Rail fares and franchises - Transport Committee Contents


Examination of Witnesses (Questions 140-159)

MR COLIN FOXALL, MR MIKE HEWITSON, MS SHARON GRANT, MR TIM BELLENGER AND MR RICHARD ROWSON

4 FEBRUARY 2009

  Q140  Mr Hollobone: What effectively can you, as consumer organisations, do to train companies in reflecting the concerns of the rail passenger because certainly a lot of my constituents are feeling that there is nothing that they can do, that there is no alternative train provider and they either come to London on the train or they drive basically, there is no competition, the fares have gone up and the service for many has actually got worse? What can you do with regard to getting this across to the rail companies and forcing a change?

  Mr Foxall: What we can do is we, firstly, produce the research, so that actually produces the hard evidence. If you are going to get people to listen to you, in my experience in this business, you need to be useful, so you produce evidence which actually illustrates to them what they have to do and then you seek to negotiate with them to get those improvements. Now, good companies do actually respond. One has to say that on the performance side, and there are exceptions, there are issues like the crowding and capacity issues that you have described, but on the performance side, companies are very keen now to work with Passenger Focus to improve their scores on the National Passenger Survey. I do not think that is an examination or a test for a better score, but actually they want to drive those scores up, so publishing how satisfied or dissatisfied passengers are with various aspects of the service in an objective and strong way is a great incentive to them to get it right. Judging by the telephone calls we get as soon as they see the figures, which urge upon us sometimes to take into account what a bad day they had in the middle of the survey and things of that sort, it is very clear to us that they think they are important things that they want to score well on for their passengers, for themselves and, frankly, in some cases, for their own bonuses and performance pay.

  Mr Hewitson: There is another area as well. It is trigger points, such as a new franchise, about trying to influence the Department for Transport's invitation to tenders to try and get the franchising process to take more account of the issues we are raising, such as lowering the sort of range by which fares can increase, offering new products, Carnets, for instance, the sort of new regular commuter-type products that many passengers would value, but which are not catered for now. We have tried to work with the Department on the new South Central, the new Southern franchise, to try and get the passenger's voice into the franchising process, and to some success in some areas, but we need to see how that pans out in terms of the consultations, but I think that longer-term we can target those points as well.

  Mr Bellenger: Can I illustrate what my colleagues have actually been talking about in terms of an actual example of an alternative franchise model and that is the model that was adopted by Transport for London for the London Overground network. We have consistently argued that the standards that London Overground have put in on their services are passenger-friendly, and the results from the National Passenger Survey in the last quarter show that London Overground is one of the most improved operators there. Crucially, in the area of value for money, they are actually now among the top train operating companies for value for money scores. In fact, they increased their overall percentage increase in value for money which went up by something like 15%. Now, that was on a very, very low base, but it has actually put them now top of the London commuter train operating companies and it is up there now amongst the likes of Mersey Rail and Northern. Now, London Overground is a different type of franchise in that it is operated under the auspices of the Mayor. In this case, the Mayor actually has control over the fares, so the Mayor could actually choose to either reduce fares or to increase them, depending on the economic circumstances. The Mayor is not bound by a formula of RPI+1 and he does have an ability to vary that according to the circumstances, and the train operator, because the franchise is actually very, very tightly specified, can purely concentrate on delivering the service and they do not have to worry about what the effect of that is on the fare levels.

  Q141  Sammy Wilson: Can I just take you back to the point you were making about RPI and the fact that it was determined on the July figure and, therefore, by the time we get to January, for example, this year, it is well out of date. Providing there is consistent application though from one year to the next, is it not a case of swings and roundabouts and is there not a danger in moving the month in which the figure might be based and, therefore, is your criticism of having the set month every year not really a valid criticism?

  Mr Foxall: Well, not really. It is not a question of the month, I think. My criticism is that we have entered a new era. This whole thing has been constructed during a period of exceptional growth, great stability and increased ridership on the trains. We now, by common consent, are entering a very difficult period and the policies that were adopted during the previous period clearly, in my view, need to be re-examined if we are going to go through a different sort of period, so I am not really arguing that you should choose one month over another, that is not what I am saying.

  Q142  Sammy Wilson: The impression I got was that you were saying, "Look, because inflation is now falling, we should really be looking at choosing a different month rather than July".

  Mr Foxall: No.

  Q143  Sammy Wilson: So what would your alternative be then? If it is going to be RPI plus something, are you saying that that formula should no longer be used? Do you not accept that, if we go for a formula where you move the base month around, equally the train companies could argue that they want it moved to a month which is advantageous to them?

  Mr Foxall: I am not arguing that. Sorry, if that is the impression I gave you, it is not the impression I intended to give you. We are making no proposal to move the month during which RPI is scored, that is not what we are saying. What we are saying is that, since we are entering a different period, the presumption that you can have the sort of increases that you had in the past and the kind of construction that you had in the past needs re-examination. In particular, I am looking at this business of having a basket and being able to charge fares within an average which actually can vary quite widely. I think that is a very particular point and, as I say, has a particular bad impact on people, so I am not suggesting that you choose a particular month. Incidentally, it is very difficult to do anything about this; this is a construct of the system. We have several franchises all with somewhat different arrangements in relation to fares, they will run over quite a long period of time, they are going to be renewing at different times, they are contracts with the Government and, to change this, you would have to re-negotiate, so what I am really saying to the Government is, "Look at this. Look at what impact it is having on passengers and look at the signals you are giving about the price of travelling on the railways".

  Q144  Sammy Wilson: Will you also accept, since price is really a signal to consumers and will have an impact on demand, that simply the managed demand on popular lines, et cetera, to use pricing as a rationing device, if you wish, it is essential, and it is perfectly acceptable, that where companies identify, "There's a popular line. We don't have the capacity. We've got to ration the places on those trains", you go for higher price increases there? It may be tough on the passengers on those lines, but, if prices act as a single new mechanism, is that not an appropriate way of using them?

  Mr Foxall: Clearly, what you need to do is tackle capacity, so we had best put that on one side for a moment. I think what you need is a transparent process. If these price increases were being used in a sane way, a transparent way so far as the customers are concerned, to shift patterns of commuting or to shift patterns of travelling, that might be worth an argument. I am not saying that we, as passenger representatives, would think that would be a great thing to do, but I am saying that it might be worth inspection. What is happening at the moment and what it feels like from the passengers' side is that randomly I get a very large increase of the kind that we have just had described and it affects me, it affects my ability to travel to work and it is a significant sum of money, particularly if you are commuting in the South East and as large or getting to be as large as your mortgage. It is the second-largest thing you probably pay out as an annual bill and, if it, therefore, has to randomly increase in price, that is very unsatisfactory. If we want to use it as a different sort of mechanism, then let it be a transparent one, let us agree on it and let us understand what is going to happen so that passengers have a chance in making choices and judgments.

  Q145  Sammy Wilson: So how would you see that transparency being achieved?

  Mr Foxall: Well, fortunately, I do not run the railways and it is not may job to make government policy. What I am doing here is drawing attention to the problems the existing system has thrown up and how more acute they are at the present time as we go into a period of recession. That is my job.

  Q146  Sammy Wilson: Yes, but you are also representing passengers and, if you are saying, "Look, the problem is that we don't have transparency", I think that there probably is some onus on you to say, from the passenger point of view, "This is what we believe should be done to ensure that that transparency is achieved".

  Mr Foxall: We will have some proposals in the report that I referred to earlier on which we will publish shortly, and the Committee will have an opportunity to see those proposals, but I am not in a position this afternoon to run through them in detail

  Q147  Mr Martlew: Nobody, for example, is in favour of putting prices up, I think, so you have got an easy job to that extent. You all accept that the subsidy has gone up from, I think, just over £1 billion ten years ago to about £5 something billion now, so there is a massive amount of public money going into the railways. My constituency, unlike the South East, has a public transport system that is based on the buses and probably a lot of my constituents in a year will not travel on a train whatsoever, although £5 billion of public money is going in. We are talking about spending, is it, £11 billion on Crossrail, goodness knows how much on Thameslink and we are hopeful for a new high-speed line and we are talking about putting that to Heathrow. If the money does not come from the fares, where does it come from? Does it come from my constituents who do not use the trains at all, or do we actually not raise so much money and hold back on these major infrastructure developments that we need?

  Mr Foxall: That is an exceptionally fair point and it is the reason why, in previous years, we have not argued strongly about the regime that has existed in terms of deciding what went into the fare box and what came from passengers because that is a decision that gets taken here in Parliament effectively. What I am saying is that we now have a crunch point, that is all, we have a change of circumstance.

  Q148  Mr Martlew: You can over-exaggerate that though. If presume that there was not, what is the answer to my question? Presume that there has not been a change of circumstance, what is the answer to my question? Do we take more out on the taxpayer and keep fares low, or do we actually stop development on the railways?

  Mr Foxall: I think it is an extremely difficult question for me to tackle.

  Q149  Mr Martlew: You can try to answer it.

  Mr Foxall: I will try to answer it, but, in a sense, simply representing passengers, the passengers' position is this: that they are prepared to pay for what they regard as a value-for-money service and they tell me, in their surveys, that they are not getting value for money. I am telling the Government, and I am repeating to this Committee, what they tell me. It may well be that you have a very valid point by saying that we should not subsidise the railways, but that is a decision that—

  Q150  Mr Martlew: What I am saying is that there is a massive subsidy going in and what appears to be being said by yourself is that there actually should be more.

  Mr Foxall: No, can I correct you. I am presenting an argument which comes from passengers. I think the Government has to decide what it wants to spend on the railways.

  Q151  Chairman: Does anyone else have a view on who should pay?

  Ms Grant: I think Colin is quite right, that that is a political decision that has to rest with the Government of the day.

  Mr Martlew: That is a cop-out.

  Q152  Chairman: Do any of you want to say what your decision might be?

  Ms Grant: I just want to concur with Colin's point, that in the short term we are stuck with this system that we have of franchising and it is a system which is currently under pressure and we are beginning to see signs of pain in the system in London, and in our area we are beginning to see ticket office closures, really quite drastic cuts in the opening hours of ticket offices by First Capital Connect and South West Trains recently and we are starting to see shorter trains which is going to mean more overcrowding, so it is a question of who really bears the brunt of this pain in the system. Is that going to be borne by the passenger in terms of higher fares and reduced services, is it going to be borne by the taxpayer through increased subsidies or changes in franchises, or the third area, which I notice members of the Committee were pressing earlier on, is whether or not the companies should bear some of the pain in terms of some reduction in their profits in this period of extreme strain? I think there are issues about the transparency with which the travelling public and indeed the taxpayer are able to find out about the level of those profits and what shareholders are taking out of the system. I think, from the passengers' point of view, this is all very opaque and people do not understand, and I think there must be a suspicion that passengers are being asked to pay to maintain the profitability for shareholders and for the train operating companies.

  Q153  Mr Leech: I would just like to come back to a point you made before about more flexibility with fares and having a basket of fares being a fairer way than the RPI+1. Would that not lead to a lot more confusion if there were a whole host of different fares and not necessarily better transparency on fares for passengers?

  Mr Foxall: When I was referring to a `fare basket', what I was talking about was the way in which the train operating companies are allowed to calculate the increases that they apply, and that is how the average applies, it applies to a basket of fares, so I was not proposing that we should have a new fare system. We have some views in that direction which we will be producing in the report, but I did not propose that we have a range of different fares in my answer, I was merely describing the existing system where the average increase is spread across many different individual tickets and prices are allowed to vary so long as an average is maintained.

  Q154  Mr Leech: What would you think about the RPI figure being based over a 12-month period rather than just an individual month?

  Mr Foxall: In the long run, I am not sure it makes a huge amount of difference. You get aberrations from time to time, but I am not sure that this particular one was an aberration. We have a disconnect, we have a change, that is all I am saying, between where we were in terms of inflation and where we are going in terms of inflation, and that makes a difference to all of the presumptions that are built into these franchise systems.

  Q155  Mr Leech: So you do not think it would make much difference at all?

  Mr Foxall: I do not think it would make a huge amount of difference, no.

  Q156  Mr Leech: In terms of keeping fares low, would we not be better just extending the number of open access operators and increasing competition?

  Mr Hewitson: I think competition can make a real difference to fares. It is quite hard to find genuine examples, but certainly when Grand Central set its fares, we saw moves by National Express East Coast, and where you have genuine competition; where passengers have a genuine choice, you still see increases but the rate of the increases is probably different. The issue sometimes with open access is how you dovetail it into a system so that the passenger has as seamless a journey as possible so that they do not have to have a red ticket for a red train and a blue one for a blue train. That sort of inter-availability and an ability to just jump on the next train is important. It is important that that flexibility does not come at a huge premium. That is where open access needs to be dovetailed into a system of co-ordination as much as competition, and balancing those is very difficult.

  Q157  Mr Leech: Is there any evidence, though, in the recent price increases that there have been lower increases on specific journeys where there is direct competition?

  Mr Hewitson: I would have to have a look, I am sorry I do not know that.

  Q158  Mr Leech: Does anybody else have any comment on that?

  Mr Bellenger: We would have to come back to you on that.

  Chairman: I think it might be helpful if you could look at that. I think it is an important question. Sir Peter?

  Q159  Sir Peter Soulsby: Could I ask you the same question I have asked the operating companies which is about the argument that seems to be accepted, at least to some extent, in the Department for Transport about moving towards different ways of pricing tickets, particularly the so-called airline ticket pricing. Do you think that there is some scope for a significant increase in that or is it always going to be just soaking up some of the additional capacity on a rather limited basis?

  Mr Rowson: Perhaps if I start off on that one. For those of you who are not aware, the primary focus of our business is retailing tickets over the internet. About 80% to 90% of the tickets we are selling now follow the airline model in terms of single leg pricing, advance purchase, valid on the specific train that the customer has nominated. Our market perhaps makes up around 16% to 17% of the non-season ticket market. It is clear that that particular sector is now dominated by the airline-style model.



 
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