House of COMMONS
MINUTES OF EVIDENCE
Wednesday 30 November 2005
MR DAVID MAPP, MR PAUL SMITH, MR TONY COLLINS
MR GRAHAM LEECH and MR CHRISTOPHER GARNETT
USE OF THE TRANSCRIPT
Taken before the Transport Committee
on Wednesday 30 November 2005
Mrs Gwyneth Dunwoody, in the Chair
Mr David Clelland
Mr Robert Goodwill
Mr John Leech
Mr Lee Scott
Memorandum submitted by ATOC, Virgin Trains and GNER
Examination of Witnesses
Witnesses: Mr David Mapp, Commercial Director, and Mr Paul Smith, Director (London), Association of Train Operating Companies (ATOC); Mr Tony Collins, Chief Executive, and Mr Graham Leech, Executive Director (Commercial), Virgin Trains; and Mr Christopher Garnett, Chief Executive, GNER, gave evidence.
Chairman: Good afternoon to you, gentlemen. We have a little bit of housekeeping to perform as members have an interest to declare.
Clive Efford: I am a member of the Transport & General Workers Union.
Mr Clelland: I am a member of Amicus.
Graham Stringer: A member of Amicus.
Q172 Chairman: Gwyneth Dunwoody, Aslef. There are no other interests to declare. Gentlemen, you are very welcome this afternoon. You come at a timely moment, just before Christmas when your affairs are of even more concern to the travelling public than they might be at some other points of the year. May I ask you to begin by identifying yourselves for the record.
Mr Smith: My name is Paul Smith and I am the Director of Support for the Association of Train Operating Companies.
Mr Mapp: I am David Mapp and I am the Commercial Director for the Association of Train Operating Companies.
Mr Collins: Tony Collins, the Chief Executive of Virgin Rail.
Mr Leech: Graham Leech, Executive Director (Commercial), Virgin Rail.
Mr Garnett: Christopher Garnett, GNER.
Q173 Chairman: Did any one of you have anything you wanted to say before we begin?
Mr Mapp: I would like to make a brief opening statement to complement our written evidence.
Q174 Chairman: Please, Mr Mapp.
Mr Mapp: The industry has been remarkably successful over the last ten years in growing volumes. They have increased by around 40 per cent since 1995. This is higher than any other European railway industry and the highest since records began in 1919. One important contributory factor to this is the train companies have successfully developed new fares which have attracted both new customers to the industry and encouraged existing customers to travel more. This in turn reflects the franchise model which heavily incentivises train companies to grow volumes and to grow revenue in order to reduce the call upon the public purse and to provide investment in the industry. It also fits well with the need for private train companies to earn profits for their shareholders, although in most cases the profits are now subject either to capping or profit-sharing arrangements with the DfT. It is also worth noting at this stage that around 50 per cent of fares are currently regulated. We believe that the current industry model has worked very well and that is demonstrated by the very high growth in volume over the last ten years. However, we believe that we could drive volume and revenue further given some relaxation in the current framework of regulation, and we make some measured proposals in regard to this in our written submission.
Q175 Chairman: Thank you, Mr Mapp. Well, it is nice you are so pleased with yourself. Could you tell me why six in ten rail passengers are dissatisfied with the value for money of their tickets?
Mr Mapp: The National Passenger Survey, which I think is the source of the evidence that you have just highlighted, also showed in its last survey in the spring of this year that satisfaction with train companies was the highest since records began in 2000. It is somewhat perplexing, therefore, to try and make sense of the fact that value for money remains stubbornly stuck at around about 40 per cent satisfaction. We believe that the Rail Passengers Council will be embarking upon a programme of research into fares and related matters in the near future and we very much hope that they probe the background factors which lead to this apparent contradiction in the evidence available.
Q176 Chairman: But you have not got an explanation?
Mr Mapp: No, not at this moment.
Q177 Chairman: You accept that under half of long-distance passengers are satisfied?
Mr Mapp: Well, the evidence from the National Passenger Survey is based on market research data and clearly we cannot contradict that. We believe that the growth in passenger numbers, as I have already highlighted, demonstrates that we are doing many things right and indeed most customers are happy with the service that we provide. We have done analysis to have a look at where that growth has come from and it is both from new customers attracted to the industry, but also existing customers travelling more frequently. That does seem to demonstrate that many of our customers are indeed very satisfied with the services we provide.
Q178 Chairman: Passengers seem to think value for money comes second only to punctuality as the aspect of rail travel most in need of improvement. How are you going to improve passenger satisfaction?
Mr Mapp: Well, I think we are already doing a very large number of things to improve our customer satisfaction and indeed that again is reflected in the fact that we have seen such high growth. Just to give you a few of them, there was the very heavy investment in new rolling stock in recent years which is now coming on stream, improvements to journey times by the West Coast mainline upgrade and the range of fares that we now offer which clearly have attracted some customers to the industry, so I think we are doing many things which are improving the service that we provide to customers. That is reflected in the fact that satisfaction amongst customers is rising and was the highest since 2000 in the last wave of the National Passenger Survey.
Q179 Clive Efford: Can I ask you, Mr Mapp, about the complexity of the ticketing regime. There are 70 different fare types, 760 validity conditions, accompanied by 102 pages of explanations. Is this not outrageously complex and how is the travelling public meant to understand it?
Mr Mapp: I think the complexity issue is an interesting one and I think we need to get it into perspective. I think most of the issues are with longer-distance train companies and the fares that they offer. I am not aware of ticket issues with short-distance fares in London or the other major conurbations. I think in terms of the longer-distance operators, we accept that there probably has been a degree of over-complexity and indeed the operators are now taking forward steps to simplify the way in which they present the range of fares to customers.
Mr Leech: If I could comment on that from Virgin's point of view, we do accept that the range of fares which customers have been presented with has been too confusing, particularly with regard to the advance purchase fares and over the last couple of years we have been taking a series of steps to simplify that and ----
Q180 Chairman: Over two years, Mr Leech?
Mr Leech: Yes, perhaps I could just explain the things that we have done. In the advance purchase fares, where the industry came from with British Rail, there was a whole series of fares with different names, like Super Advance and Apex, which had different conditions and different companies, between us, we had different conditions too. What we have now done is create one range of advance fares for Virgin and GNER, and Midland Mainline have done a similar thing too, and there are not different conditions amongst those fares. The only difference is that you pay a different price, but you know that the conditions are the same and you do not have to worry about whether you stay away on the Saturday or it is only valid on the Friday, so that is one simplification. Another simplification we have done is that we have made our single tickets half the price of a return ticket and that may sound like a simple and obvious thing to do, but it is not what happened historically; the customers used to pay only £1 less for a return ticket under British Rail which does not make sense to customers. We have also applied the normal standard Railcard discounts to all of our advance fares which was also not the case. Therefore, we are setting out a whole range of simplifications there essentially on Virgin Trains and increasingly on other rail operators. There are only three types of fare: there is the Open fare which is fully flexible; there is the Saver fare which is for walk-up travel at off-peak times; and then there are the advance fares. We believe that that simple concept of three types of fare is something that customers can understand and indeed we are now developing our communication and our website to present fares in that simple way.
Q181 Chairman: Mr Garnett, you wanted to comment on that?
Mr Garnett: The criticism in the past is totally justified, that there were too many fares, absolutely as Mr Leech has said. We, Midland Mainline and Virgin have all made this change in September with three Standard and three first-class discounted fares which has made it much easier. The problem is that our websites do not make it easy for the passenger to find it and ----
Q182 Chairman: So you have got a simplified system, but you just hide it?
Mr Garnett: No, but you have got to have patience. I went on to the website this morning, to check something up after the interesting article in today's Times, and it is not easy to find fares, I accept that, and it takes a bit of time. If you go on to the Easyjet site, which I went on to compare their Christmas fares, the fare comes up straightaway. If you go and look at the eight o'clock to York, you have to got to go through it and find if the fare is available. What we have got to get to, and that is probably something we will have in 12 to 18 months' time, is you will go to the eight o'clock and there is your fare, dead easy, it is there. It is not in our interests to make this difficult for passengers because our research shows that they get fed up and they go to the airline websites because it is easier.
Mr Leech: We are actually making just that change on our website now and in the spring of next year that is what you will be able to see. You will be able to see your Open fare, your Saver fare and the cheapest available Advance fare for the journey that you want to make.
Chairman: Well, you have started some hares running now!
Q183 Clive Efford: That leads to the question of how long have you been running your contracts and why has it taken so long for you to begin to revise your fare structure to make it simpler for the public?
Mr Leech: The main reason it has taken time to make that simplification is the changes that have had to be made in the industry systems. It was recognised in about 2000 by the industry that the situation was not as we wanted it to be either for customers or for making best use of the train capacity that we have. That was the point when the decision was made to invest in a new reservation system which is necessary for these controls. Previously what was happening was that there was quite a complicated set of fares being run with a fairly ropey set of old systems and you could argue that it was trying to do something too complicated. We now have, since last December, the new National Reservation System. GNER and ourselves have been the prime supporters of that, but all of the other train operators use it and it is the ability that we have within that system which is now allowing us to make these simplifications.
Mr Garnett: We all learned on privatisation about introducing new fares. At privatisation, the cheapest British Rail fare was the Super Apex, I think. Last year on GNER ten per cent of passengers travelled on fares that in real terms were lower than anything there was in the BR days, so we have introduced lots of new fares that offer fantastic value for passengers, our fault, mostly driven, as Graham Leech said, by the industry systems making them easy, but you had to hunt for them and that was not in our interest and we are tackling that problem.
Q184 Clive Efford: Can I ask both of you then to explain to us why all the TOCs cannot adopt and propose a straightforward and user-friendly fare structure in the Grand Central Rail franchise bid?
Mr Garnett: I am delighted to answer the question on Grand Central. Grand Central is going to operate at £28 million per annum less for the first five years for the number of trains that we are going to run as an open-access operator. That is a fantastic public subsidy that they are getting which we, as government-controlled, government-owned franchises, have to pay, so here we are, letting somebody come in with a £28 million per annum subsidy. If I had that equivalent subsidy, which would be £150/160 million, I could discount fares. The only problem is that I could not carry passengers because the trains are full already and the taxpayer would lose, the railways would lose and there is no benefit. Secondly, we already offer for cheap discounted fares full reservation and if you do not get a seat, you get a 100 per cent refund. The fares that they are quoting are identical to our off-peak fares because they are not going to be operating in the peak, so I think that it is a totally incompatible comparison to make because of the massive subsidy that, strangely, they are being given by the railways which simply cannot afford to give out subsidies. We cannot afford to do what we need to do today, yet we are giving these people access worth £28 million a year. There is something seriously wrong with a system that allows that.
Q185 Clive Efford: Mr Leech, do you have anything to add to that? Why is it that we cannot offer a straightforward, user-friendly fare system in the franchise bids?
Mr Leech: I cannot comment on Grand Central because that is not affecting us in the same way, but what you are actually seeing is that the long-distance operators are now, of their own volition, adopting similar terms. In fact when the three companies we talked about made this move to allow all of the cheap Advance tickets to be available up to one day ahead, which is obviously a positive thing for customers because they are easier to get, we all agreed that we were going to use the same type of description for them, so they are all being called Advance fares. It is not that one of us calls them "bargain" and one of us calls them "value" and the other calls them "advance", but we all agreed that we would call them Advance fares; they are a similar concept. One could go a step further in harmonising other names, but I think you can now see the train companies recognising that simpler communication to the customers is beneficial to everyone.
Q186 Chairman: How long have you held the franchise, Mr Collins?
Mr Collins: We were awarded the franchise in 1997.
Q187 Chairman: And you, Mr Garnett?
Mr Garnett: We got our franchise renewed in May of this year.
Q188 Chairman: And what about the one before that?
Mr Garnett: That was seven years with a two-year extension.
Q189 Chairman: Yes, so you both, gentlemen, have had quite a long time to think about it, have you not?
Mr Garnett: And we have made, I believe, a lot of change and a lot of improvement and the customer research has shown that we have got simplified. GNER ----
Q190 Chairman: The customer research shows that particularly on long-haul, nearly half of your customers do not think you are value for money.
Mr Garnett: Sixty per cent of our passengers are satisfied with the fare structure on GNER. The problem we are going to face as an industry, and there are two points, we get no public subsidy whatsoever, we pay the Government ----
Q191 Chairman: Well, that does make you fairly unique amongst the train companies.
Mr Garnett: Well, it also means that we have got to go out, as any intercity train company has got to go and do, and get every passenger we can. We have enormous competition with the airlines. That is where our principal competition comes from, the long distance, and that is where the money comes from, so we have got to go out and offer fares ----
Q192 Chairman: Lots of people take planes from York, do they?
Mr Garnett: No, the big market, the big revenue flows come from Edinburgh, Newcastle and Teesside. What we cannot do is reduce the fares there to meet the airlines and then make the York fares higher. It dictates the fares the whole way down the route, otherwise people say, "This is not reasonable".
Q193 Chairman: Yes, it is called commerce, I think.
Mr Garnett: It is. So we have to go out and sell the fares and get people to travel. That drives what we are doing. We have to fill up every train we can to pay the Government the subsidy which the franchise was awarded on.
Mr Collins: If I could add some further information on the Virgin franchises, one of our key flows is the Manchester-London route where we ----
Q194 Chairman: Oh, we hear a lot about the London-Manchester route, Mr Collins! I can say it is one of the most famous routes in the United Kingdom!
Mr Collins: We are in direct competition with the airlines there and we have grown the volume of passengers over the last 12 months by nearly 30 per cent. Our fare price, our highest fare, which only five per cent of people pay, is £187 compared to £294 which the airlines charge for a similar type of journey. Our average fare in real terms has not increased since we took the franchise over as more and more people, over 50 per cent of our passengers, on a return ticket pay between £50 and £60 on that route and 25 per cent pay even less than that, so we have grown the volume, grown the revenue base by growing the number of passengers we carry.
Q195 Clive Efford: Following on from that, you say you favour simplification of the Ticketing Settlement Agreement to give you more freedom, but how would you use that freedom and how would the travelling public benefit?
Mr Mapp: Well, I think we would use that freedom to allow fares to be set in an easier way by train companies. One good example of the kind of constraints that the TSA currently places upon train companies is the Megatrain Initiative which has been launched by South West Trains, offering fares at £1 for the lowest from Southampton and the Solent to London. Under the current regulation, that fare would have to be withdrawn in 34 weeks' time because it is deemed a temporary fare. We would like to see changes to the TSE which would allow that kind of innovatory pricing to be introduced on a permanent basis so that the train company would not have either to withdraw the fare or seek, as it is doing, a derogation from the Department for Transport. So we would like more freedom to create fares and more freedom to choose how those fares are retailed and I think the kind of benefits you would see would be more attractive fares for customers and better use of retailing channels by train companies.
Q196 Clive Efford: Would it result in, for instance, it being easier for someone to buy a through-ticket rather than to have to buy two separate tickets for a leg of a journey? Would that benefit people?
Mr Mapp: At the moment through-ticketing is a condition on every TOC's passenger licence. TOCs have to offer through-ticketing and indeed they have to offer inter-available fares, for that matter, as well.
Mr Leech: Probably the main purpose of the Ticketing Settlement Agreement has been to maintain these network benefits of through-journeys and that is not a question which is being disputed because, as train operating companies, we see that as essential for the prosperity of the railway and for customers being able to use it easily. The Ticketing Settlement Agreement does not require train operators to set through-fares where they are setting up their own Advance products, but we believe it is still essential, so even with our own Virgin Advance tickets, the ones that are the cheapest, we offer connections with all the other TOCs all over the country, so you can travel from anywhere in the south-east of England, for example, to anywhere in Scotland on an Advance ticket. That is something we think is absolutely essential to keep it as a national system and nothing we are proposing in changing the Ticketing Settlement Agreement would be taking that away.
Q197 Clive Efford: Can I just press this point because I just want to be clear. Currently, in some circumstances, it is cheaper for somebody to buy two separate tickets than to buy a through-ticket. Now, are we hearing here today that you are now going to bring that to an end?
Mr Mapp: I have worked for the industry for around about 24 years now and there was a time during my career when I used to price the Great Western route from London to the west country and south Wales. There will never be a time when anomalies of the kind that you suggest do not exist. We have something like 19 million point-to-point flows in our fare system, not fares, just flows, because, apart from the 2.5 by 2,500 matrix of station-to-station flows that we have got, we have also got London Underground destinations and PTE destinations and so on. There will never be a time when there will not be anomalies of the kind that you suggest. It is simply not possible to do that. It is too complex a problem. We try and eliminate anomalies where we are aware of them and where they are causing a problem, but the kind of perfect fare system that you envisage I just do not think is practical or possible.
Q198 Chairman: Is the research that is going to be undertaken on fares by the Passenger Demand Forecasting Council going to examine the extent to which high-price tickets deter people from buying rail tickets?
Mr Mapp: Well, the Demand Forecasting Council, which has existed since privatisation, is funded by the train companies and it is also funded by the DfT, by Network Rail, the regulator, and ----
Q199 Chairman: Yes, but what is the extent of its research? I am sure we are very interested in its financing.
Mr Mapp: It has an ongoing programme of research. It reviewed the existing research evidence on fares earlier on this year and that was undertaken by Leeds University on behalf of the Forecasting Council. It plans to do further research in the near future on one or two aspects of fares, the effect of pricing and the lag between price changes and the effect on demand, and also to have a look at the effect of changing different price levels and the effect on demand amongst different groups of customers.
Q200 Chairman: So you might like to make the suggestion to them that they extend their research slightly.
Mr Mapp: Yes. The Demand Forecasting Council already contains an extremely comprehensive range of evidence and values on pricing, but I would be more than happy to provide the Committee with a summary of the current evidence.
Q201 Chairman: Mr Garnett, does the fact that you have got to pay £1.3 billion premium over ten years to the Government mean you are going to have to increase fares?
Mr Garnett: Yes, it does. The Government are seeking to reduce the level of subsidy that it is costing them today and they have announced, for instance, that Kent fares are going to go up in the new franchise by RPI plus three per cent.
Q202 Chairman: So you are expecting to recoup the whole of that from the passengers?
Mr Garnett: That is the only place we have to recoup it from. It is the passengers that are paying the subsidy to the Government. That is where the whole revenue of GNER comes from, the passenger, and that is why we have to go out and get every passenger we can and it is at a whole range of prices because it is not just about the morning peak, but it is going to be for travel in the off-peak. We have got to take our load factor, the average number of passengers per train, 45 per cent today to 60 per cent over the nine/ten years. That means we have got to get an awful lot more people travelling in the off-peak. People are travelling in the peak and we cannot put peak fares up too far because you bump against the airlines and that is really where the competition is all the time, we are aware, so we are working in a totally competitive market as GNER.
Q203 Mr Leech: Why is it not possible to find the cheapest fare across a range of dates? Whenever you ring up and try to book a seat, they want to know exactly when you are going. Why can you not have a situation where somebody who does not need necessarily to travel on a specific day can say, "What's the cheapest fare for me this week?"?
Mr Collins: I think the big competitive advantage we have over other forms of transport is the walk-up capability where people can buy a ticket, walk up and travel. The downside to that is we then do not have visibility of what the train loadings are going to be, so the danger is everybody walks up to try and get on the same train, so we have overcrowding. Therefore, we have to be very careful in the way we target the tickets in order to target the passengers at where the empty seats are. There is a choice. We can go to the sort of airline model or coaches and say, "It's fully reserved", and then we can be very specific, or we stay where we are. Actually from the point of view of convenience for the passenger and in terms of what we think drives the best revenue, it is keep the walk-up capability. That is a big advantage we have over other forms of transport.
Mr Leech: What you say is again something which would be useful for customers and something they have become familiar with in other forms of travel. With the improvements to the websites that we are talking about, the aim would be to do the same thing. At the moment so much time and space is taken up in possible fares you could have, but it is much more fixed on a particular day that you have asked for, as you have suggested. When we move to being able to quote customers the best price for their available journey, it will at the same time be much more straightforward for us to say, "Well, here's a price today and here's a price tomorrow", or to see where is the best price available on any particular day, so that is the direction we want to take it in and the investments we have talked about will be enabling us to do that.
Q204 Mr Leech: So we will have a situation at some point where, if I phone up and say, "I want to travel at some point this week. Can you give me the cheapest ticket available some time this week?", you would be able to do that?
Mr Leech: That is where we are moving towards, yes. The system changes we are specifying are to enable that sort of thing because we want customers to be able to find these cheaper fares more easily. We are making more of them available, we do want customers to take advantage of them and we recognise that the easier it is for them to find them, the better it is going to be for them and us.
Q205 Mr Leech: And how long will it be before these changes are in place?
Mr Leech: Well, the first change for us is on our website, the Virgin Trains website, which is coming in around May next year and we will then be looking to take that change into our call centre as well.
Q206 Chairman: Mr Garnett, do you want to comment on this?
Mr Garnett: It is feasible to do what you are doing today, but it will just drive you spare slogging through every train. Equally, you can ring up the call centre, Virgin, ours, National Rail, and they will do the same, but they have to go to every single train to discover where the really cheap fares are because they are sold on quota. It is simply doing what Easyjet are doing; you go on to the Easyjet site and you see all the flights there and you say, "Ah, that's the price. I will travel at six in the morning and that gives me a really cheap price".
Q207 Chairman: When are you going to do it if Virgin are doing it in May?
Mr Garnett: Ours will follow later. We are about a year away from doing this, but it is not for lack of trying because commercially it is a great advantage to get it in as soon as we can.
Q208 Mr Leech: Do you have any data to show how many of your passengers actually pay the cheapest fare available for their journey?
Mr Leech: The cheapest fare on Manchester, to take an example, which is £12 one way, that is the cheapest regular one, more than ten per cent of the customers buy that. In fact more than twice as many people ----
Q209 Chairman: Ten per cent over what period? Ten per cent of what? Ten per cent, £12, over how long - over a year, over a week, over a day?
Mr Leech: The percentage is the same. For our standard customers over a year, that is the percentage of people who are buying those tickets. There are twice as many people on Manchester who pay the cheapest fare, which is £12, than pay the highest fare.
Q210 Mr Leech: That was not actually the question that I meant. The people who are actually travelling on the train, what proportion of those people are paying the lowest price that they could have paid for the ticket that they have?
Mr Garnett: It depends when they booked because it is like an airline; the earlier you book, the better the fare. Christmas is a classic example. We have had on sale for Christmas four times the number of the cheapest ticket, the £9.50, which appeared in this morning's paper, than we had a year ago. Those sell early.
Q211 Chairman: Could you tell us what comparative figures we are talking about then?
Mr Garnett: There are 25,000 available this year and there were about 5,000/7,000 available last year of the £9.50 ticket. They were on sale this year two weeks earlier, as an industry, than they were last year and we got criticised for being on sale late and supposedly pushing the prices up. This year we have got four times the number of the cheapest ticket available in the marketplace than we had a year ago.
Q212 Chairman: So that is for the ones leaving before half past eight, is it?
Mr Garnett: Just spread over the days. It could be at different times. We spread the load. Last year there were 5,000 of these very cheap tickets available and this year there are 25,000 available with us, which is a massive increase of the cheapest ticket.
Mr Leech: It is still not the answer to the question I was asking.
Q213 Chairman: I think you are being over-optimistic, Mr Leech!
Mr Collins: I think the answer is that it is very difficult to answer that question unless we go and ask each passenger when they present their tickets and check the price. What we could do, if it would help to write to you on this, is to give you against all the key flows the number of dear tickets we sell, the number of cheap tickets we sell over a year and the number of journeys.
Q214 Chairman: We would really welcome that. We would welcome from each one of you what your quotas are over Christmas since you seem to have sold them even if you have suddenly increased them by this large number. You seem to have sold all your Christmas tickets at the speed of light.
Mr Leech: Well, the figures for us on Christmas -----
Q215 Chairman: Have you gone up five times since last year?
Mr Leech: In total we have gone up three times, but we have already sold 93,000 of our cheap tickets for the period between Christmas and New Year this year.
Q216 Chairman: That is three times more than last year? Is that what you are telling us?
Mr Leech: In fact it is more than that because of course last year there was a problem where people were not able to book until very late which we have worked to resolve, but we have sold 93,000 already. On the three days before Christmas, we have sold 26,000 and we still have 70,000 seats available on the three days before Christmas for our cheap fares across our network.
Q217 Chairman: How many have you got left, Mr Garnett, for the three days before Christmas?
Mr Garnett: We have got around 20,000 of the cheapest seats available in the period between December 23 and January 4, the Christmas period, there and back, so we still have a very large number of those cheapest seats available. There are not many seats available on December 23 anymore and you would not expect that at this stage.
Q218 Mr Scott: This is a question for Mr Smith and Mr Mapp. Your organisation stated that the high price of season tickets as well as Standard Open and first-class tickets count for most of the price difference between the United Kingdom and continental Europe. Why are season tickets so expensive in the United Kingdom?
Mr Mapp: I think it reflects the economics of commuting. The cost of providing rolling stock and infrastructure, track and signalling, to carry very large numbers of people into, for instance, central London in the morning and to carry them back again in the evening is very expensive. The effect of that over very many years has been to drive up season ticket prices and I think that is reflected in the current level. It is worth remembering that in 1995 the regulatory formula that was introduced for season tickets was what was called RPI-1 when the train companies were capped at one per cent less than the rate of inflation as far as our season ticket price increases were concerned each year. The effect of that has been of course to reduce the real cost of season tickets over the last ten years, so the 8.5 pence a mile that we refer to in our submission, that is something that we have inherited historically from many previous decades of BR and, prior to that, the private train companies.
Q219 Mr Scott: We were informed last week by the RMT that you can buy a national season ticket for the entire network in Germany for £2,047, whereas here, to travel from Milton Keynes to London, it is £3,284. Surely this is disproportionate for commuters in the United Kingdom, the charges.
Mr Mapp: Well, as I say, I think the cost of season tickets reflects the economics of commuting into central London perhaps in particular. I would emphasise again that over the last ten years, the price of season tickets has fallen in real terms.
Q220 Mr Scott: So you are saying that in Germany the price of commuting into Berlin would be totally different from the price, much, much lower than the price, of commuting into London?
Mr Mapp: I think clearly the level of subsidy has some effect on season ticket prices and I do not know what the level of subsidy is in Germany compared to this country, but clearly if there was a higher subsidy paid, which I suspect there may well be, that would have some impact on prices.
Q221 Chairman: Mr Mapp, you have just said something which I find very interesting. You have said that this problem is a historic one. In other words, you took over to revolutionise the rail industry, to change the situation, but you have rigidly stuck with this one aspect of British Rail. Is that right?
Mr Mapp: Well, we were regulated as far as pricing was concerned.
Q222 Chairman: But you are not now and the change has been quite considerable. It seems very clear that I can travel wherever I like in Germany on one ticket for less than it takes for me to go from Milton Keynes to London.
Mr Garnett: The Government controls season ticket fares and they have done since privatisation. When you bid for a railway, you bid on the basis of controlled and uncontrolled fares, so when the Government changed the regulations to say that it was no longer RPI-1, but RPI+1, the extra money, when season ticket fares went up, never came to us, but went straight back to the Government, so we do not see that change in the season ticket fares. That goes straight to the Government. The Government control the price of season ticket fares and it was one of the things they introduced at rail privatisation because, quite rightly, that is the one area where we are a monopoly supplier and we could be accused of gouging the market. That is why the Government have that protection for commuters on it, but it is the Government who set the season ticket price. The season ticket price has not varied from BR days in terms of the controls of it. Yes, all other fares around it have moved, but the Government lay down the fares on season tickets and it is not just season tickets in isolation as it ties into London, but tube fares and so on, and it is part of a much more complicated discussion about what is the subsidy that we, as a country, want to give to commuting. If you go and make commuting even cheaper, you will fill up the trains even more and the demand on the public purse then to provide the extra infrastructure to get people into London becomes even greater. I think that the whole cost of commuting, and that is why it is controlled by the Government, drives a massive investment cost to the Government if they were to start changing it.
Q223 Mr Scott: So, in simple terms, the Government is to blame for it all?
Mr Garnett: Not to blame. That is the reality of how it has always been in this country and that is how we, as a country, Parliament or whatever, decided they wanted to invest the money in railways and that is the price of season tickets that we have lived with for a very long time as a country, always more expensive than Europe.
Mr Mapp: What we sought to do in our evidence was simply to point out some of the background factors that made crude comparisons between different European countries difficult to interpret.
Q224 Chairman: Perhaps you could tell us how you got the figures for the price per kilometre in other European countries?
Mr Mapp: We took the best published data which I think in this case came from ATOC's international equivalent, the UIC, and we took revenue totals and passenger kilometre totals for each of the railways and then derived the per kilometre based on those numbers.
Q225 Mr Scott: You said earlier that you did not know the level of subsidies that were given to the train operators in Germany. Would it be possible perhaps for that information to be made available?
Mr Mapp: Well, we did think about doing some research into this area in preparation for the Committee and indeed we have had some discussions with a couple of academics who have done work in this area. It is actually very difficult because subsidies are paid in quite different ways in different European countries. Many European railway companies do not just run trains, for instance, but they also run buses and ferries and so on as well. We would welcome some research which had a look at the comparative levels of subsidy for the different countries.
Q226 Mr Goodwill: Mr Garnett, I too had a look at your website and, as a regular user of your website, I found it fairly easy to navigate. I noticed, for example, that if I wanted to travel from York to King's Cross on your 15.10 service on 19 December, there are in fact 12 different fares ranging from £9.50 to £121.50 and in fact your Saver Single at £68.30 is more expensive than your Standard Advance one. Now, I appreciate that there are an increasing number of people in this country who have got access to the Internet and can purchase tickets in this way, but how do you think you can make these tickets more accessible to groups like pensioners who may not be able to purchase tickets in this sophisticated way?
Mr Garnett: Ninety per cent of our passengers have access to the website, and that is research we have recently done ----
Q227 Chairman: Ninety per cent?
Mr Garnett: Ninety per cent of our passengers have access to the website. I was absolutely amazed by that statistic.
Q228 Chairman: Well, I will join you in that, Mr Garnett!
Mr Garnett: I am very glad! The question is: what about people who have not? There is still the telephone and they can still ring the call centres and get the information. We are selling at the same price over the telephone as we do on the website or they can go to the station and get the information there, so it is still available for everybody to get it and of course pensioners will get them at half the price because they will get the OAP discount.
Q229 Mr Goodwill: The National Rail Enquiries helpline is an excellent service and I was surprised at how good it was it was when I used it, and it is owned by the train-operating companies. Why is it that one cannot purchase a ticket using the helpline as well as get information on a service?
Mr Mapp: Well, the National Rail Enquiries service, it is one of the obligations upon train companies to provide that information service. At the moment the regulation that governs its provision stipulates that it should be an information provision service and, therefore, we comply with that obligation. Having said that, we have diversified enormously and there are a number of ways in which you can obtain information, not just through the web, but also mobile telephones and of course we also now provide real-time web information for train services as well, so I think we have stretched the envelope as far as that service is concerned.
Q230 Chairman: But did you ask for any change because I remember you coming before us, not you personally, Mr Mapp, but, as an organisation, I can remember you coming and giving evidence to this Committee about the way that the train enquiry system is working, and nor was there any suggestion that you wanted to sell tickets via the same information service?
Mr Mapp: I think it is something that clearly we would be prepared to consider, but, as I say, at the moment ----
Q231 Chairman: Well, this was some time ago and it seems to me that if you were going to consider it, you could have done it in the interim.
Mr Mapp: I am sorry?
Q232 Chairman: This was some time ago that you were discussing it and you are still considering it. You do like a long period of consideration at the Association of Train Operating Companies.
Mr Mapp: Well, as I say, the primary obligation that we have is to provide the information on train services.
Q233 Chairman: Have you ever asked the Government to alter that primary obligation?
Mr Mapp: I am not aware that we have, but I will ask my colleagues to comment.
Mr Garnett: I think when we debated this as the train companies when I was Chairman of ATOC, the view was that there were already at that stage two very good websites, one by National Express and one by Trainline and now it is all operated by Trainline. That website is then operated by a number of companies and also there are telephone sales over the phone. Therefore, there was not a case for ATOC to do it as well.
Chairman: Yes, so there is not a case for ATOC doing it.
Q234 Mr Goodwill: I just wonder whether it would simplify the process of buying a ticket if one call could both get the information and buy the ticket and whether it would be something you would be wishing to apply to do.
Mr Mapp: What it does of course is that it does have a call-forwarding facility, so if you call NRES and you say that you would like information about a particular journey you are planning to make, the information is provided and NRES then can transfer you to one of the retailers that Mr Garnett has described.
Q235 Mr Clelland: On the subject of call centres, do your call centres prioritise callers on the basis of the average credit rating in the area they are calling from?
Mr Collins: Absolutely not, absolutely not.
Mr Leech: It is entirely first come, first served. Whoever is next in the queue is answered. The only reason that any information like postcodes is kept is for credit card billing and for delivery of tickets. It also means that if somebody is calling back again, because they often make the same sort of journey, that information is readily available and it means the call is quicker and the service is better for everybody concerned, but there is absolutely no preference whatsoever according to where people live or their credit rating.
Mr Garnett: The only issue we have, knowing where your constituency is and the call centre we have in the middle of Newcastle, is that there are some postcodes where we do not send tickets because we get a very high rate of theft of tickets or credit card fraud and that has been on the advice of police not to deal with certain areas because of that.
Q236 Chairman: Are your customers aware of that?
Mr Garnett: I would doubt it. Those who are trying to fiddle the system undoubtedly are aware of it because we then ----
Q237 Chairman: So they come on the line and they ask for all this information, say they want to buy a ticket and you say, "No, sorry, you are living in the wrong place"?
Mr Garnett: No, we say, "We're sorry, we're not despatching tickets to that place because there has been such a level missing", and this is on the advice of police.
Chairman: That must go down well!
Q238 Mr Clelland: So you do have the technology, and presumably Virgin do as well, to discriminate in that way if you chose to?
Mr Garnett: We do not know the postcode of the incoming call. It is only when you have gone through it and you ask for the postcode that then we have to go into retreat.
Q239 Mr Clelland: Is there any other way that you discriminate against customers ringing call centres?
Mr Leech: No, we do not. It is a straightforward service where we want to provide calls and answer them as quickly as we can and there is no discrimination; it is first come, first served.
Mr Mapp: I think these questions follow on from Mr Crow's remarks to the Committee last week. Following that, I have checked with all the major telesales retailers of rail and none of them uses the technology that Mr Crow was referring to. I have checked and it does exist technically, you can buy software of the kind he describes, but we do not use it.
Q240 Graham Stringer: Can Mr Garnett and Mr Leech explain to the Committee how they set their fares?
Mr Leech: You mean the price level to fix fares?
Q241 Graham Stringer: Yes.
Mr Leech: Yes, we set them mainly in relation to the competition that we are facing because on long-distance routes, such as both of us have, we are in a very competitive market and the question was asked earlier about how demand changes according to prices going up and down. Well, the truth is that it does vary according to that and it varies even more where there is sharp competition, so where we are setting our lowest fares, for example, we have our eye to what is available if you are travelling by Express coach, which is very popular with students, for example, they are strong competitors with us, we have an eye to how much it would cost if you were travelling by car and, when we are in the business market, we particularly have to consider what the airlines are charging. As Mr Collins said, if we are looking at the London-Manchester route or London-Glasgow, the price that is charged by the airlines is very important. What we do is not just think about the price, but it is the overall package of the service that is being offered because customers' choice relates to other things.
The Committee suspended from 3.31 pm to 3.38 pm for a division in the House
Chairman: Gentlemen, we have lots of questions still to ask you and Mr Stringer had one or two final ones.
Q242 Graham Stringer: Yes, but I do not know if Mr Leech had finished.
Mr Leech: What I was saying is that we think about the price in relation to all the other things about our offer. We are in a competitive situation and there are many things which matter to customers. One factor is the price and that is a big one, another is how frequent is the train service compared to taking the coach or driving or flying, how fast is the journey, what sort of service do I get on board, am I travelling on a new train or an old train. There are all sorts of factors and we take account of the competitive position and we price at what we think is an appropriate level to do that, so the prices that we offer at the lower end are very competitive with travelling by coach and at the upper end we offer fares which are cheaper than travelling by air.
Q243 Graham Stringer: Is the overriding objective of your fares policy, and you have explained how it is made up, to maximise profits?
Mr Garnett: The overriding objective is to maximise the amount of revenue that we earn on every train that leaves King's Cross-Edinburgh. If we go out with unsold seats, we are not maximising the revenue. Our profits are determined in what we bid on the franchise and the new franchise agreements say that if your revenue is more than two per cent, and it varies, but more than two per cent ahead of what is called the 'target revenue bid', the Government get a high percentage and that will vary from franchise to franchise. Therefore, the days when you could increase your profits dramatically as a franchisee have changed very considerably in the new franchises from the first franchise, from the one we had, as GNER, in the first seven years. That has all been tightened up quite a lot, so the option is not to have a profit share and this agreement has a revenue share, so the option to say, "Let's maximise the profit to us", those days are gone.
Mr Collins: I think, from our side of it, the aim is to maximise revenue. Our experience with new trains and new services is you do not achieve that by maximising fares, you achieve it by getting more people to travel on the trains. We have to attract them on with value for money. Our experience on both franchises is that West Coast has grown by 25 to 30 per cent in a year, Cross Country has grown by 40 per cent in two, two and a half years and there is no real increase in our average fares. Our experience is if you offer value for money, you will carry more people.
Q244 Graham Stringer: On the Manchester-London route, Virgin Rail, I think you said that five per cent of passengers were paying the maximum fare. Does that represent about 25 per cent of revenue or what does it represent in revenue?
Mr Leech: That would represent about 15 per cent of revenue.
Q245 Graham Stringer: And the fact that those fares are so high, does that prohibit the vast majority of people being able to use the train walk-on facility?
Mr Leech: No, it does not. You have to look at that highest fare together with the other offers that we make at the same time. It is true that we have increased the price of the Open fare, but we have done many other things at the same time.
Q246 Graham Stringer: Can you put figures on that, how much it has increased since you took over the franchise?
Mr Leech: The Open fare from Manchester-London has increased by about 60 per cent. What I was going to say is that what we have done at the same time is make many other changes because it is not the case that that is the only fare available for travel at peak times. There are many other fares available for travel at peak times which are much cheaper. What we have done at the same time as making that change is we have introduced advance purchase fares which are widely available for travel on our peak services and they are cheaper than the Open fare which was available under British Rail, so you can actually travel on the peak service more cheaply now than you could previously. What we have also done is we recognised that there are certain groups in the population who are less able to pay than the business travellers who typically buy the Open fare and what we have done is make it possible for people who have Railcards, so disabled people, young people, senior people and families, to travel on any of our services without restriction at the discounted Saver fare, so they are able to walk up and buy a ticket that is far cheaper than was previously available under British Rail. Both of those changes, introducing Advance fares which anybody can buy and are available up to 6 o'clock the evening before and cheaper than you could previously travel, anybody can take advantage of those fares, and many do, but if you are in those particular groups I referred to, you can travel without restriction. We also allow anybody who works for a registered charity to travel unrestricted on our Saver fare. I hope that also helps you to understand how we approach pricing as well. We do not just make blanket decisions about putting prices up and saying that there is no choice for people, but we think about the ability of people to pay. We want to attract people on to the trains, so, although there is that one example which is often quoted about how we have put prices up, in the main our policies have been about reducing travel, for walk-up travel as well as for advance, and attracting more people on to the service.
Mr Mapp: If I may make a supplementary point about the national picture over the last ten years, subsequent to submitting our written evidence, we did some further analysis of the prices paid by customers as measured by the average pence per mile across all passengers. In the last ten years, that has decreased across the industry by about one per cent in real terms after allowing for inflation. In the ten years prior to that, it increased in real terms by about 11 per cent.
Q247 Chairman: We have not asked you about group fares, so finally can you tell us how long is it before people can book a group fare on Virgin?
Mr Collins: We have had some correspondence, Madam Chairman.
Q248 Chairman: We have indeed, Mr Collins. I just let the Committee in on the secret because I thought they would like to know!
Mr Collins: Do you want me to give the secret away?
Q249 Chairman: No, no, I can do that myself! Please, why can I not get a school party from Crewe here early enough in the morning to go around the House of Commons?
Mr Collins: On the particular instance you refer to, Madam Chairman, first of all, I apologise that we made it so difficult for that particular party to get the train they were looking for. They did eventually travel. The feedback we have had is they were happy with the experience and intend to repeat ----
Q250 Chairman: Yes, but as an example of school parties, Mr Collins, because I have more than one school in Crewe.
Mr Collins: If I can build on that, we carry under group travel about 75,000 people a year.
Q251 Chairman: Yes, but how long before I want to book can I do it?
Mr Collins: You can book now. We have trained people who receive the bookings and organise those bookings. I apologise for the problems in the past. We have lost focus on that particular service and we are putting more effort and more focus into it and part of the development of the website for next year, next May, is to put a specific page on there for group bookings and ----
Q252 Chairman: But what proportion of your train services can take group bookings of 50 or more?
Mr Collins: We have to restrict those to off-peak services, but any other train will be able to cater for those types of parties.
Mr Leech: We have carried 1,000 school parties on our trains over the last year.
Q253 Chairman: I am delighted to hear it and I will not take it personally that you were discriminating against Crewe! Mr Garnett, what are your arrangements for group parties?
Mr Garnett: We take groups, and I get regular letters. We have group travel, you ring it up and they will give you a price. Often people are not happy ----
Q254 Chairman: How many days ahead can they book?
Mr Garnett: Theoretically, the day before if we have got the capacity, but you may not like the price.
Q255 Chairman: So you use the price to keep them off?
Mr Garnett: Well, because we may not have the capacity at that stage because we still have to make available for people the walk-up ----
Q256 Chairman: So you agree with Mr Collins that what is important is that if you have expensive bums on seats, you cannot possibly give group travel arrangements?
Mr Garnett: Not at all, not at all, Madam Chairman. We do it regularly, give group travel, but your question was, "If you rang up the day before, would you get it?", yes, but you may not like the price. Normally schools know well in advance if they are coming to the House of Commons or whatever and we get quite a number of special needs groups whom we let travel for free. We get regular letters from MPs, saying that XYZ are coming up to the Commons, so could we do something. It goes on all the time. Interestingly, since the London bombs, sadly, there has been a major fall-off in the demand.
Q257 Clive Efford: I want to ask ATOC whether they are actively pursuing the Government over enacting the provisions of the Railways Act 2005 to give a fully integrated fare structure in London.
Mr Smith: Well, we are moving forward. We think we do have a fully integrated fare structure in London which Travelcard delivers at the moment, but we are moving forward in various areas. We are very keen to embrace Smartcard ticketing and we are very keen to move to a situation where we can accept a Smartcard, a retail Smartcard, a Travelcard Smartcard. We have made some progress; we already accept Travelcard on Oyster throughout London.
Q258 Clive Efford: Prepay?
Mr Smith: Not prepay yet, but prepay on ten routes throughout London and we have a separate contract with the Association of London Government for concessionary fares in Smart format which we accept. We retail Oyster at 50 key stations, mainly joint stations where we share facilities with the Underground, and we have modified all of our gatelines, with one exception, to read and accept Oyster cards, generally for Travelcards and in some instances for prepay. We are moving forward with the Department for Transport, and there is a Department for Transport-led steering group. We are keen to embrace Smartcard. We see that customers like it, we see that customers want it, and there are risks to us of not embracing it. There is a Department for Transport-led steering group that is looking at two things: one, the extension of the Smartcard to London and, with that, prepay; and it is also looking at zonalisation of national rail fares within London too because the two are linked. If there is zonalisation of fares within London, then we can perhaps move forward more quickly to prepay.
Q259 Clive Efford: Will Londoners across London be able to use the Oyster card and have the full benefits of the Oyster card in time for April next year?
Mr Smith: It is doubtful whether it will be in time for April next year or several years beyond that, but that is what this group led by the DfT exactly is looking at.
Q260 Clive Efford: But is that acceptable? People from my constituency, for instance, will not be able to access the full discounts offered by the Oyster card because of the rail companies' failure to adopt the system.
Mr Smith: The rail companies have adopted the system, but one of the issues is the cost of doing it and what the benefits are and what the implications are, and this group is actually looking at that.
Q261 Clive Efford: But the implications for the travelling public are that they will not be able to access the discounts. Is that acceptable?
Mr Smith: But there is a huge cost associated with putting the equipment in. We are talking to TfL, we are talking to TfL regularly, and there is an offer from them there which we have looked at. TfL's proposition was that we should move to prepay, not with gates as LUL is, and gates give the control, but with a system of validators. The validators are expensive and we feel there ought to be more of those and it is those costs particularly ----
Q262 Chairman: I tell you what would be nice, if you could give us a detailed note, which will help Mr Efford, of exactly what the problems are, exactly what the timetable is and exactly when you expect to come up with it.
Mr Smith: We would be happy to do that.
Chairman: Thank you very much. Gentlemen, you have been, as always, very informative. We may have one or two other questions to put to you in writing. Thank you very much.
Memorandum submitted by Department for Transport
Examination of Witnesses
Witnesses: Derek Twigg, a Member of the House, Parliamentary Under Secretary of State, and Mr Mark Smith, Manager, Fares and Ticketing & Passenger Benefits Team, Department for Transport, gave evidence.
Q263 Chairman: Minister, would you be kind enough to identify yourself for the record? I do not know whether you have anything you would like to say.
Derek Twigg: I am Parliamentary Under Secretary of State for Transport with responsibility for the railways. Mark Smith, on my right, is Head of the DfT Rail Group's Fares and Ticketing & Passenger Benefits Team. He transferred across from the SRA to us.
Q264 Chairman: Did you have anything other than that you wanted to say?
Derek Twigg: I think it is important to set out where we are today in terms of the railways. I believe we have a very successful railway. We have had one billion passenger journeys last year for the first time since the early 1960s. It is the fastest growing railway in Europe. We are spending £87 million a week. We have seen the biggest ever investment in rolling stock. I think we have got an industry in growth terms that we have not seen for many years. I think it is important to put on the record that clearly we manage the franchising contracts for them to make sure the targets are delivered within those and, of course, we want the train operating companies to use their commercial expertise and add value for the taxpayers and passengers. Clearly we regulate a number of those and it is very important that we continue with the integrated national network.
Q265 Chairman: Thank you. I think we shall have a number of questions to ask you because the train operating companies are quite clear who is responsible for most of their problems and it seems to be you. Could you tell us the Department's policy on rail fares? What is it based on?
Derek Twigg: We regulate a number of fares through the fares basket. We leave it to the train operating companies to determine those that are not regulated. I believe, based on the number of people using the rail system, that clearly they are attractive in many instances. It is also a balance between the amount of subsidy that we raise and pay towards the railways and the fares that are raised as well.
Q266 Chairman: What is the broad objective in that policy?
Derek Twigg: Clearly we want to grow the railways.
Q267 Chairman: You have just been telling us how well you are doing that.
Derek Twigg: We want to make it attractive for people to use it. There is also a balance to be struck in terms of how much the taxpayer should put in and how much the fare payer should put in.
Q268 Chairman: Do you have any element in that which considers the environmental benefits of getting people off the roads and into trains?
Derek Twigg: We have a policy of integrated transport and clearly by making the railways more attractive we can take more people off the roads. It is important that, where we can, we integrate that with other forms of transport, buses, taxis, cycles, etcetera. I recently opened a Park and Ride scheme in Birmingham and other ones have developed around the country. We are making more railway stations much more accessible in terms of cycling.
Q269 Chairman: How does your fares policy fit into that?
Derek Twigg: In what respect?
Q270 Chairman: Presumably you use your particular policies and your targets to encourage travellers, but how do you see the transport situation generally affecting both the environment and the quality of air and the sustainability of transport?
Derek Twigg: It is very important in terms of the balance between the subsidy that we put in and the taxpayers' money and what fare payers should pay.
Q271 Chairman: So really it is the cost of the modal shift that is the ultimate deciding factor. You want to do it, but if it costs too much you will consider that is not really where you want to go.
Derek Twigg: Clearly we have invested a significant amount of resource into the railways. £87 million a week goes into the railways. We need to encourage the train operating companies as well in terms of their investment. They provide many attractive options in terms of ticketing and fares for passengers in order to attract more people onto the railways.
Q272 Chairman: You certainly offer lots and lots of alternatives. Whether they are attractive or not is another thing. Frankly, just what is most important to the Government really? Are you intent on driving down public subsidy to the railways or do you really want a system which is run as a public service and is affordable by everybody?
Derek Twigg: Clearly we want a service that is affordable in terms of choice and in terms of transport. If we can reduce subsidy then we can spend and invest more money on the railways. It is an expensive business, but clearly where the opportunity arises, we want to make that balance better and ensure we get more funding into the railways. Clearly it has got to be affordable. There is not an unlimited amount we can put in. Clearly the success we have seen in the railways in recent years and the benefits we have seen for passengers are there for all to see.
Q273 Mr Goodwill: Some of my train operators in the north of England complain that they cannot offer more services and more competitive prices because of the amount of freight that is running on the rails, which not only means a lot of slow moving trains on the network but it also increases the amount of maintenance required and the amount of downtime for repairs. Do you not think your wish to have more freight on the rail network is at odds with the wish to have more passengers travelling?
Derek Twigg: This is an interesting point. Yes, we have a successful railway both in passenger number terms and in terms of the increase in freight that is using the railway and we want to see that continue to grow. Clearly there are also issues around timetabling which is very important in terms of train paths and in terms of avoiding delays. We believe that we can develop the railway both in terms of passenger services and an increase in freight. You may recall the statement made by my right honourable friend the Secretary of State before the summer recess in terms of our future view on rail freight.
Q274 Mr Clelland: Are you satisfied that the railway system has the capacity to make any appreciable difference to moving people from car to rail in terms of relieving congestion?
Derek Twigg: If you look at the route that I use and the Chairman uses in terms of the west coast, there clearly has been a significant change in the service and the attractiveness of that service in terms of getting a greater number of people onto the railway, including many business people. I believe there is the capacity needed in many parts of the system and by improving and investing in the railway then of course we can see more people using it. On the other hand, I accept there are various capacity constraints around the network and clearly there will be challenges for us in the future. The high level output specification which we will be discussing and bringing forward in the next year or two, as to what the Secretary of State would want from the railway, is something we are going to have to consider. There are many issues around capacity in terms of longer platforms or longer trains or better utilisation of the current routes, better timetabling, etcetera. There are many, many things you can do.
Q275 Mr Clelland: All those potential improvements sound great. In the north-east of England for instance, where we do have a lot of road congestion problems which we are struggling with at the moment, we are threatened with closures and cutbacks in rail services. How is that going to help the modal shift we are looking for?
Derek Twigg: On railways, in terms of capacity, there is always a balance to be struck. There is always this issue around fast trains and slower trains and local services. What we need to do, in terms of how we plan and think ahead on the railways, is to think about how we can get the best capacity for the most number of passengers. There is always a conflict in this. When we are talking about the amount of money we are putting into the railways and that size of investment then clearly we need to make sure that is well targeted and able to meet the capacity demands.
Chairman: I am sorry; I have to adjourn the Committee.
The Committee suspended from 4.01pm to 4.09pm for a division in the House
Q276 Mr Clelland: The Secretary of State made a recent visit to Tyneside to talk about the use of the Transport Innovation Fund and ways of relieving congestion and we are always keen to co-operate and do something about that, but it does not help when the Highways Agency are not being particularly co-operative and when we are also facing cutbacks in rail services from Carlisle to Newcastle and elsewhere in the region. If the Department is serious about encouraging people to get out of their cars and get onto the trains then that is not going to help, is it?
Derek Twigg: As I tried to make clear earlier, we have obviously a fast growing railway, there is a great deal of investment going into it and a rising number of passengers. It is about a balance in terms of capacity, freight, passengers and fast services against slower services. It is about working with the biggest amounts of resource to get the biggest impact where the greatest demand is. There are always tensions there in terms of the decisions you make and it is very important to be aware of that in terms of planning and the decisions that can be taken. Clearly there are always many demands on the rail system and there are demands in your region which you have been pursuing. We have to strike a balance between the availability of resources and where we direct that to and the demand.
Q277 Mr Clelland: The Secretary of State is asking the local councillors and the local transport authorities to be innovative and find new ways of relieving congestion. Should the Department not be a bit more innovative and look at ways of keeping these rail lines rather than cutting them?
Derek Twigg: We do consult on these things. We work with the PTAs and local councils and clearly if they have ideas for investment in the railways and a business case can be delivered then we will look at it.
Q278 Chairman: The Transport Ten Year Plan said that you intended to increase rail use from 2000 levels by 50 per cent by 2010. Mr Clelland is saying to you, if that is the case, because you certainly have given the investment, what about the capacity?
Derek Twigg: There are going to be a number of challenges for us on capacity.
Q279 Chairman: So you have not dropped the target, you still intend to hit that 50 per cent level by 2010, do you?
Derek Twigg: We still intend to grow the capacity of the railways.
Q280 Mr Clelland: But not in the North East.
Derek Twigg: That is not the case. Whichever region it may be there will be issues in terms of the capacity, where we put resources and there may be some decisions which some people will not like. We have not got an infinite amount of resources. We have got to make the best use of those resources. By improving efficiencies, by making sure that is well-targeted and by working together maybe with local councils and the Passenger Transport Executives we may be able to find other ways of bringing in money as well.
Q281 Mr Clelland: Are you aware if the Department has had any discussions about this problem in the North East in terms of cutbacks in local rail services?
Derek Twigg: There have been discussions in the Regional Planning Assessment phase. A draft has been shared with some people in the North East and clearly discussions have taken place. We are always willing to talk to people in the regions and have discussions with them about rail issues.
Q282 Mr Clelland: So it is possible that these decisions might be reviewed, is it?
Derek Twigg: I am not quite clear which specific decision you are talking about.
Q283 Mr Clelland: There are one or two dotted around.
Derek Twigg: There are a number of issues that have been aired that could come about at some point in the future. In terms of decisions regarding the Regional Planning Assessment, those have not been taken and it will be a guide as to the way forward. Clearly there are some tough decisions you have to make at times in terms of where you direct resources and where capacity demands are the greatest.
Q284 Mr Leech: What is the Department's response to the suggestion that six out of ten rail passengers are unhappy with the level of value for money for their fares?
Derek Twigg: I have seen the figures and clearly we want more and more people to be happy with the value of fares. I think we have seen in recent years that there are a variety of fares available, with cheap rates at particular times and more and more people are making use of them. As we see the improvements in the railways in terms of the investment and in terms of the number of people using it - and people are voting with their feet by using the railways more - then I think we will see greater satisfaction. The train operating companies as well as the Government have got duties and obviously it is important for them to give greater satisfaction to passengers.
Q285 Mr Leech: What is the Department doing to increase those levels of satisfaction?
Derek Twigg: I do not want to keep repeating myself, but we put £87 million a week into the railways, we have seen the largest increase in living memory in the number of people using the railways, we have seen the biggest investment in new and refurbished rolling stock, and we are seeing performance levels now which mean we are going to hit our target - and this is for the third period running now - of 80 per cent of trains on time PPM again next March.
Q286 Mr Leech: Do you think that this extra investment makes a difference in terms of people's perception of how much they are paying for a ticket? Surely if more money is being put into the railways by the Department passengers might think that the prices should be going down rather than up.
Derek Twigg: You have to look back at where we were five, six or ten years ago and the state of the railways and the problems that existed and where we are today with the sort of improvements I have been talking about this afternoon. I believe that we will see further improvements. I believe customer satisfaction levels will go up. It is imperative for all of us to make sure those services continue to improve. People are voting with their feet and using the railway. It is clearly a much more attractive form of travel than it has been in the past. The train operating companies are bringing about many innovative marketing opportunities in terms of giving people more choice, new ticketing arrangements and I think that will bring about the increase in satisfaction levels we all want to see.
Q287 Mr Leech: If satisfaction levels do not go up, will you accept then that fares are too high and something needs to be done about the fares?
Derek Twigg: The only way of doing something about the fares is to put more Government subsidy in. The fares themselves clearly have a certain degree of attractiveness because more people are buying the tickets and using the railways. There is a balance to be struck in terms of the amount of taxpayers' money as against what the fare payer is prepared to pay. It is clear from the evidence of a significant increase in the use of the railways that the prices are not deterring a great many people anyway.
Q288 Chairman: Minister, forgive me. I travel on the railway because the alternative for me is either to drive on the M6 or to use an air service which is disastrously overcrowded and where British Airways tend to treat you as though you are cattle. If I continue to use Virgin I hope you will not take that as a clear demonstration of the fact that I am impressed with the quality of Virgin's services.
Derek Twigg: I am not here to defend individual train companies. As someone else who uses that particular service on a regular basis, I think there has been a great improvement in the service in the last 12 months or so.
Q289 Chairman: It did have a fairly low standing start.
Derek Twigg: We have put significant investment in on the West Coast Main Line and work continues with that and clearly there has been a significant increase in the number of passengers. I agree that it is not perfect and things still go wrong.
Q290 Chairman: You seem to be telling us that lots more people are using it. If there is a problem in the North East with things being shut down or if there are problems with the tickets, it does not really matter because we can take it. Since more people are crowding on they must be satisfied.
Derek Twigg: It may be that some people do not want to drive and I am one of those who prefer to take the train or the plane from Manchester Airport for whatever reason, but there are also a lot of people who see a much more attractive rail service and are prepared to use it.
Q291 Graham Stringer: It is not just the congestion on the roads, there has been a growth in the economy over the last ten years of a third and there are 20 per cent more train miles. Do you not think those are more significant drivers of the 40 per cent increase in passengers rather than the pricing structure?
Derek Twigg: I would not disagree. Clearly the successful economy that this Government has brought about has had an impact on the use of the railways. I was going into Liverpool from my home constituency just a few weeks ago and the train was packed and I had to stand up. It would normally take me half an hour or 40 minutes to drive into Liverpool but it took me 20 minutes on the train for a fare of around £4.50. There are more and more people making decisions to use the railways because it is a more attractive service and more reliable than it was, but I accept that the economy has a strong influence on that as well.
Q292 Graham Stringer: This is an inquiry into the price of rail tickets. We have heard from Virgin that prices on the West Coast Main Line for the open tickets have gone up by 60 per cent. My back of an envelope calculation made it slightly higher than that. On average across the UK prices have gone up by six per cent. What studies have you done in the Department which would help you understand how many extra passengers there would have been had you kept fares at the same level in real terms?
Derek Twigg: I have not seen a study on that in the Department. I know the SRA had a look at this. I do not accept that fare rises, which is the principle behind what you are hinting at, have gone up to such an extent that it is putting people off the railways or that people have no choice and therefore they have to use it. There are many, many examples of different fares which are very attractive. The open fare is one of the fares that are used by people travelling on the West Coast Main Line.
Q293 Graham Stringer: I am not trying to argue against the facts. There are clearly more people using the railways. When you come to determining the balance between the fare paying passenger and investment in the system and the taxpayer and the environment, have you looked at what impact not having those fare increases would have had on the number of people using the network?
Derek Twigg: I have not looked at those, no.
Q294 Graham Stringer: Why not?
Derek Twigg: Because I have not done so.
Q295 Graham Stringer: If the Department has not then how can you make the right balance between attracting people onto the trains, which is the objective, to get up to 50 per cent, and all the other factors that go into this?
Derek Twigg: There was an SRA report done in 2003 when it was RPI-1 and it moved to RPI+1 in terms of fares and there was consultation and some people thought it was a good idea and some did not. We have just set up a new structure in the railways which is the new Department for Transport Rail Group and it is there to set the policy and make decisions in terms of the resources available. Network Rail is there to look at the management of the system and the infrastructure and performance. The train operating companies, who are the customer facing part of the industry, are there to provide the services to them. Clearly we have a system which is not perfect. We do regulate a number of fares, particularly in the commuter areas in London because of the situation there. The evidence seems to be proving it is an attractive system and an attractive range of fares are available to passengers.
Q296 Graham Stringer: After this inquiry, Minister, will you do research on what the impacts of keeping fares at the same level in real terms will be?
Derek Twigg: I will certainly take the idea away and write back to the Chairman on that point.
Q297 Mr Scott: Minister, is there any evidence that fares are lower on routes covered by more than one train operator as compared to routes where one operator has a monopoly?
Derek Twigg: Where there is a lead operator they can set a fare. Where there is another operator using that line they can set a lower fare for their particular service. Do I have information that backs that up? No, I do not.
Q298 Mr Scott: Does the Government plan to strengthen competition on individual routes?
Derek Twigg: Clearly we have an expanding rail network. The number of passengers is up, there has been greater investment and more people are using it. We have decided that the railway services that provide the railway routes should be privatised in terms of the train operating companies. We believe that brings great benefits to the rail system and as that proves more successful more people will be interested in competing for the franchises that will be put out in the next few months and years.
Chairman: That does not quite answer Mr Scott's question, does it?
Mr Scott: I wanted to know if there was going to be more competition on the railways.
Q299 Chairman: Let us accept for the moment your argument that competition will provide lower fares. You are telling us you do not know of any instance where competition between train companies does produce lower fares; you have not done that work.
Derek Twigg: There is competition for the franchises, there is bidding for that.
Q300 Chairman: Of course there is. There is competition to buy a monopoly and I think that is quite understandable. What Mr Scott was asking you was something slightly different. Is it your intention to look at ways of introducing a degree of competition in those areas where there is one dominant train company?
Derek Twigg: We have no plans to move away from the current franchising system. Clearly there are issues in terms of the number of trains you can run on a particular route. There are applications in on the east coast and the ORR has got to make a decision on that.
Q301 Chairman: But you have not done so. Do you think it is a good idea to have 70 different fare types and 760 validity conditions?
Derek Twigg: I think it is a good idea to give people different options on fares.
Q302 Chairman: You think 102 pages of explanation makes it simpler for people.
Derek Twigg: In what respect?
Q303 Chairman: In that if I want to find a particular fare I am now faced in some areas with pages and pages of not only different fare types all governed by different conditions but I also have over 100 pages of explanation.
Derek Twigg: Clearly we would like to see a system which was easier for people to get round in terms of finding fare types. I rang National Rail Enquiries before I came to this Committee to ask them what would be the cheapest fare I could get off-peak from Runcorn to London and I found it was very easy. I waited about a minute. I got the information within a matter of 30 to 50 seconds. I then asked for further information about the alternative fares. I had all the information I wanted within a matter of minutes.
Q304 Chairman: You did not move on to try and buy a ticket that same way.
Derek Twigg: You made a point about information. We have a system here which I accept there is a complexity about, but there is an attractiveness about it in terms of people being able to get a range of fares at very low levels which I think is playing a significant part in attracting more people to use the railways, particularly during the off-peak times as well.
Q305 Chairman: Why is it simpler in some instances and cheaper to buy two separate tickets to do one journey?
Derek Twigg: It is not a perfect system. Clearly if the passenger finds that, they can take advantage of it.
Q306 Chairman: Is the Department going to introduce an integrated system of smart ticketing?
Derek Twigg: For the whole country?
Q307 Chairman: Yes.
Derek Twigg: It is obviously doing work in London at the moment on smart cards. Clearly there are cost implications and a business case that need to be considered.
Q308 Chairman: And you are in the process of producing that, are you?
Derek Twigg: Currently I am in discussions on London.
Q309 Chairman: And you are considering, for example, interoperability between smart card systems for National Rail.
Derek Twigg: It is something that clearly will need a lot of work doing on it. The interoperability of it is very important in terms of taking any scheme forward.
Q310 Clive Efford: I want to ask about simplifying the Ticketing and Settlement Agreement. The train operating companies want more freedom to set fares at a competitive level. What do you think the impacts on the travelling public will be if they had that freedom?
Derek Twigg: Again, it is in the interests of the train operators to attract more people onto their trains. They are a business and clearly they want to increase their profits as well and increase the money they take and their yield. There may be opportunities in terms of the Saver, which we have not made a decision on in terms of deregulating, for train companies to be much more innovative and offer better deals for the travelling passenger. Clearly there is a balance to be struck around how much we regulate and how much we give freedom to train operators to charge particular prices for particular tickets.
Q311 Clive Efford: So the Department is sympathetic to providing freedom for train operating companies.
Derek Twigg: We are looking at the Saver fares. Clearly we want to examine whether there could be more benefits for the passenger and clearly there will be opportunities for the train operating companies to provide better deals for the passenger. It is in their interests to sell more tickets and to attract more people onto the railways.
Q312 Clive Efford: Would it simplify the system? We have heard that there are 70 different fare levels.
Derek Twigg: Train operating companies have gone in in a much bigger way for advance purchase tickets. I understand the point you are making in terms of the complexity. There are many benefits to the passenger in terms of the deals that are available to them.
Q313 Clive Efford: Under the current system of regulation, an evaluation of market conditions in a particular region determines whether commuter fares are regulated. What is so different in Leeds and Manchester, which are regulated markets, as compared with Birmingham, which is a non-regulated commuter market?
Derek Twigg: With regard to London, you have to make judicious decisions based on whether there is more of a monopoly situation in terms of there not being other forms of transport that passengers can use and that helps you determine that decision. In terms of the regulations, I think it is 45 per cent or 46 per cent of the fares are regulated in that way.
Q314 Clive Efford: Have you done any analysis of whether there is a significant difference between regulated fares and non-regulated fares?
Derek Twigg: In what respect?
Q315 Clive Efford: In respect of the areas where regulation applies. London is heavily regulated.
Derek Twigg: It is regulated because of the monopoly situation. There is quite a high ridership on trains in London whereas it is much lower out in many regions.
Q316 Clive Efford: Are there significant differences in the fares as a result of regulation? What is the impact of that?
Derek Twigg: I am not clear of your question.
Q317 Clive Efford: Are commuter fares significantly different in areas that are regulated compared with those that are not regulated?
Derek Twigg: I cannot give you the answer to that.
Mr Smith: The reason Birmingham is not regulated is that the fares are set directly by the Passenger Transport Executive and it is a public body. It is not that Birmingham is unregulated; it is that they do not need to be regulated.
Q318 Clive Efford: In those areas where fares are not regulated, are they significantly different from those areas that are regulated?
Mr Smith: Most of the key urban areas are regulated or, as in the case of Birmingham and Strathclyde, are set directly by the PTE. Once you start getting outside those areas they start becoming less of a commuter area.
Q319 Clive Efford: Minister, why do franchise agreements not stipulate basic requirements with regard to names of ticket types and restrictions on different types of tickets?
Derek Twigg: Why do they not do it?
Q320 Clive Efford: Why do we not require the franchise agreements to stipulate these differences?
Derek Twigg: We have a degree of regulation. We have fares baskets in terms of how we regulate fares and in terms of the commuter areas and protected fares. I do not see the need to change that system.
Q321 Clive Efford: I want to ask about the introduction of smart cards, particularly in relation to London. There is an issue about the Oyster card in London. If the technology is not introduced large parts of London will not be able to benefit from the introduction of the discounts on the prepaid Oyster cards. Can I ask what the Department is doing to try and alleviate that problem because many Londoners will not benefit from the discount offered by the Oyster card if this is not sorted out?
Mr Smith: We are going to zonalise the fares for journeys within the Travelcard zones. We are aiming to zonalise the singles and returns and Cheap Day returns for National Rail travel, if possible, by the beginning of 2007. That is the first step. The second step is to look at extending the smart card operation on to National Rail. There is quite a lot of investment required for that because there are quite a lot of equipment validators, possibly gate line and retailing equipment that the train companies need to find a way of funding. We are also adamant that we want to implement the ITSO smart card in London. That is an open standard that all manufacturers can make equipment that is compatible. At the moment the Oyster system in London is a bespoke system from one manufacturer. We want to make sure that we do it in a way that is open to all manufacturers.
Q322 Clive Efford: Is there a timescale for when those problems will be resolved because in the meantime large numbers of commuters will not be able to benefit from the discounts?
Mr Smith: There are still some things we need to sort out. We are hoping to introduce zonal single returns on National Rail in London by the beginning of 2007.
Derek Twigg: That depends on whether we can sort out the issues.
Q323 Chairman: Mr Smith, have you got all your people transferred?
Mr Smith: Yes, they are all transferred over to the Department for Transport.
Q324 Chairman: And the Rail Group is fully staffed, is it?
Mr Smith: Yes.
Derek Twigg: He has transferred his whole team over.
Mr Smith: It was seamless.
Q325 Chairman: I am glad to hear you use the word seamless because some of the evidence that we received from the Office of the Rail Regulator seems to imply that the relationship between the Office of the Rail Regulator, the OFT and the Department is rather complex. Have you created that somewhat intricate arrangement, Minister?
Derek Twigg: You will be aware from the Railways Act of the setting up of the new DfT Group. I think the DfT Group has a very important role to play in terms of the strategy and direction of the railways and, of course, Network Rail in terms of the management of the infrastructure and the performance and the train operating companies who are obviously customer facing and providing the service, and obviously the ORR is very important in terms of regulation.
Q326 Chairman: Where does the exact responsibility lie between the Department and the Office of the Rail Regulator for through-ticketing?
Mr Smith: It is actually simpler than it was, speaking from the coal face as it were.
Q327 Chairman: We are glad to hear that it may have been very complicated and is now only complicated. Perhaps you could expand a little.
Mr Smith: The Regulator applies the passenger licences and the passenger licences require, for example, train operators to be a party to and comply with arrangements for through-tickets, telephone enquiries and conditions of carriage as approved by the Secretary of State. The Department's franchise agreements with operators also require passengers to be a party to and comply with the Ticketing and Settlement Agreement, which is the industry agreement which delivers through-tickets. Although the Regulator has an involvement with issuing the passenger licences, when it comes to approving the arrangements for through-ticketing and approving any changes that operators want to make to the through-ticketing arrangement, then it is very clearly the Department for Transport.
Q328 Chairman: So you are quite confident the new structure is going to work, are you?
Mr Smith: Yes.
Q329 Chairman: And you think it is going to be an improvement on the old system.
Derek Twigg: We believe it will be, yes.
Q330 Chairman: Do you think the Office of Rail Regulation has been tough enough on Network Rail in relation to complying with their T-12 obligation and their responsibility to fulfil certain conditions?
Derek Twigg: There has been a great deal of improvement made on that and on most routes that is now working.
Q331 Chairman: Do you think that is quite tough enough?
Derek Twigg: They have got the relationship with Network Rail. They can move it along. I am not quite sure what tough action you are referring to. I think they have achieved what we wanted them to in terms of the improvements in it and it is now working very well in most cases.
Q332 Chairman: We have been told very firmly this afternoon that the problem with season tickets is the Government has this direct involvement. They are quite clear that it is the restriction that comes from the Government that controls what happens with the season tickets and indeed if there is any increase in the amounts paid they go directly to the Government. Is that your view? They are quite convinced that it is your regulation which is keeping the price of season tickets materially above any apparent comparable system.
Derek Twigg: I have not seen their evidence to back that up.
Q333 Chairman: You are not aware of anything like that?
Derek Twigg: I am not personally aware that that is the case.
Q334 Chairman: Finally, you really do feel, if the companies are allowed to go ahead and get more freedom on the way that they control things like Saver tickets, they will not just disappear and we will not find, like so many things in the past, that somehow or other the customer is not able to obtain the Saver tickets?
Derek Twigg: There has been a degree of attractiveness about ticketing in terms of encouraging people to use the trains and the variety of low fares that are currently there. There has been quite a move to advance purchase tickets as well. I believe it is in the interests of the train operating companies to ensure that these tickets remain attractive and it is in their interests to attract more people onto the railways.
Q335 Chairman: It does seem to the Committee that what you are saying is that it is their responsibility and they are saying it is your responsibility. Are you quite clear, because of the absorption now of the Strategic Rail Authority into the Department, that the objectives of using the railway system not just to have an environmental impact but to have an economic and a political impact are quite clear and that the Government intends to hit the targets originally set in its transport plan?
Derek Twigg: We are investing a significant amount.
Q336 Chairman: Minister, no-one who has watched the amounts of money committed by previous governments is arguing that you are not putting a lot of money into the system. What we want to know is that the passenger can expect value for money, that they can expect some control over an absolutely chaotic ticketing system ---
Derek Twigg: I do not accept that it is a chaotic ticketing system. I accept there are complexities. I believe there are many opportunities for good deals for passengers who find out the information that is available.
Q337 Chairman: Would it surprise you to know that even the train operating companies dimly perceive that their system is rather complex?
Derek Twigg: I have not denied there are complexities to it. On the other hand, it is not such a terrible system that it is in some way driving passengers away and people are not attracted to using the trains.
Q338 Clive Efford: I want to come back to this issue of through-ticketing. We have been presented with one example, Penzance to Birmingham, where Virgin charge £97.80, but if you ring two separate rail franchises along that route you can save nearly £25 on the ticket price, although you will not be told that when you ring up for rail information. Clearly there is some chaos in there in that people are not getting the information. The ticketing system is very complex and unless you interrogate it you will not get that information and therefore you will not be getting full value for money.
Derek Twigg: I am not pretending that the system is perfect. There are areas where it could be improved. Again I would take my experience before I came to this Committee of getting information for a particular route. There are many examples where people can get information very quickly and very easily. That is not to say we cannot improve things.
Chairman: I think you share quite a lot in viewpoint with the railway system of train operating companies, Minister.
Q339 Mr Goodwill: Whilst I accept what you say about the money that you are putting into the railways, in one of the companies that have given evidence today, GNER, you are taking out £1.3 billion over the next ten years. Would you not agree that by being complicit into awarding these monopolies you are contributing to higher fares on some of these more competitive routes?
Derek Twigg: The investment put in is £87 million a week. Clearly if we can reduce the subsidy and still put more money into the railways that will be a good thing. There is a balance to be struck in terms of investment in the service we want and the fare prices that are charged by the train operating companies.
Q340 Chairman: We are quite clear what your position is now. Thank you very much indeed for coming to see us, Minister. Doubtless we shall see you again.
Derek Twigg: Thank you.