, at three o'clock next week you can get an appropriate ticket to Newcastle and at two o'clock in the same week, they can be a totally different fare from the train that leaves at three o'clock.

Mr Joseph: The system you have described is really a product of the philosophy that we have mentioned which is trying to get the most out of each seat on the train. Our argument is that it is better for both the people travelling but also the taxpayer to try and do a different strategy which is to try and get the most people on the train that you can, which we would argue means in a lot of cases the prices need to come down, and the point we made earlier about simplifying them as well.

Mr Woracker: On a technical point, the machine that person consulted to get those fares, you are really asking quite a lot because it has to deal with, if you like, the Virgin Trains strategy, which our analysis suggests is trying to maximise the yield per passenger, and it has all those sorts of fares in it, it has also got all the GNER fares in it, which has an entirely different strategy and, at the end of the day, for example, you should be able to ask for a Bognor to Portsmouth weekly season ticket and have the ticket issued.

Q35 Mr Martlew: Before you were making a comparison that Virgin had put the fares up 11 per cent, I think, was the comment you made?

Mr Woracker: Yes.

Q36 Mr Martlew: You talked about the fact that the usage had not gone up. I have chaired the West Coast Main Line All Party Group for about a decade now and nobody has been travelling on the West Coast Main Line unless they have to. The reality is that the problems on the West Coast Main Line, not necessarily the pricing, have been chasing people off. Did you factor that in?

Mr Woracker: I did, in fact, factor that in. Across the study group there have been some other problems. What I was trying to get to was some sense of argument because where the debate seemed to be going was one camp saying "Look at all these cheap fares" and the other camp saying "Yes, but I do not want to travel at that time". The real argument here is how much people are paying to travel the journeys they are making. That is what my analysis did.

Mr Crow: Also the strategy is quite clear of the train operating companies which operate intercity routes. There is no strategy about getting people to use the trains when they are less used or on-peak or off-peak, the strategy is quite clear: how much money they can make.

Mr Joseph: The period we have looked at - you have talked about Virgin, we also talked about GNER and the comparison there - the point about GNER is in that period they had the Hatfield crash and two other major interruptions/problems which have also hit their revenue paths. There have been other things in there.

Q37 Mr Martlew: Nowhere near as bad as the West Coast Main Line. A final point: what are we going to do about capacity? One of the problems we have got on pricing at the moment is that if you charge less, and this is the argument of the rail companies, you will not be able to get a seat. Is there not some truth in that, there is a capacity problem on the railway?

Mr Joseph: We directly addressed that in our evidence and pointed out that fares policy is often driven by the lack of capacity. It is not just about lines or passing loops or any of those kinds of things, it is about trains and train lengths as well. Moving off the West Coast Main Line for a moment but looking at some of the other routes, it is in some cases even the lack of a passing loop being installed which stops you having a regular interval timetable and, therefore, does not attract the revenue that you might otherwise get and, therefore, involves pricing up to make up for the lost revenue. We have argued recently, with the support of 21 other organisations, that the Government's forthcoming high level output statement for the railways needs to have the embraced strategy of increasing capacity on the rail network for a wide range of reasons including economic, social and environmental purposes. This strategy needs to embrace reducing unit costs so that the taxpayer gets better value for money out of the money it is putting into the railway but involves dealing with pinch points on the network, the likes of Birmingham New Street and a number of other places where there are real problems in expanding capacity and there are wider economic, social and environmental benefits from doing so. Fares policy is clearly part of that equation.

Q38 Mr Goodman: Would you not say, Mr Joseph, that it is slightly unrealistic to try and apply the same broad brush policy across lines as different as, say, GNER East Coast Main Line and the Northern Railway network? Certainly in the case of GNER their problem is not filling trains up, because the trains are very full in the morning, and the reason they gave for having such a complex fares strategy was to fill up the empty seats during the times of day when the trains are not full. At least on GNER you do get a seat when you buy a ticket because you are allocated a seat, so people maybe are paying for that. On the other hand, you have Northern Rail where I am told by their MD that for every 2 they collect in fares they get 6 in subsidies. Are you realistically telling the taxpayer that he should further subsidise a network like Northern Rail, and that is across the whole network, so there will be lines where the subsidy is even greater?

Mr Joseph: The Northern Rail argument I gave earlier precisely reflected the balance between subsidy and fares income and suggested that it was good from a taxpayers' point of view to get more people on those trains because then that will balance out the fares subsidy and it will be good value for money to do so. I accept entirely that there is a difference between what you do on Northern Rail and what you do on GNER. I think our argument is that GNER are doing a lot of the right things. The complexity argument comes when they hit the other operators. The York-Darlington problem is because there are three, at least, operators on that route who are all pricing differently, all offering different things.

Q39 Mr Leech: The RMT have suggested considering compensating passengers who pay more for their ticket than they need to at the point of purchase. Why do you think that should be the case when this does not happen in air travel or coach travel?

Mr Crow: The reality is that there is such complexity now in the tickets that you get. How do you demonstrate to someone that on the same service going from A to B they pay a different fare, surely that cannot be correct.

Q40 Mr Leech: Do you have any evidence to give figures of the numbers of people who are not paying the lowest fare?

Mr Crow: No, we would not have the evidence of that because we have not got the information about what tickets people bought. What we can tell you is the people we represent, who are responsible for issuing tickets, inspecting the tickets and collecting the tickets, go through it on a daily basis. You only have to sit on the train in the morning in some companies and the first thing they say is "Have you got this ticket? Have you got that saver? Have you got the other saver? This will not apply." There is a whole range of different tickets out there. What we are saying is there is no strategy to it at all. It is about can they sell a ticket at that particular price. What we are saying is with the previous issue regarding Northern Rail, there is a direct link because the people who use GNER and Virgin, a lot of those people use it as a result of using Northern Rail first of all to pick up the service from GNER and Virgin and without Northern Rail the same amount of people would not use the trains. We believe, therefore, that if there is a high amount of profit being made by one company or a subsidy being given, that a certain part of that subsidy should go to the smaller groups to provide a proper service for those people to use, such as Northern Rail.

Q41 Chairman: I want to bring you very rapidly to what happened last Christmas. There was chaos last Christmas when people could not get advance bookings because the timetable arrangements were not available. Is the process of Network Rail owning timetable and engineering works to the national database now functioning satisfactorily?

Mr Crow: This year we believe it is far better than last year. For instance, there is a massive bridge going in at Paddington Station which will mean there will be a closure on the Western region for a number of days over Christmas and the New Year but we do understand that Network Rail have provided the information and the passengers do know when people are asking for tickets over Christmas and the New Year that there are engineering works. I am not saying it is perfect but to give credit where it is due ---

Q42 Chairman: They are able to get their tickets, is that what you are saying, with proper information?

Mr Crow: They are able to get their tickets and also be told that there is a problem regarding engineering work. To give credit where it is due, there is more information being given to the travelling public this year than in previous years.

Q43 Chairman: Should there be sanctions against Network Rail for not doing it properly?

Mr Crow: I am not saying they are not doing it properly, Chairman.

Q44 Chairman: They have an obligation to provide the information. If they do not provide the information should there not be a sanction?

Mr Crow: Yes, there should be a sanction. They have an obligation, for instance, to do the engineering work but if they know in advance they are doing engineering work then the travelling public should know in advance there is going to be difficulty with their journey.

Q45 Chairman: You do not suggest that giving them the suggestion they would have to pay a penalty would in any way focus their minds?

Mr Crow: Not really because it is going to come out of the same revenue that the Government give them anyway.

Q46 Chairman: Gentlemen, both of you have suggested that the rail companies should regard themselves as having an obligation well above the responsibility for running rail services. As you know, companies would like more flexibility, they would like more control over the way they operate their fares policy. What would your attitude be if that were, in fact, the case?

Mr Crow: Number one, we believe they should have a social look at the people who are travelling as well. Do you believe the railways are purely a commercial enterprise or have they got a social sense? We would say that, yes, the railways are okay for the pinstriped businessman going from Newcastle to London from seven in the morning until eight at night but also they have a responsibility for the loved one who has to visit someone in hospital on a Friday night who has not got public transport.

Q47 Chairman: Mr Joseph?

Mr Joseph: We think that the flexibility that the companies want needs to be balanced by the wider public benefits of, for example, the benefit you would get from the Northern Trains' fares cut we were talking about earlier perhaps reducing the need to build roads.

Q48 Chairman: It is very clear that ATOC just think that as long as people are foolish enough to buy their tickets they should have total freedom to set the fares they want and the market will bear.

Mr Joseph: We think there is a case for the Government intervening to ensure that all train companies have some minimums, as they already do, and agreed at the time of rail privatisation in relation to some of the rail cards: young persons and senior citizens and so on. We think there is a case for the Government extending that principle of common factors across the rail network. Car-load fares would be one example and we mentioned national railcard as an example where we think there would be wider public benefit. We do not believe that it is sensible to leave this to the train operating companies because, while it would be in the interests of some, it will not necessarily be in the interests of all and the Government will have to step in.

Q49 Chairman: You do not accept the argument companies put forward that we are taking more and more passengers and, therefore, there is no difficulty either in our fare structure or in the services that we provide?

Mr Joseph: We think that although it is very welcome there are record numbers of people travelling by train, there are big variations in the system and the way it is presented, and we could get even more public benefit from a national fare strategy.

Chairman: Gentlemen, you have been very helpful. Thank you very much indeed.

Memoranda submitted by London TravelWatch, Rail Passengers' Council

and East Midlands Passenger Transport Users Forum

Examination of Witnesses


Witnesses: Mr Brian Cooke, Chairman, Mr John Cartledge, Deputy Chief Executive, London TravelWatch; Mr Colin Foxall, Chairman, Mr Anthony Smith, Chief Executive, Rail Passengers' Council; Mr Alan Meredith, Chairman and Mr Stephen Abbott, Secretary, East Midlands Passenger Transport Users Forum, examined.

Q50 Chairman: Gentlemen, can you identify yourselves from my left, please?

Mr Cooke: Brian Cooke, I am the Chairman of London TravelWatch which until recently was known as the London Transport Users' Committee.

Mr Cartledge: I am John Cartledge, the Deputy Chief Executive of London TravelWatch.

Mr Foxall: I am Colin Foxall, Chairman of the Rail Passengers' Council.

Mr Smith: Anthony Smith, the Chief Executive of the Rail Passengers' Council.

Mr Meredith: Alan Meredith, Chairman of the East Midlands Passenger Transport Users Forum.

Mr Abbott: I am Stephen Abbott, the Hon. Secretary of the East Midlands Passenger Transport Users Forum.

Q51 Chairman: Thank you. Do any of you have anything you want to say briefly before we begin?

Mr Cooke: I do not.

Q52 Chairman: Mr Foxall?

Mr Foxall: Very briefly, Chairman. I am very glad that the Committee is looking at fares because our research, particularly the National Passenger Survey, which we are now responsible for, rates value for money in relation to fares and fares as number two in passenger concerns. As a result, we have planned a major piece of work on this for the coming year so we are going to be very interested in what the Committee has to say about the subject. I have three very short points to make. Passengers need a smarter fares policy because the existing structure is too complicated and there are hosts of complex issues to reconcile. We have heard about some already but, for example, yield curves versus walk-up fares. Fares policy - I think a very important point - is bound up with what kind of railway we want and what kind we are going to get. All of that now is complicated by rising demand which means the industry is looking at demand management which amounts to putting the railways first and passengers second rather than the other way round.

Q53 Chairman: Does anybody else want to say anything?

Mr Meredith: I think the point we would like to make is trying to buy the bargain price ticket is a bit like a lucky dip, you do not know what you are going to get until you come to pay the price. We think this is a result of the confusion of the fare types, which has already been referred to, and it does result in rail passengers not necessarily buying the cheapest tickets. To add to that confusion there is the cost of the standard ticket which has increased relative to the saver ticket which in turn is being restricted more and more so that, in fact, there is a restriction of choice there. Basically we are supporting the case for a review of the simplicity, standardisation of terminology and conditions where this is appropriate. We remove the top lottery that it is just a matter of luck.

Q54 Chairman: Before we get to cleaning up the structure like that, tell me what ought to be the objective of the fares policy?

Mr Meredith: It ought to be a realistic price which reflects the circumstances. Clearly we accept that at peak times people are going to pay higher fares than off-peak.

Q55 Chairman: Realism. Mr Foxall, do you agree with that?

Mr Foxall: Yes, I think I do, but value for money is what I think I am talking about because we have to look at where we are in terms of demand and what is available, how you can use the trains. I think what passengers have reason to expect is value for money.

Q56 Mr Scott: Do you feel that we should look at how the airlines sell their tickets? I do accept what was said earlier that not everyone has the Internet but if you are on the Internet and log on, you tap in where you want to go and the cheapest fare available comes up. Would you agree that is a way forward for the rail industry as well?

Mr Foxall: I am very hesitant about this because we represent passengers and we are about to undertake a major piece of research, and I do not want to say things here which passengers do not think. Our job is to find out what passengers think, it is not what I think that matters. If you ask me for a guess, I think there is a lot of apprehension about that sort of system being applied to the railways but it seems to work quite well, very well for the airline, but it has a problem and the problem is that walk-up fares are going to be dear unless you find some other solution to it. That is why I made the point at the beginning reconciling these two is very hard. I do not say that is the right solution but it is clearly a solution some companies are going for and we have to look at it in the research we do.

Q57 Mr Scott: Would you agree a more simplistic approach of the same tickets, the same names of tickets being available wherever you are?

Mr Foxall: Simplicity is the key to getting people using public transport. If you understand and you have information you can use it, if you do not have information and you do not understand you cannot. I think the present system is a product of all kinds of things that happened over a very, very long period of time in different parts of the country. My guess is that we have to clean it up, not necessarily have a standard system over the country but we have to clean it up.

Q58 Mr Clelland: We have heard from our previous witnesses that fares on the mainland of Europe are higher than in the United Kingdom. Would you agree with that and, if so, why do you think it is?

Mr Foxall: I think comparisons are very difficult to make. We heard the discussion between the Chairman and the witnesses about how you base it and whether you look at purchasing power parity, costs and indices, how you cost it out there is a question of what you get. We have a relatively frequent rail service on many of our main lines, in other parts of Europe that is not the case. I think those comparisons are very hard to make and we agree on the face of it they are cheaper, and some of our fares are significantly dearer, but I think those comparisons are very hard. I think we have to operate within the UK and get value for money here.

Q59 Mr Clelland: Do you think there is a case for arguing fares ought to be lower in the United Kingdom and, if so, how could that be achieved without further public subsidy?

Mr Foxall: Clearly you can lower fares if you increase the frequency and the use of trains. More passengers mean more revenue. Railway companies actually collecting fares in some cases would be quite a good thing. Revenue protection is not always evident, so collecting fares that you are supposed to be collecting would be a good thing. We are glad to see barriers going up in various places to increase that. Clearly getting more people on trains is very important but if you get to a stage where the trains are so full that people are unsure whether they can get on the train you may have a negative effect on people's desire to travel. The basic answer to your question is of course we would like to see value for money. Cheaper fares is a difficult question to answer: what is cheap, what is dear? It is what is value for money to the customer.

Q60 Chairman: Do you want to comment on that, Mr Cartledge?

Mr Cartledge: Just to add a point. International comparisons are fraught with many difficulties. It is a well-known fact, and I do not think widely challenged, that the published rate of fares for travel around London is higher than the equivalent fares around most other comparable cities but London has a much lower level of subsidy and a much higher level of cost recovery from passengers. However, it is the case also that London has for many years had a very much more generous system of concessionary fares for older people and now has a much more generous system of concessionary fares for young people than is available in most equivalent cities. It depends very much on the category of passenger you are talking about as to whether or not these comparisons hold good.

Q61 Mrs Ellman: When the Rail Passengers' Council was restructured and regional councils were disbanded there was a lot of criticism and concern that the new form of Rail Passengers' Council would not be able to reflect regional concerns. What are you doing to show us that you are reflecting the concerns of, in this instance, rail travellers in the regions?

Mr Foxall: First of all, we have a series of passenger link managers who relate to TOCs and TOC areas and, therefore, that produces regionality. The second thing we are doing is using those managers to work with all the local groups. We are sitting here with one today. We are seeking to use those groups to represent passengers as our eyes and ears throughout the whole of the country. Those are two very serious and very committed positions on dealing with the local. We are dealing with the national but we are ready to deal with the local.

Q62 Mrs Ellman: What can you tell us about the impact on passenger journey increases in the cost of rail travel?

Mr Foxall: At the moment we are about to do the research. That was what I was saying earlier on, I am not committing myself here saying "This impact" and "That impact". I am very interested in things which have been said today and the conundrum which has been pointed out between the fact that passenger volumes are rising while fares are rising also. We need to explore and understand why that is happening.

Q63 Mrs Ellman: What is the nature of the research you are doing?

Mr Foxall: We are commissioning the research now. We are just beginning this piece of policy research.

Q64 Mrs Ellman: Into what?

Mr Foxall: The whole fares policy.

Q65 Mrs Ellman: Have you any information at the moment on the impact of rising fares on different types of journeys? Transport 2000 gave us some evidence about the differential impact on different types of journeys. Have you got any information as the Rail Passengers' Council?

Mr Smith: I think it is fair to say that the anecdotal evidence that we receive through complaints or comments from passengers indicates that obviously fare rises do have an impact on the ability of some passengers to travel, that is a self-evident truth. The reason for people travelling is often driven by lots of factors: the economy is strong, the marketing techniques of some of the companies are producing very cheap fares. It is quite a complicated picture. I think, as previous witnesses said, to try and get a countrywide picture is quite difficult. You have to look at it region-by-region, route-by-route.

Q66 Mrs Ellman: Do you have any information about it?

Mr Smith: No, we do not have hard evidence in that respect, no.

Q67 Chairman: Your terms of reference will be quite wide and take that in?

Mr Smith: Yes.

Q68 Chairman: We can call you back in due course for a supplementary report.

Mr Smith: Yes.

Q69 Mrs Ellman: The train operators say they want more freedom to set and retail fares. Can anyone give me an example of something good which can come out of such a power and what are your concerns of negative things?

Mr Meredith: Could I answer the second question first. I think that an issue is that, in fact, we are talking about a network. There may well be operators who are responsible for particular lines of route but, in fact ---

Q70 Chairman: Now, Mr Meredith, I am going to stop you there. They all want to be freed of the existing restrictions. It is their trade association.

Mr Meredith: But the point I am saying in terms of the user is that, in fact, very often your journey takes into account more than one operator and it is when you get into the areas of more than one operator in that network that, in fact, total freedom from individual operators becomes a problem. We have given you instances in our submission but if you would like us to expand on that.

Q71 Chairman: Briefly, Mr Abbott?

Mr Abbott: As was said, I think on intercity routes to London there is scope for the airline type approach to fill off-peak seats. In London and the south east, as a hangover from the old Network South East, there is a coherent fare structure. You can buy, for example, a day return ticket between any two stations. When you get into the regions, I think the train operators have made use of their freedom to abolish certain types of tickets and not extend others to all stations to the disbenefit of passengers. For example, there has been widespread elimination of day return tickets for medium businesses, as a consequence it is often beneficial to the passenger, if they are in the know, to buy two tickets for one journey, from A to B and then B to C. If they ask the booking office for two tickets, the booking office is obliged to give them but they are not obliged to tell the passenger that option is available. Similarly with Apex, the advance purchase tickets, they are available for city-to-city journeys, if you are travelling from an adjoining station to a main city you can find you are paying very heavily to buy a through ticket. For example, Leicester to Carlisle, the cheapest option is 23 return; Melton Mowbray to Carlisle, the cheapest option is 63.40, if you are in the know you would pay 5 to Leicester and start again.

Q72 Chairman: I think they are following Mr Crow's prejudices about where people live.

Mr Smith: I think it is quite absurd to suggest that you can have a free-for-all. There is very little competition between rail companies. By and large rail companies have a monopoly on the type of travel they are offering, particularly on some Intercity commuter routes. Monopoly industries are regulated, it is one of the standard market forces that is applied. The attempts to regulate fares over the years have produced the mishmash situation we are in. That is why on behalf of passengers we think the right approach is to try and think much further forward in terms of ten years forward to think about how passengers might want to pay for travel then and try and work out a system which meets the competing needs of the public in terms of the public service and the revenue needs of the industry but you cannot have a free-for-all.

Q73 Clive Efford: That is easily said; we could all come up with a similar set of words to say that is what we have to do for our rail service. Where are the efficiencies we can make within the existing budgetary framework which will reduce pressure on ticket prices, perhaps increase the capacity to reduce costs? That is an open question to whoever wants to pick it up.

Mr Foxall: I think, realistically, the issue is this. We have a constraint on capacity. I do not want to hypothesise in front of the Committee, it will waste the Committee's time. If you were to reduce fares very significantly you would overwhelm trains quite quickly and that is in no-one's interest, not even the passengers' interest. All we can operate on is the basis of the argument I have been putting forward for value for money. What I think you want to look at, in the piece of work that Mr Smith has been describing, is to see if there is a way forward. I agree with you, it is very easy to say those words and very hard to come up with it. I do not promise we will come up with it but if someone does not try then we are never going to deliver that sort of system. What we want to do is to try, it is our job, it is the job of this new Council to lead this sort of debate and I want to try to lead it, if I can.

Q74 Clive Efford: Your approach to ticket prices then is that not only do we want to make it as economical as possible but it has to be a mechanism also to prevent over-capacity?

Mr Foxall: No, I want there to be value for money and I want passengers to get what they expect out of their journeys. I want there to be trains they can get on. Within the capacity that is there, we want to exploit that as fully as we can for passengers' benefit. That is the sort of premise we will be using in approaching this piece of policy.

Q75 Clive Efford: Within a price range that does not put too much demand on the system?

Mr Foxall: Maybe when we do the research we will discover that passengers would not mind being crowded and standing up all the way from here to Newcastle but I suspect we will find they will not want to.

Q76 Clive Efford: Can I ask London TravelWatch: you have conducted a great deal of research into particular fare issues in the capital. What are the main problems specific to London?

Mr Cooke: The main problem is the huge variation that there is in price-per-mile for very similar journeys on very similar rolling stock with very similar difficulties. We fully support the Department for Transport's view that a zonal fare system should come in fully to London and should be integrated with both the Tube and rail within Greater London. In fact, the Department have directed TfL and the train operators to try and work such a system from January 2007. We are not convinced it can be achieved by January 2007 because of the complexities and the difficulties but within London we believe that a zonal system similar to TfL's zonal system on the Tube could come in at some point and would make life a lot easier.

Q77 Clive Efford: You envisage that being fully integrated with TfL?

Mr Cooke: Yes, we do, and indeed the powers which are given to the Secretary of State in the Railways Act, to give the Mayor certain controls over that, we welcome.

Q78 Clive Efford: What are the obstacles in the way of that?

Mr Cooke: The obstacles are that there would be some losers as well as winners in that in terms of the changes to the fares. Some point-to-point fares, particularly on the south east network have been artificially held low in our view purely because of the way the revenue is divided up between the train operating companies, and the TfL means that they get a greater share than on point-to-point tickets.

Q79 Clive Efford: Why do you think the Oyster card is not yet integrated with the national rail services in the London area?

Mr Cooke: Some of the Oyster card, of course, is because if you have a travel card on an Oyster it is fully integrated and you can use that on national rail services. The pre-pay Oyster is not yet accepted by the vast majority of national rail companies. There are two issues there. One is we think they could have done far more to make it integrated but there is also the question of equivalent stations with gates and readers which not all stations are yet equipped with.

Q80 Clive Efford: Are you surprised at that state of affairs on Network South East, that not all stations are gated? It is unthinkable on the Underground.

Mr Cooke: It is unthinkable on the Underground. They do not have to be gated, they only have to have readers that somebody can put their card on as they enter or leave the station. Some stations do just have readers without gates. In fact, TfL offered to finance some of this for the national railways a year or two ago, the national railways rejected that and we find that very sad.

Q81 Clive Efford: What were the reasons they gave for rejecting that?

Mr Cooke: They believe they will not get as much revenue at the end of the day, and that is clearly what they believe. The evidence that we have is that the spread of revenue could be very similar. There will be changes to it but it could be very similar in totality.

Q82 Clive Efford: Why do tickets in London and the south east remain valid for just one day unlike elsewhere?

Mr Cooke: The principal reason for that is that they believe that limits fraud. We are not convinced that is the case.

Mr Cartledge: The principle being that many tickets in London were never checked and, therefore, if you walked off with them at the end of your journey you could reuse them as many times as the ticket was valid for, if it had a longer period of validity than one day. In a fully gated system where the ticket is collected when it ceases to be valid, that should cease to be an issue. There is another problem with the Oyster card which is that extending it to national rail, apart from the cost of gating many national rail stations that have low numbers of passengers, and therefore the cost recovery will be less than is the case with Underground stations which are busier, is the fact that Transport for London has a contract with a particular supplier of software and the specifications are not compatible with a new national standard that the Government is anxious to introduce for all railway tickets. TfL went first before this specification existed and there is a real issue, therefore, about how do you move from a previous generation of software to a new one, otherwise the supplies of the existing software get a free gift because nobody else has the intellectual property rights to extend their equipment more widely on the national rail network.

Q83 Clive Efford: Is that going to lead to an enormous delay in integrating the Oyster card? Is that an insurmountable problem in the short-term?

Mr Cooke: It has led to a delay already and the longer the situation continues, the longer the delay will be. Whether it is surmountable or not depends on how soon the Mayor and the Minister can come to some agreement as to how to resolve it.

Chairman: Let us not get into that.

Q84 Mr Goodman: I was interested in the point you made about monopolies because there are other modes of transport in competition with rail. For example, I was surprised to learn the other day that it is cheaper for two people to travel together in a taxi from York Station to Heathrow Airport than to get a first-class rail ticket, which surprised me. Going back to your point, Mr Foxall, about the complexity of buying tickets - it is slightly off the subject of fares - would it make it simpler for people buying tickets if National Rail Enquiries could sell tickets because at the moment, as I understand it, the train operators are preventing National Rail Enquiries from selling tickets. You have to make two calls, one to find out the information about trains and the second call to actually purchase the tickets. Would that simplify the system?

Mr Foxall: I guess in principle anything that makes it easier for passengers to acquire tickets is likely to. I do not know of any research that suggests that it is likely.

Chairman: And we are not going to go down that particular route today, no, not today. Mr Leech?

Q85 Mr Leech: I would just like to come back on the point that was made by Mr Abbott earlier. You suggested that it would be I think you used the word easy or easier to introduce an airline-type system for ticketing along the West Coast Main Line. Can you elaborate on why you believe it would be easier on that as opposed to other routes?

Mr Abbott: I think that type of ticketing is more appropriate to longish inter-city journeys because it mimics the airline journey, point-to-point, city-to-city journey. There is a danger that passengers are being forced into buying advance fare tickets for relatively short journeys. We have had an example in the East Midlands where cheap day return tickets for journeys of 40 to 50 miles have been withdrawn and replaced by advanced purchase tickets at a similar price. I believe the intention of the train operator is to force people to buy full fare tickets. Perhaps I could say a couple of words about regulation, Madam Chairman.

Q86 Chairman: Very briefly, Mr Abbott.

Mr Abbott: When regulation of fares commenced, my understanding is that it was the intention that the full open return would be regulated, but because for much of the country the most expensive ticket was the saver return that was regulated instead, so that together with season tickets and short distance day returns, the journeys used by people who had to travel for work and other similar reasons, were regulated. Since privatisation, however, the companies have dodged round the issue by bringing in more and more restrictions to the point where a saver ticket now in many cases is more restrictive than the old super saver, which is largely abolished, so again passengers are forced to buy more expensive open tickets.

Q87 Mr Clelland: Why is the creation of a national railcard such a good idea?

Mr Smith: It would be a good idea if it encouraged more people to travel. If it encouraged more people to get out of their cars and to use the trains, it would be a good idea. It has a simplicity about it which is attractive.

Q88 Mr Clelland: You said "if" but presumably you think it would be because you are recommending it?

Mr Smith: We have put forward a policy position that we would like to see a railcard. To be honest, we need to do more work on it in the context of the research that has already been mentioned. It is clear that other types of railcards do encourage travel, otherwise the rail companies would not do it. It is odd that we do not have this type of national railcard when we have a national rail network which still describes itself as such.

Q89 Mr Clelland: What is the evidence from Sweden on that? In the evidence from the East Midlands there was mention of the Swedish system.

Mr Abbott: I think in some small European countries such as Sweden you can buy a pass which covers the whole country for a year. We have a similar sort of thing in this country for Greater London and the Metropolitan areas. I think that although a national railcard has an attraction, to me there is a danger, first of all, that the railways would carry more passengers for less money in aggregate, and it is a slippery slope to go down. I think there is also a danger that the train operators would tend to put up the price of unregulated tickets in the knowledge that many of the purchasers were getting a discount. I think there is evidence of this from the South East. From the brief study I did I found the price of a cheap day return in the southern counties is more expensive than we find in the East and West Midlands because many of the purchasers have a network card and are getting one-third off.

Q90 Mr Clelland: Should all the tickets be regulated? Would it help if we had more regulation?

Mr Abbott: I do not think we would want to see every type of ticket regulated but I do think the regulation issue needs re-examination. I am afraid I do not have any instant solutions to offer.

Mr Smith: On that particular point about the regulation of open tickets, it is a knotty problem that one. One of the first complaints I ever saw when I joined the RPC was a woman who went to travel from Newcastle to London for a funeral, who had not used the railway for years, who turned up at the railway station, and was astounded at the price of an open ticket.

Q91 Chairman: Are we not all?

Mr Smith: How a system deals with people who have got that type of problem is the test of whether that system works well or not because if you have that type of price people cannot use the railways, and you are excluding them from a public service. That is a very important public policy decision that the Government and the train companies need to think very hard about.

Q92 Chairman: In that case given the low levels of satisfaction amongst passengers and the negative press that railways often receive, do you think the market is likely to respond with new products and structures when they look at something like the fare structure in something like the Grand Central Railway bid? This is a completely new structure. I have to tell you I see no burgeoning shoots of imagination in the railway companies but could you give me some hope?

Mr Smith: I think, Chairman, there is evidence that any type of new initiative like that does spur the other people in the railway industry to try and innovate. There are some very interesting developments in ticketing at the moment. We have now got South West Trains offering 1 tickets from Southampton and Portsmouth to London if you are prepared to travel at slightly odd times of the day. It is still a 1 ticket and passengers, I suspect, will like that. We have now got Virgin who have changed the restrictions on some of their tickets so that you can buy them the day before rather than two weeks, seven days or three days before. Again I think passengers will like that. Trying to bind that into a set of rules that meets the whole country is very difficult. We look at it from the passengers' perspective. As our Chairman said, what is going to give passengers value for money? In a sense at the end of the day that is the key test.

Q93 Chairman: So you quite like the idea of using on-line systems?

Mr Foxall: I think the argument for that in terms of longer journeys, although not necessarily the very longest journeys, is probably right. Going back to the previous discussion slightly, I would be a little nervous about rigidity. We have already one very complex system here. If we are going to try and regulate in a way which covers every possibility of everything that might happen on the railways in terms of fares policy, we are going to end up with an even more complicated system with a great deal of rigidity. The important thing is likely to be - and we have still to test it with passengers - that the core should be regulated as it is now but it should be a simpler and more understandable core.

Q94 Chairman: You do hint a little bit at the fact that secrecy covers so many of these things and that the companies are not transparent so the passenger has no way of making a fair judgment. You particularly talk about quotas available for each type of ticket. What are the reasons for that?

Mr Foxall: Just on the secrecy issue, one of the things we found necessary to do was to produce documents and brochures and so on with advice to passengers. That is something we think we are going to have to go on doing. I do not know whether there is a great conspiracy, frankly ---

Q95 Chairman: Just a little conspiracy?

Mr Foxall: There might be some but the natural conspiracy of someone who is trying to beat his competitors or something or that sort, I do not know it is there.

Q96 Chairman: Do you think they regard one another as competitors?

Mr Foxall: In a sense, because they are in the same industry.

Q97 Chairman: Yes. Mr Cooke?

Mr Cooke: Just to make one comment about the complexity. That is one-eighth of the national fares of the railways and it is the book for London for national railways. In contrast, that is the book of TfL fares in London. I think that shows the complexity of the situation quite dramatically.

Q98 Chairman: Well, we do not have an easy way of recording visual aids but doubtless Gurney's will compose some fantastic response to that. Finally, you are fairly critical of the rise in fares for walk-on open fares. Do you think the principle that passengers should pay a premium for flexibility is the right one?

Mr Foxall: I want to know what they think. Madam Chairman, I am not trying to be difficult.

Q99 Chairman: We understand your position.

Mr Foxall: Really straightforwardly ---

Q100 Chairman: Would it put your mind at rest if I say we will take from you a general indication and if you want to come back with evidence that would make you almost unique amongst our witnesses, but I am sure we would welcome it.

Mr Foxall: I think in this world you pay for what you get. What I have said earlier on (and I am not trying to avoid your question) is value for money, and if you want flexibility then you probably are going to have to pay for it. It is a question of how you deal with Mr Smith's person turning up at the station needing to make the urgent journey. That seems to me perhaps to be a question of information in advance because the chances are that had that journey been able to be taken slightly earlier or slightly later and had that person known it, you would not have been confronted with that problem. It is rare that you have to travel at that second; it is normal that you have to travel quite quickly, and if you had to travel a little earlier maybe you could get round it. If you have information at least you can make decisions. The issue underlying that is the existence of the walk-on fare. Can we have a walk-on fare in this system? That is why I made the point. It is a question of what railways we want because if we design the wrong fares system we will get a railway that only certain people can use or which groups are excluded from, and that is not a position I think we want to be in.

Q101 Chairman: Have you taken any evidence about difficulties with school parties or group bookings?

Mr Foxall: No, not yet.

Q102 Chairman: None at all?

Mr Foxall: Not yet.

Q103 Chairman: Not yet. Do you think this is likely to be because some of the rules have only just been changed?

Mr Foxall: It is because we are at the preparation stage of the exercise. I anticipate that it is going to be running in the early part of next year.

Q104 Chairman: You would, however, be prepared to take evidence, particularly from school parties, who are finding it virtually impossible to enjoy the benefits of public visits and indeed I think are a classic example of the attitude of railways towards their future customers?

Mr Foxall: We are happy to take your suggestion.

Q105 Chairman: Thank you very much. Mr Meredith, and then, Mr Cartledge, I promise I will come back to you.

Mr Meredith: You were talking about walk on fares and premiums, et cetera. Could I say that whilst supporting what is said about further research, that in fact there clearly is a demand for walk-on fares as well and people are prepared to pay for them. Perhaps what is missing is this clarity or transparency in terms of people knowing what is available. Perhaps one good thing that train operators are doing at the moment is a move to giving options so you can buy one ticket one way which is a restricted ticket and you can buy an open ticket back, so the customer is getting greater choice in some of the deals. I think what we would like to see is that sort of approach being extended across the network and being much more open. So there are good things happening.

Q106 Chairman: Do you think that the information is there? If I just trolled up to a booking office would I be given the information?

Mr Meredith: My own personal experience booking a fortnight ago to come here today was that in fact I was not given the right information. When I, prompted by my colleague here, asked the right question, I was given an 8 ticket into London because that was the fixed time and a 40 ticket going back which was cheaper than the ticket I was issued.

Q107 Chairman: Have you not proved exactly the case that concerns us? Unless Mr Foxall has access and you have access to much bigger publicity budgets than I am aware of, how would I as an ordinary passenger know that, unless of course I arranged to have Mr Abbott always travelling with me?

Mr Meredith: There are two things, Madam Chairman. First of all, there is clearly the opportunity for people like the RPC and ourselves to publicise these things, but I think the other thing is that the operators are spending quite a lot of money on technology and really they should be looking also at systems which do make this information available, not just to the customers but to their booking staff because ---

Q108 Chairman: Oh, I think they would not want the staff to know how the thing was run! Mr Cartledge?

Mr Cartledge: I was merely going to share with you some intelligence. My wife is a teacher and regularly conducts small school parties by train. She achieves very substantial fare savings by investing in family railcards because there is no requirement for those travelling on the card to have any genetic relationship; they merely have to be in certain age bands. I suspect if that factor were more widely known many schools would take advantage of it.

Q109 Chairman: Mr Cartledge, may I say you are the most welcome witness and I trust that your words of wisdom will be disseminated throughout the entire educational system of the United Kingdom. Please pay attention out there! Now then, I think what we do need to know about is the run-up to Christmas. You will remember last year when we had this frightful chaos where people were not able to buy advance tickets because the information was not available. Do you have any evidence at all, Mr Smith, as to what is happening this year?

Mr Smith: Yes, Madam Chairman, in response to what happened last year we have been conducting a series of mini bits of research ringing round checking on the ability to both reserve a seat and access certain types of tickets.

Q110 Chairman: And?

Mr Smith: And we can report this year that the situation is massively improved from last year. The vast majority of train companies released the ability to book seats nine weeks in advance as per their obligation. There are one or two where did not which we are pursuing the reason why, but for the bulk of passengers (and reflected in comments from passengers to us) the situation is much improved.

Q111 Chairman: You have very specifically used the word "obligation". It is an obligation, it is not an add-on. Do you have any thoughts about what happens to companies and Network Rail if they do not fulfil their obligations?

Mr Smith: In a regulated system if a particular company does not fulfil its obligations it should be punished for doing that. The situation we have got allows for that and it is the Regulator's decision whether or not to do that and whether or not it is in the public interest to do that.

Q112 Chairman: Why would it not be in the public interest to get people to fulfil an obligation?

Mr Smith: It is in the public interest. The threat of it last year appears to have had some effect and the companies, Network Rail included, appear to a much greater degree to have fulfilled their obligations.

Mr Cooke: I would agree with Mr Smith that, by and large, the major long distance companies are much better this year and are certainly very close to the obligation they have, if they are not there. We, however, are concerned that some of the feeder train operators that do not have reservation systems are not as close. So if, for instance, you wanted to travel from Dover to Edinburgh you may be able to know that your train is going to go alright from London King's Cross but you are not very clear whether you will be able to get to King's Cross in the first place, even though that is not a reserveable journey, because there may be engineering works on that line, and we do not think enough concentration has yet gone into that issue.

Q113 Chairman: That is an important point. Mr Foxall?

Mr Foxall: Can I add one generalised comment about the system. It is great that it has improved but I wonder whether T12 and T9, which is what we should be talking about---

Q114 Chairman: Could you not just call it the obligations so at least the general public have a hope of understanding what we are talking about?

Mr Foxall: Fair enough, quite right. We should be careful that the obligation to provide both time-tabling and discounted ticketing ahead does not take our eye off the ball too much because in reality the number of those tickets is limited. What I want to do in this piece of research we are talking about is look at the possibility of having a longer and more distant discounted system and not settle for being cramped within this very narrow band. If we can have some more flexibility we will get a better deal further out for people who wanted to travel. I think therefore it is great that we have that news but let's not limit our ambitions

Q115 Chairman: Well, Mr Foxall, I think we wish you all power to your elbow in getting accurate information to assist the passengers. I am very grateful to you all, gentlemen. Next time, surprise yourselves and bring a female!

Mr Cooke: Our Committee has more females than males, Madam Chairman; we will do our best next time.

Chairman: Thank you very much. Just remember women take railways, God help them.

Memoranda submitted by the Office of Rail Regulation and Network Rail

Examination of Witnesses


Witnesses: Mr Chris Bolt, Chairman, and Mr Michael Beswick, Director of Rail Policy, Office of Rail Regulation; and Mr Iain Coucher, Deputy Chief Executive, and Mr Robin Gisby, Director of Operations and Customer Services, Network Rail, examined.

Q116 Chairman: Good afternoon, gentlemen. Would you be kind enough to identify yourselves for the record?

Mr Bolt: Chris Bolt, the Chairman of the Office of Rail Regulation.

Mr Beswick: Michael Beswick, Director of Rail Policy at the Office of Rail Regulation.

Mr Coucher: Iain Coucher, Deputy Chief Executive, Network Rail.

Mr Gisby: Robin Gisby, Director of Operations and Customer Services at Network Rail.

Q117 Chairman: Do any of you have anything you want to say briefly in introduction or may we go straight to questions?

Mr Bolt: Happy for you to go straight in.

Q118 Chairman: Alright then, has the advance booking process for the festive season gone well this year?

Mr Bolt: Shall I start on that?

Q119 Chairman: Yes, Mr Bolt, you are a brave man.

Mr Bolt: I think the answer is yes, certainly in comparison with last year where there were very clear problems and Network Rail was not delivering the timetabling information to train operators which meant that timetables were not available and TOCs were not able to open for advance reservations. We are in a position this year where broadly the T-12 responsibilities of Network Rail for timetables and T-9 for train operators opening service reservations have been met. There have been one or two exceptions and clearly as the regulatory body we have been looking at that, but overall it has been a much better picture.

Q120 Chairman: Who are your exceptions, Mr Bolt? We do not need to spare their blushes, do we?

Mr Bolt: On train operators Virgin services was one example which opened a week later than was expected and on some other services such as Hull Trains they are not currently meeting the T-9 responsibility.

Q121 Chairman: Still? A month before Christmas?

Mr Bolt: But they are open for Christmas. This is T-9 taking us into the New Year. All services have been open for booking over the Christmas and the New Year period for several weeks.

Q122 Clive Efford: To the Office of the Rail Regulator, it is clear from your memorandum to the Committee that the new division of labour between the Office of the Rail Regulator and the Department is quite complex. How confident are you that the new structure for regulating and monitoring will be an improvement on the old set-up?

Mr Bolt: I think we have to recognise that the structure has been rather complex from the point of privatisation in terms of the customer facing obligations of train operators. They were divided between OPRAF and the ORR with some obligations in franchise agreements and some in licences. That position has continued but in a sense has been simplified following the Rail Review. The broad position is that the Department for Transport is responsible for some of the policy issues, for example the Ticketing Settlement Agreement and for train operators meeting their franchise obligations. We are responsible for the licence obligations which include what was originally called the Informed Traveller Obligation. One of the additional responsibilities that we have following the Rail Review is for publishing information on a whole range of rail industry issues, including fares information, and having taken on that responsibility from the SRA, I think we recognise that is an area where further work is needed.

Q123 Clive Efford: If I am a member of the travelling public and I want to hold someone accountable for what is going on in setting fares through ticketing, how do I understand this system? How do we make it simple for Joe Public to understand?

Mr Bolt: I think in terms of the passenger it should be very simple. The passenger deals with the train operator. What happens behind the scenes ought to be of no interest or have no effect on the service provided to the passenger. I think timetabling is one example, and there have been issues with what Network Rail have done, and there have been issues with what train operators and the National Rail Enquiries Service, for example, have been doing. Those are issues which we have tried to sort out behind the scenes so that the passengers get what they are entitled to expect, but if they have a problem they should complain in the first place to the train operator.

Q124 Clive Efford: Quite, but this is a public service and there is an enormous amount of public money going into it, and you are not going to suggest to this Committee that there is not a great deal of accountability at the door of the Department for Transport and the Government for the operation of our rail network. My question is about firstly where are the areas of responsibility and how do the public understand where that responsibility lies in terms of regulating the fares structure within our rail system?

Mr Bolt: In a very simple sense, the Office of Rail Regulation is responsible for regulating what Network Rail does, so Network Rail's development of the time-tabling process is something that we monitor and if necessary enforce. Issues like fares policy ---

Q125 Chairman: Before you get off that, was it enforced last year efficiently?

Mr Bolt: I think so, given the answer I gave to you right at the beginning that we have got the right outcome for passengers. It was an issue clearly which the Board of the Office of Rail Regulation discussed at length, whether accepting the recovery plan which Network Rail had put forward was adequate or whether the likelihood of compliance would be increased by enforcement. The view we took was that enforcement was not necessary to deliver the outcome for passengers. I think the results vindicate that.

Q126 Clive Efford: Do the Office of Fair Trading and the Office of the Rail Regulator share the role as competition authority for the rail industry?

Mr Bolt: Clearly we have under competition law concurrent powers but in practice ORR deals with all rail related issues. Obviously we exercise those powers on a basis which is consistent with the practice of OFT but we are the experts in railways so we enforce competition law for railways in practice.

Q127 Clive Efford: So OFT set the framework and you operate to ensure compliance?

Mr Bolt: Yes, that is a good way of putting it.

Q128 Clive Efford: On engineering works, Transport 2000 suggested that your "big bang" approach to engineering possessions may exacerbate the impact on passengers, and that an approach using small overnight possessions would minimise the disturbance. How do you react to that proposal?

Mr Bolt: The policy on possessions is Network Rail's and they would clearly need to answer on that. Our concern is two-fold - that there is proper planning of the possessions process and that it takes full account of the needs of rail users. This is not something where minimising costs is the only objective. If that is done in a way which disrupts passenger and freight services, that is not delivering the right outcome for the railways.

Q129 Clive Efford: I should have put that question in the first instance to Network Rail, I apologise.

Mr Coucher: On engineering works, we do the vast majority of our works at night in short possessions. Any time that we need to do any work at all we have to liaise and consult with the train operating companies, and certainly if we wanted to do a very large, specific blockade we would consult with passengers as well, but the decision about whether we can do that is down to the train operating companies.

Q130 Clive Efford: But do you treat engineering works in the same way as, for instance, you would treat surveying work, that you would need complete control of the track to shut down a piece of the network?

Mr Gisby: I think it depends on the nature of the work. Mr Crow earlier on mentioned replacing the bridge at Paddington. That is a major piece of work that will be planned years in advance. Some of the big pieces of work we have to do with signalling, bridges and embankments are planned a couple of years in advance. We can do lighter weight surveying work and go in and do short-term maintenance in access that we have booked regularly every night anyway to fit in with the existing train services. There will be times when we have to do a major piece of work and we will then, in conjunction with the whole industry, choose the optimum way in which to do it. Occasionally that that will mean blockades of 52 hours and those kinds of things on certain routes.

Q131 Clive Efford: The discussions I have had with companies that carry out surveying work on behalf of Network Rail have indicated to me that in order to go onto the track that the safety regulations require the network to be closed, but they are saying that they could reduce costs for Network Rail and be more efficient. They say the nature of the work that they are carrying out because they are not carrying out engineering work means that is not necessary.

Mr Coucher: There are a number of different ways of getting access to the track. In some instances, the clearances to enable the inspections to be conducted properly do require closure of the network so that it is possible to take samples and to look at the track and you cannot have trains running on it. In many instances, we can do it without the need to close railways and we are currently working with companies to provide automatic train warning systems which avoid the need to take any kind of possession to do that. As Mr Gisby has already said, the vast majority can be done inside the existing allowances which we have for doing inspections and maintenance work at night so we do not need to disrupt passengers to do that.

Q132 Mrs Ellman: What penalties has Network Rail incurred for not meeting its T12 responsibilities?

Mr Bolt: In terms of financial penalties through enforcement, none because, as I explained earlier, we took the view that enforcement was not necessary to deliver compliance with the licence. Quite clearly, and I am sure Network Rail could spell this out in more detail, they have put significant additional resources into train planning activities and planning possessions to enable that compliance to be met. That is what we have required them to do to make sure the licence obligation and passenger responsibilities are properly met but there were no direct financial penalties.

Q133 Mrs Ellman: Did you say enforcement was not necessary?

Mr Bolt: We took the view that given the recovery plan which Network Rail had submitted that enforcement would not add to the likelihood of delivering the T-12 outcome for passengers. Quite clearly, and we made this absolutely clear to Network Rail at the time, if they had failed to deliver on that recovery plan then enforcement was a very likely step.

Q134 Mrs Ellman: So what would have to happen if you decided enforcement was appropriate?

Mr Bolt: We have just published for consultation in the last week our policy statement on our approach to enforcement, and one of the things that we have made clear in that consultation (on which we are seeking views) is that the co-operation of a company in dealing effectively with the problem once it has been identified is important in deciding whether enforcement is needed. Clearly, like all regulators, we follow the principles of good regulation and look to take targeted and proportionate action if licence holders are doing ---

Q135 Chairman: Mr Bolt, you gave us evidence - you gave us evidence - that this was a problem during 1998 and the industry was failing to meet its T12 commitment. The ORR proposed and in May 1999 agreed with Network Rail licence modifications.

Mr Bolt: That is absolutely correct.

Q136 Chairman: So it is not just the problem that they had last year and you are telling us that you took that decision on the basis of what happened last year?

Mr Bolt: No, the history you have just indicated is absolutely right.

Q137 Chairman: Which you were kind enough to give us, in the name of accuracy.

Mr Bolt: Before 1998 there were some issues with Railtrack as it then was.

Q138 Chairman: Such as they were not doing what they were supposed to be doing?

Mr Bolt: Delivering the right outcome for passengers. At that stage the Rail Regulator - and it was me who was the Rail Regulator at that stage - thought that the right answer was to make that an enforceable obligation under the licence. We did that. The history again is that when the Office of Rail Regulation was created and came into existence on 5 July 2004, we found that Network Rail was in breach of its licence, and one of the first discussions we had as a board after we came into existence was to decide what action to take, whether to accept the recovery plan which Network Rail had offered to the previous Rail Regulator or whether to take enforcement action. We decided that enforcement action was not the appropriate step because delivering the right outcome for passengers was the critical thing.

Q139 Mrs Ellman: You seem very reluctant to enforce anything. What would have to happen before you decided to enforce the rules which have been accepted?

Mr Bolt: I think if you take the situation as we found it last year, if Network Rail had not come up with a plausible recovery plan, that would have been grounds potentially for enforcement. If Network Rail, having proposed a recovery plan, simply did not deliver on that plan so that it was not getting back into compliance with the licence again, that is the sort of thing where enforcement would be appropriate. We want enforcement to be an effective weapon and if you have got licence holders taking the right action without enforcement it actually means when you do have to take enforcement it is all the more powerful.

Q140 Mrs Ellman: You are completely satisfied that the recovery planning is being adhered to?

Mr Bolt: Yes. One of the things that we did last autumn, I chaired a meeting at which Network Rail, train operators, ATOC and the Rail Passengers' Council were present (and I should say we have seen it as very important keeping the RPC fully involved in this process) and one of the things that came out of that meeting, at which both Mr Coucher and Mr Gisby were present, is that there were issues about how information got passed between Network Rail and train operators which had not really been worked through in detail. Network Rail had been producing time-tabling information in a way sometimes which did not fit properly with the train operators' systems. Now, by getting the various industry parties talking to each other, and looking at some of the errors in the information, and putting in place improved procedures to deal with that, we have got a much more robust system and one where we are reasonably confident that T-12 can be maintained on an on-going basis and a more robust position than we would have had without that dialogue.

Q141 Mrs Ellman: What is your prediction for compliance over, let's say, the next two years?

Mr Bolt: My prediction for compliance over the next two years is that, with one or two exceptions, but they will be isolated and temporary, Network Rail and train operators will be complying with their licences. We will be continuing to monitor and if we see problems emerging then we will take action.

Q142 Mrs Ellman: You also say that non-availability of the timetable should not prevent train operators from offering advance purchase tickets. How can you help in that?

Mr Bolt: One of the issues that we have found sometimes is that although Network Rail is able to tell the train operator there will be a train running, and it is not a matter that the route is closed necessarily, but there may be a variation of five minutes one way or another in the time, that train operators have waited until the final confirmed information is available before opening for reservations. Now it would be possible, and some of the train operators (GNER as an example) are starting to develop this, to actually start a new relationship with passengers much more like the airlines where you can take a booking and confirm a time later if that is a more sensible way of doing it. What we need to encourage is train operators to look at more innovative ways of selling tickets on the back of improved and more reliable timetable information from Network Rail.

Q143 Mrs Ellman: So it would be what, a provisional booking?

Mr Bolt: It could be, yes.

Q144 Mr Scott: How many fares has the ORR investigated and found excessive under the 1998 Competition Act?

Mr Bolt: We have had a number of complaints. We have had about half a dozen this year only one of which has gone to a full Competition Act investigation. One of the reasons for that clearly is because there is a framework of fares regulation which, as I explained earlier, is for the Department for Transport to develop. The situation in which the Competition Act is relevant is quite restricted. It is only the unregulated fares where that is an issue and that is probably, by revenue, about half the total ticket revenue.

Q145 Chairman: Are you, gentlemen, quite happy about the division of responsibility between the three of you, between the ORR, the Department, and the Office of Fair Trading?

Mr Bolt: I would say we are happy about the division of responsibility between us and the OFT. As I explained earlier, essentially all competition issues to do with the railways come our way but we obviously liaise with the OFT to make sure we are following case law as it has been established elsewhere. Again as I said earlier, we probably have to accept that the division of responsibility between ORR and licensing, which we are responsible for, and now the Department for Transport and franchise agreements and some of the industry-wide agreements like the Ticketing Settlement Agreement probably remain a bit complex, but we are working very closely with the DfT to make sure that between ourselves we are clear about who does what and that there is nothing falling down the cracks in between, so that if passengers have a problem, they go to the train operator and if it is something where we need to take enforcement action rather than the DFT that it gets passed on to us as quickly as possible.

Q146 Chairman: Who does what in relation to ticketing?

Mr Bolt: That is essentially through the Ticketing Settlement Agreement.

Q147 Chairman: Through this modern equivalent of a Victorian counting house?

Mr Bolt: Mr Beswick is more expert on that than I am.

Q148 Chairman: Mr Beswick, on counting houses?

Mr Beswick: The industry has got an arrangement which is the modern equivalent of the Victorian counting house. It is called the Rail Ticketing Settlement Plan.

Q149 Chairman: It is probably not quite as clear or as efficient?

Mr Beswick: I do not know, I think it has proved very efficient. They have just put in place a new system which I am sure ATOC will tell you about when you see them. Essentially the way the Ticketing Settlement Agreement works is that the rules are set by the Department for Transport, and we enforce certain aspects of the rules and they enforce certain aspects of the rules, and we have got a working arrangement now with the Department to make sure that we are addressing any issues that arise.

Q150 Chairman: Mr Coucher, are you quite happy that you can do all the things you need to do not only in maintenance but also in development with the existing controls that you have and the existing planning?

Mr Coucher: It is undoubtedly the case that we are doing more renewals work and more maintenance than has ever been contemplated before, but certainly inside the existing possession regime and the planning regime we can do all of that. The planning system we use requires us to inform all train operating companies 26 weeks in advance about what we are going to be doing. We have been doing that now for well over a year.

Q151 Chairman: And does it work?

Mr Coucher: It works. It enables us to drive efficiencies and it enables us to get very cheap discounted rates for the possessions that we need. It is a win/win for passengers and costs on our side as well.

Q152 Chairman: How many complaints have you had from the operating companies?

Mr Coucher: I have not got a precise number. Obviously we get tensions with the train operating companies, particularly when we want short notice possessions caused by unforeseen events, as we have had perhaps in the last few weeks with heavy downpours washing away parts of the network.

Q153 Chairman: Surely the train operating companies are capable of working out that it is to their advantage to let you have possession, are they not?

Mr Coucher: Sorry, I missed that.

Q154 Chairman: Surely they can work out that it is to their advantage to allow you to have possession for dealing with an immediate circumstance that arises from something like a movement of earth?

Mr Coucher: Yes, normally it is, but I would give you more of a specific example. We lost part of the West Coast last week which was caused by an enormous downpour washing earth over the track. As a result of that, we were able to put the track back at the weekend but we lost some West Coast possession to do the upgrade and we had to negotiate additional access to enable us to complete the West Coast upgrade because we had lost possession. Those are the sorts of tensions we get but it works very well. There is tension but the TOCs and their customers are normally very co-operative in allowing us access to put the railway back.

Q155 Chairman: Where would be the normal lines of communication between the train operating companies and you, in the regions or centrally?

Mr Coucher: They would go direct to the relevant route director who looks after our interests.

Q156 Chairman: Were there to be a sudden explosion of brilliant entrepreneurs and responses in train operating companies that required them to run a lot of new services, would they come to you to see whether that was possible before they went to the Office of the Rail Regulator?

Mr Coucher: Yes.

Q157 Chairman: And you would be able to supply them with accurate information?

Mr Coucher: We do a lot of long-term planning. Our planning resource which includes timetabling will look at both two to three years out and also five to ten years out, and there is a lot of timetable planning that goes on, not just in the short term.

Q158 Chairman: Can I ask you on excessive fares, do you have details of fares that have gone for investigation?

Mr Bolt: The particular case which was investigated in some detail and for which the then Regulator published the conclusion was in respect of Virgin fares. The conclusion ---

Q159 Chairman: That could not be this famous 187 between Manchester and London, could it?

Mr Bolt: Essentially the complaint was that Virgin's unregulated fares were an abuse of a dominant position. The conclusion that was reached given the interpretation of dominance and other issues about competition law, yet again following the approach of the OFT, was that that was not a breach of the Competition Act.

Q160 Chairman: That was not in breach?

Mr Bolt: That was not a breach of the Competition Act.

Q161 Chairman: Was there any indication from the Office of Fair Trading how high the fares would have to be before they were in breach?

Mr Bolt: No I think is the short answer to that. The question always is about (in this case) a particular fare and whether that is in breach of the competition law.

Q162 Chairman: How high was this particular fare? Higher than the 187 between Manchester and London? Is 187 between Manchester and London not excessive?

Mr Bolt: I understand clearly the concern about that particular level of fare. The issue for competition law - and we are quite constrained by case law in the way this is developed - is that it requires you to look at the market, competition in the market, and the ability of the particular operator to exploit a dominant position.

Q163 Chairman: Wait a moment, whoa, how could somebody who has monopoly control not be able to exploit the market, or am I missing something?

Mr Bolt: The argument there, and this is the market definition stage which OFT goes through for every competition case and we went through a similar process, is you look, if you are travelling from London to Manchester, at flying as an alternative and say is that in the same market.

Q164 Chairman: I see, so one could stop off in Aberdeen and that would be comparable?

Mr Bolt: That would not be comparable but flying direct from a London airport to Manchester is currently comparable. Whether with the change in journey times with the upgrade that Mr Coucher is talking about that remains the case is one of the issues that would clearly need to be tested in a future case.

Q165 Chairman: Does Virgin not already have 25 per cent of the business market, London to Manchester?

Mr Bolt: 25 per cent is not generally regarded as dominant in terms of competition law.

Chairman: I am just fascinated with this. I think you have presented the Committee with a nice problem. We might try and work out this magic formula that would be regarded as being dominance. Mr Efford?

Q166 Clive Efford: On the formula, there is an enormous amount of public subsidy that goes into this market that is led by market forces. Is there not any requirement on the part of you as the Regulator of the train operating companies to take cognisance of that and set prices that give a return for the public investment?

Mr Bolt: I think that is an important point and an issue I was going to come on to. The discussion we have just had about London to Manchester on regulated fares tested against competition law issues illustrates that it is quite difficult to demonstrate abuse of dominance, but the whole fares structure clearly is something where the Department for Transport, as the body with responsibility for fares policy, does need to take a view as to whether the balance between regulated and unregulated fares is delivering the sort of outcome which is getting the best deal for passengers and taxpayers. If the Department as the body responsible for fares policy decided, for example, to extend the scope of regulated fares, that would be a policy decision for them and we would be in a different position potentially to the 187 fare.

Q167 Chairman: Since standard open tickets have gone up 60 per cent in real terms since 1995, one does begin to wonder what you have to do to be regarded as charging an excessive fare.

Mr Bolt: You need to look at that in the context of the movement in book ahead fares which you can now book up to six o'clock the night before.

Q168 Chairman: That would be quite defensible were you aware how many tickets were available to book ahead. If there are three and within the first minute and a half they are gone I do not altogether regard that as comparable, but that is probably a want of something on my part.

Mr Bolt: I think it is one of these issues where there is a common sense view. I think 187 sounds very high but ---

Q169 Chairman: It is quite hefty, Mr Bolt.

Mr Bolt: --- But if there are a significant number of book ahead fares and you can book them easily and relatively close to the point of travel, then you might take a different view of that than if there were no cheaper fares or the basis of booking them was very different.

Q170 Chairman: Are you saying that in order to establish whether a fare was excessive or not we would have to take account of at least ten extra factors that we are not able to establish?

Mr Bolt: I think I am trying to say that the way competition law works in the UK establishes in practice a pretty high threshold for deciding that a particular fare is an abuse of dominance.

Q171 Chairman: That is back to the Oxford buses again.

Mr Bolt: Yes, effectively.

Chairman: I think that has been very revealing. Anything else? Gentlemen, as always, we have enjoyed having you here and doubtless we shall ask you to come back and join us again. Order, order, the Committee is adjourned.