Examination of Witness (Question Numbers
1-74)
David Higgins
1 March 2011
Q1 Chair: Good
morning, Mr Higgins. Welcome to the Transport Select Committee
and congratulations on your new and challenging position. I understand,
Mr Higgins, you want to make an opening statement to us, so would
you like to do that?
David Higgins:
Thank you for the opportunity to make an opening statement before
I take your questions. As I assume the role of chief executive
of Network Rail I would like to recognise that I am the custodian
of a large amount of public trust. The rail industry matters hugely
for the country, it matters hugely to millions of people that
use it every day, it matters to the economy and it matters to
our sense of national pride and purpose. So I would like to start
by paying tribute to my predecessors John Armitt and Iain Coucher,
who have led Network Rail over the last nine years.
Since 2002, significantly more people now use the
railways. At the same time, safety, punctuality and cost efficiency
have all improved. That is a record of which the whole rail industry
can be rightfully proud, but I believe we are at a crucial moment
for the rail industry and for Network Rail in particular. Key
challenges in many ways are the same, but the environment in which
we operate is now very different.
First, with regard to safety, railways have had a
good safety record in recent years. That has not always been the
case. We are still working through and learning the lessons from
the tragedies that happened several years ago. The pain of relatives
and friends affected is a reminder that, no matter what cost pressures
we have on us in the future, safety must and will remain our number
one priority.
Secondly, we must keep a relentless focus on punctuality
and reliability. There has been a step change in performance in
the railways in recent years, but there is more work to do. However,
we have to recognise that we have reached the stage on some of
our routes where the ability to squeeze extra capacity is becoming
limited. Longterm investment is needed both to create reserve
capacity and to cope with future growth. Crossrail, Thameslink,
High Speed 2, the Northern Hub, electrification and the overhaul
of our signalling system are all essential to meet public and
industry expectations.
This leads me to the third challenge—cost control.
In short, we need to do more for less. Network Rail receives a
large amount of public subsidy. I believe this is absolutely right.
We need to invest more in our rail infrastructure to create the
modern railway that our country needs, but that comes with a responsibility
to drive a culture of cost efficiency, to look at squeezing every
penny out of everything we spend. This is taxpayer money and taxpayer
value. We are stewards of public funds and we should never forget
that.
Finally, to achieve all this and to benefit from
the continued support of the public end of our industry, Network
Rail must change. We must listen more; we must empower better.
We need to be less defensive and more agile. Above all, we need
to embrace openness. My vision for Network Rail is an organisation
that blends the best of the public sector and the private sector.
We need to have a "can do" dynamic entrepreneurial culture,
but we also need to have an organisation that is firmly rooted
in public sector values of accountability and transparency.
We have a brilliant workforce who work tirelessly
for our industry. They work round the clock and they work every
day of the year. They do a magnificent job for our industry and
our country. I look forward to leading them and look forward to
the exciting challenges ahead for our organisation. Thank you.
Q2 Chair: Mr
Higgins, you have spoken about making Network Rail open, transparent,
accountable and responsive. What do you think are the first steps
you could take to show that you are serious about wanting to achieve
that?
David Higgins:
The first thing I am looking at is engaging particularly with
our suppliers and with our customers. Our customers are the train
and freight operating companies, as well as the customers that
use our stations, particularly our 18 major managed stations.
Then there is our supplier group. We need to listen more to both
these groups of organisations, because we can learn a lot from
them, and that is essential to creating a more efficient organisation.
We have started that process. We have a series of conferences
and workshops with our suppliers, starting within the next month.
Q3 Chair: I
am surprised, Mr Higgins, that you haven't mentioned the current
investigation taking place into allegations of bullying and other
possible misdemeanours within Network Rail. Isn't that something
that is very much at the front of your mind?
David Higgins:
There is the White inquiry, which is an independent inquiry into
the allegations that surfaced a while back in a number of newspapers.
Those are the allegations of financial impropriety. They were
investigated by our previous auditors and our current new auditors
Pricewaterhouse and were reviewed. But, in order to show independence,
the board and the chairman have set up an independent review,
and we expect that to report at the end of March. I have had nothing
to do with the briefing of that review and I don't know the progress
of it. I know that it is going to come out at the end of March.
All I want to know is that we get a clear decision. If there was
impropriety, we will deal with it. If there wasn't, we need to
put an end to that issue.
Q4 Chair: Will
that report be made public?
David Higgins:
As far as I know it will be, but as I say, I am not directly engaged
in it. I did not commission the QC involved in it.
Q5 Chair: What
would your view be on making the report public?
David Higgins:
Why not? I think it should be made public. Why not, because the
issues that circulated around that were quite publicly aired,
yes?
Q6 Chair: You
have spoken also, Mr Higgins, about the importance of safety.
In fact, you say that must be an overriding priority.
David Higgins:
Yes, indeed.
Chair: On 3 December 2005,
clearly well before you were in your position, two girls—Olivia
Bazlinton and Charlie Thompson—were killed at a pedestrian
rail crossing at Elsenham. It now appears that Network Rail had
carried out a risk assessment three years before the accident
which had suggested that consideration should be given to locking
the gates before trains passed. That clearly wasn't done or the
accident presumably wouldn't have happened. It appears that Network
Rail did not hand over that risk assessment to the appropriate
authorities after the fatal accident. What lessons do you draw
from that, and have you initiated any actions in relation to rail
safety bearing in mind that information?
David Higgins:
First, I would say I draw no conclusions from any of those statements
that have been made. I have committed to the family members that
I will fully investigate the chronology of events and the transfer
of information between the various inquiries. There were three
inquiries. I am actually meeting the family members this week.
My first commitment to them is not to fuel media speculation on
an issue that is their issue. I will give them all the files of
the chronology of events, and then essentially it is up to their
decision and mine, but I would propose that we make those files
public. That will set out the chronology of events of releasing
the information to those various inquiries.
Q7 Chair: Are
you concerned there could have been other examples of situations
where risk assessments were carried out but the recommendations
were not put into practice?
David Higgins:
Certainly, improvements were made after 2005, but there is no
doubt that the training of risk assessors and the quality control
of implementation of actions, across what is 7,000 level crossings,
need to improve. We need to enhance all the services and all of
our level crossings. So the simple answer to that question is,
yes, we need to do substantially more, and we will.
Q8 Gavin Shuker: I
am aware we might jump around this morning, so thank you for coming
before the Committee and answering these questions. I want to
ask you about the structure of Network Rail. You have obviously
been in post for a short period of time. What do you believe works
well about the structure of Network Rail and what do you believe
works badly?
David Higgins:
Enormous gains have been made in the last nine years by centralising
a lot of the disciplines. Asset management is a very, very important
discipline in this network. We have 9,000 km of embankments and
6,000 km of cuttings. We have 40,000 bridges in this asset base.
Having a record of that asset base and how you upgrade it, what
level of inspection you do on these various assets and where you
put money both to get the best return for taxpayers and customers
but also to cover safety is very important.
We are still in the early days of assembling that
level of information and being able to make risk decisions on
how we intervene on those assets. What has worked well is the
centralisation of asset management, but a lot more work needs
to be done. Bringing maintenance inhouse was absolutely
fundamental; it was really essential. Our national delivery service,
which uses the buying power of the network, whether it be for
buying sleepers or for planning blockades, are all tremendous
improvements.
I have only been here a little time, although I have
been a nonexec director for a bit longer, but what is obvious
is that there are tailormade solutions for different routes,
our customers can give us information which we don't have and
we can amend our management and improvement of the routes to the
benefit of all. We need to be more localised in the decision making.
Some of the really big decisions will never change, but for some
of the smaller local decisions we can free it up.
Q9 Gavin Shuker: You
will be aware that there is a lot of speculation about the structure
of Network Rail going forward, perhaps with more regionalisation.
You raised it yourself. How far can we go down the route of regionalising
the work that Network Rail does while retaining it as a national
asset?
David Higgins:
I have already announced last week that we are going to devolve
into routebased businesses. That means empowering the decision
making at what I call a route managing director. These executives
will run businesses. They won't just run a cost centre. They need
to have a lot more authority to do that. They need to be far more
aligned and incentivised from a business point of view with the
train and freight operating companies with which they work. So
that is important. But, as we do that, as we delegate more authority
and power to the regions, we need to strengthen our central assurance,
because to do that without at the same time strengthening at the
centre would be risky.
Q10 Gavin Shuker: Just
talking about the regions for a moment, what effect will that
have on the wider rail industry by going to a regional structure?
Will we see larger TOCs, for example, more alignment there? You
must have looked at the effects that it would have on the wider
companies that work on our railways.
David Higgins:
It is a national network, and it is always important to remember
that. On our biggest routes such as West Coast, there are six
major operators that operate every day on that route. The reason
for having a national network, and therefore Network Rail, is
to balance all those competing demands, and that will always remain
a key issue. But I think the great opportunity that comes up now
is that there are a lot of franchise renewals coming up. We need
to take that opportunity to recraft those agreements so
that they are less prescriptive and more outcome-based, therefore
encouraging the entrepreneurs—the private sector—to
be much more creative in how we put money into the network to
get better returns for taxpayers.
Q11 Gavin Shuker: That
is very helpful. I am sure other members will want to return to
that. Finally, can I talk to you for a second about the corporate
governance structure of Network Rail? There seem to be a couple
of different models, one of which was in the coalition agreement,
about slimming down the board to maybe 15 or 20 members. Another
model would be to open out much wider—maybe a mutual model
for Network Rail. Have you done any work since coming in to look
at either of those options?
David Higgins:
I personally am not doing that work, our Chair is, and he has
advice on board already. He is in a lot of consultation with members
about that, so that is work in progress. I believe it is coming
to the annual general meeting in July as a next step, but I have
nothing more I can comment on that at this stage.
Q12 Gavin Shuker: Will
you express your personal view before July or at the July meeting?
David Higgins:
Yes, of course, but it would have to be in the context of both
our board and also the Department.
Q13 Kwasi Kwarteng: I
want to ask a specific question relating to Mr Shuker's earlier
question with regard to your asset base, because when you mentioned
the assets you were not talking about shops or things that you
own, which interested me, because presumably that is where, potentially,
you can get a lot of return.
David Higgins:
In terms of the property assets?
Kwasi Kwarteng: That's
right.
David Higgins:
Yes. The opportunity there is to look at the relationship we have
with the various rail operators. There are thousands of stations.
Kwasi Kwarteng: That's
right.
David Higgins:
We manage the major 18, which are really critical, particularly
the London network. But how you do repairs, maintenance and upgrades
on the balance of the stations is something that I know the Department
is looking at and considering it in the franchising exercise.
Q14 Kwasi Kwarteng: There
are two things. Am I right in saying that, historically, you have
not been very successful at getting top returns from your asset
base?
David Higgins:
I am not sure. I have not seen those figures. In terms of
the property asset base?
Kwasi Kwarteng: Yes.
David Higgins:
Always remembering property is there to support the main operating
business—
Kwasi Kwarteng: Sure.
David Higgins:
I am new to this, I have to admit, but certainly it seems very
fragmented. A number of the key stations have some very, very
complicated property ownership, with air rights, and there are
multiple owners. If you look at Waterloo, for example, there are
multiple organisations that own the asset that you would think
is one station. Therefore, I think there are more efficient ways
of doing that. Certainly, on assets that are primarily shopping,
there is a role for bringing in the private sector both as investors
and as managers.
Q15 Kwasi Kwarteng: That's
right. Okay, that was the first bit. The second bit is that you
talk about taxpayers' money and being more efficient. Would you
not agree that looking at your asset base, and trying to make
that more efficient in terms of the return, is a massively high
priority with respect to your job as a custodian of public finances?
Do you see what I'm getting at?
David Higgins:
You are absolutely right. It is very important. There is a very
large asset base. We also have to remember that there is a huge
responsibility of upgrading the asset base.
Kwasi Kwarteng: That's
right.
David Higgins:
If you look at many of our stations, some of them were
built in the 1860s. If you look at Waverley station in Edinburgh,
there are £130 million of absolutely essential repairs needed
to repair that station for very little financial return.
Q16 Kwasi Kwarteng: My
worry with this is that you are looking at this purely in terms
of the capital expenditure requirement, and I am worrying or concerned
about whether there might be a strategy going forward to try and
get a better return. Obviously, that is linked in with the capital
expenditure.
David Higgins:
Of course.
Kwasi Kwarteng: But all
you are talking about now in the last few minutes that I have
questioned you has been on the expenditure side.
David Higgins:
Yes.
Kwasi Kwarteng: And I haven't
got any indication from you, if you have a strategy, once the
capital expenditure has happened, of getting a return. Are you
going to sell some of these assets? Are you going to try and lease
them out to private operators or—
David Higgins:
Absolutely, yes.
Q17 Kwasi Kwarteng:
Did you say yes? Because there is no—
David Higgins:
No, indeed there is. Last week I was in Birmingham. We announced
that John Lewis would take a major tenancy in that structure there.
We have a great investment partner in Birmingham City Council.
We will certainly look at institutional investment in there because
it is logical. If you look at stations coming into London, there
is spare land and car park land. I think there are opportunities
there.
Q18 Kwasi Kwarteng:
So there are dynamic possibilities?
David Higgins:
There are, indeed.
Kwasi Kwarteng: I just
wanted, for the record, to say that what you are saying I have
prompted out of you. When I asked you, your initial answer was
all about the capital expenditure side, the spending and the upgrade.
David Higgins:
That is true, because property must support. We can't let property
divert the core intention.
Kwasi Kwarteng: I understand
that.
David Higgins:
Network Rail is a £6 billion a year operating business where
the stations are about millions of people that use it every day.
That must be the core intention to get right. Yes, bringing in
the private sector is absolutely what we should be doing, provided
it doesn't damage the core role.
Q19 Kwasi Kwarteng: This
is my last point. I just think it's significant that, if I was
asking the CEO of any business what his growth strategy was, very
few of them would be talking about capital expenditure as the
first thing in terms of a growth strategy or trying to use their
assets more effectively.
David Higgins:
Sorry, very few would be talking about capital expenditure?
Kwasi Kwarteng: Yes. The
first thing you mentioned in response to me was that, and that,
to me, is significant and interesting. That is all.
David Higgins:
One of the first things I did was to go to Birmingham and speak
to our partners and say, "Can we bring in private investors
into this asset?" because long term we need to bring in institutional
ownership and free up their money. Certainly, that is a desire
of our partner there but also from Network Rail's point of view.
That is my background. My whole background has been private investment
in property. I was in charge of the company that developed Bluewater.
So I am very, very aware of how we bring in private institutional
investment, taking risk. It is not our role to do what the private
sector does better.
Q20 Kwasi Kwarteng: Can
I ask one more question on this? Is your principal focus in this
upgrading the plant and equipment, as it were, the capital expenditure?
Is that your principal thing at the moment? That is the most pressing
need?
David Higgins:
My main role is to have a safe and efficient railway, so that
is the core business.
Kwasi Kwarteng: That is
a general answer to my question.
David Higgins:
You are right. In some of our assets, if you look at it over the
last 20 years, decisions were made to release capital, but it
has made it much more difficult then to upgrade the network or
the major London stations because of the head leases we have inherited
or the various easements or whatever that have been offered. In
some cases we are trying to untangle those complicated property
transactions which released shortterm value but set up the
network for longterm problems. When we unravel those, we
then bring in the institutional investors that can own and operate
these assets much better than we can.
Q21 Mr Leech: I
was pleased to hear in your opening statement mention of the Northern
Hub, and I hope it wasn't just because there are lots of members
from the north on the Committee. How important do you think it
is that funding for the Northern Hub is available in the next
control period?
David Higgins:
You would expect me to do my homework on the Committee members,
but I did not put it in for that reason. I have already been up
to Manchester and talked about that with Howard Bernstein. I did
that about four months ago when I was a nonexec director.
It is essential.
The challenging thing with our network is that you
can spend money everywhere. The key is to spend money judiciously
in certain areas to get greater capacity. The great thing about
the Northern Hub—Leeds, Manchester and Newcastle—is
that we can get a 50% increase in passenger utilisation and a
return on investment of about four to one by investing the money
in the Northern Hub. From my point of view, for control period
5, which starts in 2014—we don't have the capital money
in our budget for this control period—we must make it our
top priority to invest in the Northern Hub, because in terms of
return, it will increase passenger movement in that northern area,
and we know that is linked to economic growth. So I'm all for
that. My previous job before the Olympics was all about economic
development and regional development and regeneration, particularly
in the north. So I do understand the critical link between transport,
regeneration and jobs. So it's a priority.
Q22 Mr Leech: You
actually said it was your top priority.
David Higgins:
Yes.
Mr Leech: That would be
your number one priority.
David Higgins:
Absolutely right, yes. It has gone into our first work on our
initial proposal and I personally think it is absolutely essential.
But, like everything, we compete for resources. With regard to
Control Period 5, it is absolutely crucial that we get the support
of the public, taxpayers and Parliament for that.
Q23 Mr Leech: In
terms of the shift to a regional structure for Network Rail, what
impact will that have on capital investment priorities? Is there
a potential for the different regions to have more localised priorities
by moving to a regional basis, or are you very clear that overall
spending priorities for Network Rail would still have a central
basis?
David Higgins:
Yes, they will: overall spending priorities, the determination
of the control period and our overall investment plan for the
five-year period, absolutely. What we do then is to start with
utilisation strategies which feed into the control period. But
then, on a yearly basis, we look at our various delivery plans.
It is what we are going to spend our money on each year on the
route that comes from the overall, centrally controlled budget
process. There is good opportunity to deliver it locally, but
what I have found, and I am sure the rest of our organisation
knows it, is that our partners have as many ideas as we have on
what investments we can make on particular routes to get greater
productivity out of that.
We need to use all the best knowledge we have, both
at the operator level and at a local level, informing those national
plans. But we are not going to fragment the industry and fragment
our organisation. I have heard all the war stories of the barons
of previous years. We won't return to that. We will still keep
a central investment management strategy.
Q24 Mr Leech: You
also mentioned in your opening statement about High Speed 2.
David Higgins:
Yes.
Mr Leech: Obviously the
opponents of High Speed 2 claim that there is a strong case for
there being no need to have a high-speed line and improvements
on the existing main lines could increase the capacity. In your
view and Network Rail's view, how long would the existing network
be able to cope before it ground to a halt in terms of capacity,
without High Speed 2?
David Higgins:
Before I answer your question directly, I would just say that
the result of transport on jobs and economics is obvious. If you
look at Leeds, there has been a two-hour service there for years.
If that was three hours and unpredictable, what would the commercial
value of property in Leeds be? Ditto at Brighton. If Brighton
had a service that was far less reliable and longer, what would
it do to residential prices? The link of efficient, reliable and
fast travel brings jobs.
With West Coast, it has been a tremendous success.
£10 billion upgrading West Coast means that now that franchise
is having customer growth of over 10% per annum. At Christmas
it was up by 20% year on year. That West Coast line, within 10
years at the absolute maximum, and probably six years, will be
at capacity, and that is with additional carriages included in
the area. We can look at other tactical interventions in that
line to put more capacity in there, but in the end it comes down
to capacity: we will, across a number of key parts of our network,
run out of capacity.
Q25 Mr Leech: How
many years do you predict that it would be—
David Higgins:
Six to 10 years.
Q26 Chair:
Is that six to 10 years from when it runs out of capacity?
David Higgins:
From today. If it keeps growing at the rate it is going today,
and if petrol prices keep going in the way they are going, then
in 10 years' time West Coast will be at capacity.
Q27 Chair: Do
you anticipate that growth will take place?
David Higgins:
I don't know, but all we can do is look at what has happened today.
Looking at what has happened on West Coast with the more reliable
service, over the last few years, with the new timetable, certainly
the customers have responded.
Q28 Mr Leech: One
last question, Chair. Do you have a personal view or a Network
Rail view of vertical integration?
David Higgins:
I would use the term "alignment". I think there is huge
benefit to be achieved by aligning the interests. But it is very,
very complex if you look at vertical integration, because the
reason that we have a network is the UK is a very densely populated
country. Our rail network is incredibly complex. It requires a
great challenge all the time to weave the various train paths
through the network, from freight to open access, to the various
train operating companies. There are one or two areas where you
can see the benefits of vertical integration, but across a large
part of our network there is a challenging role of integrating
it. That being said, there are many benefits that can be achieved
by much closer alignment. The current structures are set up for
conflict.
Q29 Mr Leech: Can
I just ask one follow-up from that? I should declare an interest
as the Chairman of the All Party Parliamentary Light Rail Group,
but there is a case being made in the light rail industry at the
moment for taking some lines out of heavy rail and converting
them to light rail. There are claims being made that they could
run the service and improve the service for less subsidy than
is currently being found on specific lines that could be classed
as being capable of being vertically integrated. Do you have a
particular view on that?
David Higgins:
I don't know. Intuitively, I think you are right. I don't know,
I haven't seen the data on it. We set standards across the
board, but there are different sorts of railways. There are high-speed
railways, high-frequency railways and then the railways you speak
about. I think it would be worth while exploring areas of whether
we can convert heavy to tram. If you look at Germany, they do
that effectively in areas there. There must be something we can
learn from that.
Q30 Kelvin Hopkins: I
must say many people in your industry welcome your appointment,
and I look forward to a new broom and things improving myself.
I met personally with Sir Roy McNulty and I put to the Secretary
of State as well the simple point that our railways cost, some
suggest, between 30% to 50% more than continental railways to
operate. I put it to the Secretary of State and to Sir Roy that
the major difference between their railways and our railways is
that they are publicly owned and integrated whereas ours are privately
owned and fragmented. You mentioned fragmentation in your introduction.
Isn't that one of the fundamental problems that we have? It is
fragmented and not an integrated, planned, publicly owned industry.
David Higgins:
You are right. The figure has been quoted somewhere between 30%
and 40%, and that is before the 22% savings were made in this
control period. The other thing is, are we measuring the same
things? I am not sure we are. We don't really know what the European
railways cost, whether they capitalise maintenance costs, renewals,
how they treat interest costs, amortisation, so we can't work
it out, but I will accept that it is more expensive to do things
here than in Europe, and there are some good reasons why that
is the case. Yes, it is more complicated—there is absolutely
no doubt about that. We have a complicated railway network through
where we are. However, the private sector brings great innovation.
If you look at the innovation that has come from West Coast with
Virgin, or if you look at what Chiltern Railways are doing on
their ideas, they bring a lot of innovation and ideas that you
would not get from a single integrated organisation.
Q31 Chair: Can
you give us some examples of the innovation?
David Higgins:
Sure. Just on timetabling for starters, but also you can look
at the ideas of Chiltern in terms of tapping a new market. But
I do want to come back to this question of yours of the 40%—
Chair: We would like to
know more about the innovation.
David Higgins:
Okay, okay.
Chair: The Committee has
not always been satisfied that the system has produced innovation.
Are there any other examples?
David Higgins:
Just let me finish on the 40%. There are—
Chair: No, no. I am asking
you a question, please, Mr Higgins. Are there any more examples
on innovation?
David Higgins:
The Northern Hub is an innovation, isn't it? It is taking an existing
network and looking at getting a 50% increase in capacity by doing
tactical investment in signalling systems and some upgrades. There
are some areas where you can get a lot out of a network by a few—let's
take freight. The work we are doing at Nuneaton on freight will
allow for catering with the growth only in the line from Felixstowe
there. It should have been done generations ago, of course. We
have come up with ideas of doing that.
Look at the supply industry, the high output delivery
on track renewals and remote monitoring on trains. Europe comes
to the UK to look at how we monitor broken rails. If a rail cracks,
it is a major safety issue. A train derailment is one of the highest
risk issues. But with our technology, our measurement trains,
and our helicopters that fly the routes with various technology,
Europe comes to work out how we do that.
We are now moving to trainbased monitoring
on trains themselves that track all the defects in rails. That
allows us to intervene on railways before a broken rail happens.
The results are there because our broken rail statistics are substantially
much better—
Q32 Chair: Those
are all innovations that have taken place here in the UK rather
than elsewhere?
David Higgins:
Yes, they are.
Going back to the 40%, there are a few obvious reasons
why it is more expensive to work on the railways here than it
is in Europe. When we do capital works here, you have to look
at our time to get access to the railways. We did a study on this
and it will come out in the McNulty report. What it says is that,
when we do capital works here, our input costs aren't higher than
in Europe; in many cases they are cheaper. One or two areas are
more expensive, such as aggregates. But the big difference is
that, when we do an upgrade such as Reading, and we are going
to expand Reading, we are only allowed on to the train access
to take out the lines for a very, very limited period. In Europe,
they take stations out for long periods of time. They take tracks
and lines out for considerable periods, because they have a lot
more reserve capacity in the network to do that. We can come in
at very, very limited periods of time. That is the biggest reason
why our capital works projects here, when we deliver the work
on the ground, are more expensive.
Yes, our operating costs here of running the network
are more expensive. The reason there is that, if over the next
15 years we spend £6 billion and replace the Victorian signalling
system we currently have, that will get us to where every European
country is today. We have a system here which takes 5,000 people
to operate it, and they do an amazing job of keeping a creaking
network together. So, yes, it does cost more to operate.
Then with regard to maintenance, to maintain our
system is much more expensive because we have a network that was
built essentially between the 1850s and the 1870s. We don't have
the high-speed network that France, Spain or Germany has. We do
not have the commuter network that Paris has—the RER service.
We rely on a network that is doing something it was never built
for. So, yes, it does cost more to maintain because you have to
do a lot more inspections to maintain embankments that were built
by entrepreneurs in the Victorian era. We do have to work through
those issues. We are never going to solve them completely.
Q33 Kelvin Hopkins: If
I can pursue this a little further, there was a report by a group
called Catalyst about seven or eight years ago which concluded
that under BR, actually, our railways were the most efficient
in Europe. They had to be, because they were so desperately underfunded.
As Tom Winsor, the former rail regulator, said, "They worked
miracles on a pittance", but they actually kept the railways
running. Since then, costs have mushroomed. Both fares and the
public subsidy have massively increased as a result.
I have many friends inside the industry, on the engineering
side, and one of the things they have put to me is that now there
is a system of contracting and subcontracting, you get a decision
to do a bit of rail work such as track renewal, a main contractor
is brought in, a subcontractor, possibly even a further sub-subcontractor,
and then a project manager takes the job of employing an engineer
on a selfemployed basis to do the work. In the past, it
would have been dealt with inhouse by a permanently employed
engineer, who would be in charge of the whole project and within
a cash-limited environment. That was much more efficient and much
more cost-effective, and of course it cost a lot less for the
taxpayer and the fare payer.
David Higgins:
I won't enter into the debate about the history of BR. I have
heard so many war stories, so I certainly don't want to polarise
my first few days in Network Rail.
My whole background is contracting and design, and
what the industry has learned is that there are specialist organisations.
I worked over here in the late '70s for English contractors. I
grew up here on the system, in the old days, where the client
would document the reinforcing steel and then send it to the rolling
factory that would then roll the steel. Nowadays we have all worked
out that that is bizarre, because the organisation best suited
to do that is the actual contractor that is laying the steel.
They have their technology and the systems and they coordinate
that in their own organisation, rather than relying on the client
doing that.
Traditionally, in British contracting, there were
an enormous amount of claims, contracts and waste. That was because
of this culture of conflict. The Egan report recognised all that.
The new NEC contracts were all an attempt to change an industry
which was really disastrous in terms of how it was set up for
conflict. Partnering is the answer, but that is not always straightforward.
Let's look at track renewals. We now have four world-class organisations
that do high-output track renewals. They are all global companies;
they operate internationally. They do what we are doing here all
around the world. They bring the best technology from around the
world. That is something we could never do, but there are benefits
and pluses.
To your question, "Can we improve it?",
we can substantially improve our process of delivering projects.
There is a process in Network Rail called GRIP. I asked the other
day where the GRIP process came from, and it came from Winston
Churchill when they were doing some mobile pontoons and he said,
"Will someone get a grip of this process?" That is how
they named it GRIP. But the GRIPs go from 1 to 8. GRIP 5 is when
you start digging in the dirt. All the value is created between
GRIP 1 and GRIP 3. That is when you think of what you want to
do, you review the options, you work out how to procure it, and
you finalise design. All the value is lost between GRIP 4 and
GRIP 8 because that is when you start building and you think,
"My God, they never worked out how this is going to go together."
Chair: I think, Mr Higgins,
we are getting into a lot of detail.
Q34 Kelvin Hopkins: I
have one more question about costs. Some four or five years ago
the Department for Transport held an internal inquiry into why
West Coast Main Line cost so much more than East Coast Main Line.
They came to the conclusion that project management costs—and
this was said by both sides—for West Coast Main Line in
the years of privatisation were 50% of the total costs. Don Heath,
who masterminded the East Coast modernisation, said that project
management costs were 1% because it was integral. This was an
internal inquiry by the Department for Transport and it has not
been challenged. I have raised this before. There is a massive
increase in project management costs rather than direct engineering
costs, which is what this really should be about.
David Higgins:
I have not seen that report. What I would say is that, if you
compare East Coast to West Coast, West Coast is a £10 billion
rebuild. If you look at the real cost that was spent on that,
£2 billion to £3 billion was spent probably on major
enhancements, major new works. A lot of it was renewals—there
was a massive amount of renewals. Remember, West Coast is a very
different railway line from East Coast. West Coast was built by
people who went round a hill if there was one. So it is very circuitous
and curved. You had to move whole junctions. East Coast was always
built as a much straighter line. East Coast has had nothing like
the level of capital upgrade that West Coast has had, and unfortunately,
the comparison and results bear that out.
Project management, delivery management costs, 1%:
that is a remarkably low figure. I have worked for 10 different
companies that have been involved in project management in four
countries around the world. That is an extraordinarily low figure.
Q35 Chair: When
you spoke before about costs, you referred to the nature of the
network of the rail here compared with other parts of Europe.
Does that mean that you are rejecting the interim report from
Sir Roy McNulty looking at the costs, because he didn't relate
it to that?
David Higgins:
No, I am certainly not doing that. I believe there are substantial
changes. What I am saying is that, if you compare us directly
to Europe, you are comparing different networks.
Q36 Chair: But
you are not saying that is the sole reason for the higher costs
in the UK.
David Higgins:
No, but it is an important part of it. We need to look at the
tradeoffs. We make decisions here all the time which add
costs. At the moment we are doing major upgrades through Thameslink.
If that was Europe, we would be prepared to take out stations
for considerable periods of time and explain to the public, "This
is going to be extremely inconvenient, but the result is it will
be cheaper and it will be quicker." We need to have that
public debate, and we need to challenge that. I have talked to
Sir Roy on many occasions and he is fully aware of that. Much
of the cost we build into our projects or our decision making
is in those first three steps. We need to challenge all those
steps and challenge how we go about the work, not how we do it
on the ground. We create a lot of cost in how we do projects.
I was down at Farringdon two days ago and I was looking
at a tunnel that is 200 metres long and 2 metres in diameter that
takes all the signalling. It has to be hand dug. It is like mining.
The reason is because of the history. We are leaving all the heritage
facade there, which is an interesting decision. The consequences
are substantial in terms of how we do that. We are leaving the
existing structure. All these decisions have logic. Transport—
Chair: I am sure we will
come back to that. I just wanted to clarify that you weren't saying
that was the sole reason.
David Higgins:
No, not at all.
Q37 Steve Baker: Mr
Higgins, you mentioned the need for an increased culture of entrepreneurship.
If I may, I would like to ask you three questions about financial
incentives, risk taking and then capital investment. First, do
you accept the McNulty review's finding that Network Rail is "generally
subject to weak financial incentives" and what real incentives
do you have to reduce costs?
David Higgins:
CP4 is the control period we are in going from 2009 to 2014. The
base case of that is taking out £5.2 billion worth of costs
from our business. That is on top of the costs that we have taken
out in CP3. From an operational point of view, if you put that
into the perspective of running the railways, the cost of running
the railways, the operations and maintenance costs and renewals,
that means a real cost saving of £800 million a year.
As a nonexec director, when I applied for this
job, they said, "What is the biggest challenge?" I said,
"Hitting CP4." If you want my honest opinion, I think
doing it in a sustainable way is going to be incredibly difficult
to get it right in such a way that, when you go to CP5, you can
take another £2 billion worth out of the cost. We should
all remember the target that Network Rail and the rail industry—our
suppliers and our partners—have been set in this existing
control period, because we have had some windfall benefits. The
financial recession, difficult as it has been, has benefited us
from cutting inflation, and it has cut the margins of our suppliers
and contractors. That is not going to be something we can replicate
in the next period.
Q38 Steve Baker: When
it comes to entrepreneurship, it seems to me it is mostly about
individual employees' creativity, the choices they make, and how
they find opportunities to create value and cut costs. What do
you plan to do to incentivise individual employees to be more
creative?
David Higgins:
I probably can't teach anyone at Network Rail anything about the
rail industry, I have to be honest, because I am not an expert
on it and they are all experts. The only thing I have learned
from bitter experience of being a manager is that clear accountability
for executives and for teams is really, really important. I believe
I can bring an increase in that discipline to Network Rail. You
need to be able to be very, very clear about what a business leader
has to do and it needs to be clear to them. But if you give them
accountability, you have to then give them authority because there
is nothing worse than someone being accountable. If you give them
authority, they also have to have the resources to do it, the
money and the people. Then you have to have a process to make
sure they do what they are supposed to do. That is what I call
performance management. You have to set clear, basic targets and
come back and check they are done at each period. It is just simple
management logic and I have used it through years. That is what
I intend to strengthen in Network Rail.
Q39 Steve Baker: Moving
on to risk taking, within an entrepreneurial culture there is
commercial risk taking. The question is, who will bear those commercial
risks? It seems to me, that with the taxpayer guaranteeing Network
Rail's debt, there is a risk that the firm becomes more entrepreneurial
but the taxpayer carries the can if it goes wrong.
In a related question, we know that safety is the
top priority, but could you just sketch how you will manage safety-related
risks in a more entrepreneurial culture?
David Higgins:
With any organisation that relies heavily on taxpayer subsidy,
which is what we are—which is the public sector—and
provides a public service, the ultimate risk will always be there,
and eventually the Government gets caught with that, because in
the end we are not a business that can shut the railways: if they
break down, we overrun or there is a major blockage, then it is
a huge public issue and a very important political issue.
In terms of risk—and I had this in the last
job and in the job before—in the end the public sector,
as lender of last resort, is always taking risk, all the time.
I think, often, the public sector forgets that. It always takes
the ultimate risk of failure to perform. What we are obligated
to do as Network Rail is to take judgments on that risk. Where
do we spend money to get better value? Where do we put money—in
improvements or on renewals? We renew 1% to 2% of the track every
year. Where should we renew track? Where is the best place from
a safety point of view? Which track is most likely to fail? Which
is most expensive if it fails? Where is the greatest utilisation?
It is easy running a brand new network. This network
is a challenge because you could put money in all areas. Our responsibility
is to work with the Department and the regulator to agree, from
a safety point of view, where we should be investing the money.
The biggest skill is assessment of risk and of asset condition—knowledge
of what in the hell we are dealing with. To know about rail quality,
for example, we need monitoring. Great improvements were made
by things like the measurement train. What a fantastic innovation.
But now, why not have 6,000 trains that run on the track every
day measuring our train conditions? That is the next step. The
more information we have, the quicker we are able to know where
to intervene.
Q40 Steve Baker: Finally,
it is very good of you to remind us that the railways were built
by Victorian entrepreneurs. You said how well 5,000 staff are
doing to cope with a creaking, Victorian signalling network.
David Higgins:
Correct.
Steve Baker: We are talking
about monitoring a very old network. Forgive me because I am not
a railway historian, but is it fair to say that the great age
of capital investment was that entrepreneurial phase, and if that
is the case, what are we going to do with the structure of Network
Rail now to recapture that entrepreneurial investment in rail?
David Higgins:
It was, of course. I am sure you have heard the 10 times multiple.
Canals were 10 times more cost-efficient than travel by road at
the time, and rail is 10 times more cost-efficient than travel
by canals. It was a fantastic era, of course, and the entrepreneurs
built railways to compete with each other. They built three lines
to Cambridge over peat bogs and expanding clay platforms, which
we still have today. It was a fantastic period, and many of them
went broke, as we know, quite famously. It was a very, very important
era.
The era now is that we have 50% more people using
the rail network in the last 12 years than there were 12 years
ago. There was a period of great decline, of course, when railway
usage went down dramatically. We carry 100 million tonnes of freight
every year. All of our forecasts on freight, particularly big
container freight, are going up substantially. Of course, with
the price of petrol, the densities of our cities, and carbon,
the use of railways is in a whole new era. Our challenge is to
do it a lot more cost-effectively now. At Network Rail we need
to be much more entrepreneurial and open to ideas from our suppliers,
designers and our partners, because we need to use the power of
the network and our suppliers to get the best solutions.
In my last job we ran a project. We had 250 people
managing it and running an organisation of 12,500 people. But
we use the industry for everything.
Steve Baker: I am most
grateful.
Q41 Chair: Do
the incentives you talk about include the big bonuses for senior
management that have been so unpopular?
David Higgins:
On the issue of bonuses, first, you will be aware that our Chairman
announced a review of all bonuses, which is in the process of
consultation now with our members. It is also in the process of
consultation with our regulator, the ORR, and the Department,
and that will be going back to members in the coming months. What
I would say, and I won't shy away from it, is that performance
management is absolutely essential to get an organisation to work.
Whether it be the workforce on the tools, on the railway lines,
or the engineers that won our major projects, there must be cause
and effect. I am talking about outperformance. If someone does
a good job, outperforms, they should be rewarded. There should
be a clear link between performance, but there needs to be transparency.
Transparency is essential.
Q42 Chair: Does
public hostility to major bonuses for senior managers concern
you?
David Higgins:
I am not tone deaf to the public concern about bonuses in this
environment.
Q43 Chair: What
does that mean? Does it concern you?
David Higgins:
Yes, it does. Neither is senior management tone deaf to the public
concern, but we do need to have a culture and environment where
we do pay for performance.
Q44 Gavin Shuker: Crewe,
Manchester, Clapham, Warrington, Barking, Preston, Luton, Liverpool,
Wigan and Stockport: what links those places?
David Higgins:
That is a real challenge. I am never any good at these things.
Chair: You don't have
to answer quizzes, Mr Higgins.
David Higgins:
I don't know. Is it the railway?
Kwasi Kwarteng:
It's got something to do with it.
Gavin Shuker: I believe
the term is "touché". No, they are the 10 worst
stations in the country. Why won't Network Rail take that issue
seriously?
David Higgins:
I didn't know that, I have to say. So this is customer performance?
Q45 Gavin Shuker: The
Better Stations report, if this helps, recommended that we should
spend a considerable more amount of money on category B railway
stations and named those as the 10 worst stations in the country.
The previous Government identified a programme of £50 million
to spend on those. Network Rail rolled over very quickly after
the coalition Government—
David Higgins:
Now I am aware of what you are talking about; correct, that's
right.
Gavin Shuker: My question
is, is Network Rail taking that issue seriously?
David Higgins:
You are obviously aware that in a request from the Government
at the time of the CSR we released £50 million worth of savings
by stopping a programme on some station upgrades, which, if I
remember, had been started by Lord Adonis. Is that right?
Gavin Shuker: That's right.
David Higgins:
Obviously, we work with our Department in the end, and the regulator.
They tell us where they want to spend their money. That was a
programme that they initiated, and in the end it is their right
to tell us to stop. We will look at those stations. I can come
back to you on what our plans are to upgrade those stations. Having
returned that money to the Government, I can see what our next
plans are.
Q46 Gavin Shuker: Do
you think that passengers should be concerned that you are not
bringing forward plans at this stage, nine or 10 months after
cancelling the programme, to upgrade the 10 worst railway stations
in the country?
David Higgins:
I will come back and write to you and say what we are doing. Passenger
Focus is very important. We monitor our customer response closely
to make sure that we are responsive to those. I am concerned why
they were put in the category in the first place, but I will come
back on that.
Q47 Gavin Shuker: Finally,
I am concerned that you don't appear to be fully briefed on that
particular issue. What I would ask, though, is are you aware,
within the construct of greater retail space, of the greater revenue-raising
opportunity, which other members of the Committee have raised,
that the Better Stations report said would be released by an upgrade
of those stations?
David Higgins:
I will look at that particular report. I am all for releasing
value and I have already started working on one or two station
opportunities with a major private developer already to see if
we can release some value on existing stations, but if there are
opportunities we will look at them.
Gavin Shuker: Thank you.
We will appreciate you writing to us.
Q48 Kwasi Kwarteng: I
would like to ask you a question which stems from questions that
my colleagues have asked. Mr Shuker referred to the structure
of Network Rail and the Chair referred to your bonuses. This seems
to me to come to something that is fundamentally at the heart
of your dilemma. On the one hand, you talk the language of a businessman
in the private sector, talking about entrepreneurial culture,
talking about getting a better return on your assets, and defending
quite lavish bonuses, or the idea of bonuses, but on the other
hand you talk of yourself as a public sector organisation, jealously
looking after the interests of the taxpayer and looking at value
for money. Mr Hopkins has gone, but his view is that it should
be a public entity, and other people's view is that your function
should be essentially just given to the actual operators. I want
to know what your view is on that dilemma. Where do you see yourself
maybe in five years' time as an institution? Will you be fully
nationalised? Is that something you want to do, or would you like
to divest your function to private sector operators? It seems
to me that the problem the public have is that you are neither
fish nor fowl. You are neither a private business, giving yourself
big bonuses, nor are you a public business. That is why people
are very angry about big bonuses and things like that.
David Higgins:
It would be very heroic of me, within four weeks into the job,
to give my opinion on the structure of Network Rail. Of course
we are in the middle, so I don't have a position which I would
be prepared to state publicly. I have not even made up my
own mind where it is, and ultimately it is not my decision anyway.
Ultimately, it is a decision for Government and Ministers who
are elected by the public.
Q49 Kwasi Kwarteng: But,
with respect, you have a wide experience in the industry. Have
you never thought about what the optimal structure for Network
Rail would be?
Chair: You were nonexecutive
director, were you not? So you are not really new to this at all.
David Higgins:
No, indeed. The very, very first thing that I have done within
weeks of getting in, as I say, is that we are going to devolve
authority and we are going to work much closer with our train
operating and freight operating partners to find solutions. The
biggest blockage today is the way that our contracts are written.
So we have already started a process with a number of those operators,
saying, "When the new franchising comes up, can we have a
much more flexible approach to that?" I think we can achieve
many of the benefits in our current entity.
As to the issue of bonuses and performance, I don't
think there is a conflict. I don't think there is a problem with
an organisation that is paid by taxpayers paying bonuses. I had
this debate when I first came to the Olympics. I remember going
to the first Minister and the various Treasury officials and I
said, "We can take this two ways. We can either pay all of
our people here in this organisation standard salaries, departmental
salaries, and then we can go outside, as we often do, and hire
extremely expensive consultants, investment banks, major consulting
companies, programme management companies and contractors, and
pay them an enormous amount of money, but they will take no accountability
and no risk and they won't report to you, and the people we hire
who manage them are going to have rings run round them. Or we
can hire the people that we are going to hire"—because
they are going to hire the same people that we can hire—"at
a substantially reduced cost than the private sector will hire
them and have them manage the private sector." That is what
we did.
I went out and hired a combination of people—50:50
public and private sector. I hired the best private sector people
I could have, who the private sector were going to hire and then
sell to me. I had them manage the private sector, and the results,
I think, are clear now, and we paid bonuses. But I said to the
Government, "If we are going to do that and we are going
to attract these people off the street"—they will take
risk; I take risk in this job—"we are going to have
to be prepared to pay them for performance."
But the issue in all this and why everyone is confused
is that it comes down, in the end, to transparency. In my last
job I was paid a very substantial bonus, but it was pretty transparent
whether we succeeded or not. The objectives were very, very clear,
and in the end the press made a meal of it for one day or a oneliner,
but it didn't get a lot of traction, because there was a lot of
transparency about everything we did—we operated in a goldfish
bowl, frankly. I am a strong believer in transparency. I can't
say it any clearer than that.
Q50 Kwasi Kwarteng: If
someone asked you why there was such a public outcry about the
bonuses last year, you would say that was because there was no
transparency. You don't think the fact that you are a national
company whose principal money is coming from the Treasury had
anything to do with the outcry about the bonuses.
David Higgins:
There are lots of companies today that are owned by the Government
that pay very, very substantial bonuses.
Q51 Kwasi Kwarteng: Yes,
but they are cutting back. Even with the BBC, I was reading something
about Jeremy Paxman's salary. There is a wide perception that
under this current economic climate people are cutting back on
these lavish payments.
David Higgins:
That is right. The issue with everyone is that it must be very
clear what they had to do to get that—it wasn't just coming
to work and getting a large bonus for doing something they were
being paid for anyway. They were being paid for outperformance.
On the Olympics, when I started the project in mid-2006,
the experts gave written reports and said, "It can't possibly
be finished a year ahead of schedule. It is impossible to do."
That was what all the experts said. We said, "If we do that,
is that seen as outperformance?" They said, "Yeah, that
would be outperformance because we don't think it can possibly
be done." Are the objectives, whether it be the BBC or a
bank or ourselves, in this case equally as clear as that, so that
the public can say, "Yeah, we grudgingly get this. They have
outperformed"?
To me, our only way at Network Rail of dealing with
that is to be a lot more open about how we deal with the public,
how we set our objectives and how bonuses are reviewed. I am all
for openness and transparency. I have lived with that for the
last eight years. Most of my life was in the private sector, with
eight years in the public sector. I have been subject to all the
scrutiny of public sector accountability and information that
has come with my last two jobs, and I welcome that.
Q52 Mr Leech: Can
I just return briefly to the restructuring and the regional centres?
How long will this restructuring take, how much is it going to
cost and what impact will it have on jobs?
David Higgins:
We are not going to have a line called "restructuring"
in our accounts, which is often the trick that happens with these
things. That is not going to be a cost.
How long will it take? We are starting with two areas.
We are starting with Scotland and Wessex, and we are doing that
because they are relatively selfcontained. They are operating
well, we have good partners in those areas there and our performance
is good. So that is why we are starting on those. We are going
to have a hybrid organisation for a period of time, and during
that time, on these first pilots, we need to make sure all our
systems and control, our safety case and our asset management,
is such that we can then extend it across the organisation. What
I am not going to do is put at risk the network, safety or performance.
How long? Eighteen months.
Q53 Mr Leech: You
are saying there is no cost implication for that at all?
David Higgins:
There will be no additional cost for carrying this out. We will
eventually get efficiency gains. I am not saying in CP4 we are
going to make substantial new savings. The main thing I am looking
to do is to set up Network Rail for control period 5. We need
to have a much more efficient, quicker, more agile organisation
that works with our partners in a much better way as the new franchises
come into force.
Q54 Mr Leech: What
about jobs? What impact will it have on the number of staff?
David Higgins:
In terms of our staff, we have a gradual process of reduction
in staff in our organisation. We also have a substantial increase
in our current control period. Our renewals go up fairly substantially
in the last two to three years. Also, our enhancements, our major
projects division, grow substantially as well as big projects
like Thameslink gets under way.
Q55 Mr Leech: But
with regard to the actual restructuring itself, I assume, going
to nine regional areas, there are expected to be some savings
in terms of staff costs.
David Higgins:
There will be changes. There will be changes in our organisation.
There will be new people coming in, too, because that is the way
to bring in entrepreneurial behaviour. We have put ads out now
for a new managing director. So there will be changes. Some people
will leave by natural attrition and some people will need to be
hired.
Q56 Mr Leech: You
seem a bit reluctant to suggest that there will be an overall
reduction in head count.
David Higgins:
Traditionally, with restructuring, you draw a line and declare
a large loss, because you are saying, "This restructuring
is going to cost a lot of money." You fire a lot of people
and then you say, "But trust us, in 18 months' time things
are going to be fine." You write back the losses over that
period, and then, hopefully, the company recovers. We are not
doing that. This process is going to be more organic in the organisation,
because we can't afford to put at risk all the gains. We are in
the middle of a control period. We have to get £5 billion
out of this business, so I can't afford to have our organisation
caught in the headlights and to stop doing what they are currently
doing. They have to keep on doing everything they are currently
doing and get all the savings out of it so it is not going to
be a big disruption to our organisation.
Q57 Mr Leech: Would
you imagine, though, in the long term you will have fewer middle
managers and senior managers, and perhaps more people on the ground,
or fewer people on the ground and the same number of middle managers
and senior managers?
David Higgins:
Longer term we will have less people on the railway. The whole
idea of putting in more technology means we will have less people.
But our great challenge for our railway is that we have an ageing
workforce. That is one of our biggest challenges. People keep
this system going as it is currently worked because they know
the history of the place, so we've got to be less reliant on that.
We have to build, whether it is new technology, or we have to
train a whole new generation that can operate the system.
Q58 Chair: How
are you going to maintain your priority on safety, which you spoke
about before, and, in particular, stop a repeat of the coverup
of accidents on rail?
David Higgins:
If you look at the last 10 years, substantial progress has been
made on safety. If you look at—
Q59 Chair: Yes,
it has. But this issue of nondeclaration, nonreporting
of accidents, is now a key issue. How are you going to deal with
the issue of safety and proper reporting of accidents, given the
reductions in costs and the changes that you are going to bring
about? How can you assure us that that is indeed going to be a
priority?
David Higgins:
The nonreporting related to RIDDORs on construction—that
is a part of our network and it is very, very important. But the
biggest safety risks relate to running the train network, so running
the train system and the infrastructure. As for RIDDORs, they
are important; they are an indicator. Our RIDDOR has been going
up for the last six months, which is good, because that is getting
us to our current RIDDOR rate. This is a threeday reportable
accident—if someone gets hurt and they are off for three
days away from work. Our indices at the moment are 0.22. Where
does that sit? It is about what Terminal 5 was when it finished,
which is best practice. It is where the Olympics are today.
An indicator as itself is just an indicator. The
point on safety is, "What in the hell are you going to do
about it?" The issue on safety is behavioural safety. Much
of our challenges on accidents come from our supply chain. We
need to work much much closer with our contractors and suppliers,
but we also need to start at front-line supervisor level. My experience
of this over many years is that you need to train and educate
the front-line supervisors in behavioural safety. Get leadership
from the top absolutely right, but sometimes targets distort behaviour.
We have to take away any targets that distort reporting because
it is only in reporting threeday accidents or, even more
importantly, near misses, which are actually a much more important
element to get reported, that we are going to understand what
the risks are that we need to eliminate.
Q60 Chair: That
will still be there in the restructuring you are doing?
David Higgins:
Absolutely.
Q61 Chair: That
will be high priority?
David Higgins:
It is a high priority of myself.
Q62 Kwasi Kwarteng: I
am interested in your relationship with the train operating companies,
because McNulty pointed out that there was mistrust between the
train operators and Network Rail. What would you say to someone
who suggested that there is no need for Network Rail to do what
it is doing at the moment, that train operating companies should
be running the tracks and the signalling as well, and that your
role should be downscaled? What would you say to someone who
said that?
David Higgins:
I would say I am open to train operators taking a greater role.
Merseyrail have been interested in taking a greater role in terms
of infrastructure. Fine, I am open to that. The challenge is that
I have not talked yet to a train operating company that wants
to take over Network Rail or take the full risk, because you've
got to remember when things go wrong the train operator needs
to put their balance sheet at force majeure risk, tested to destruction,
to carry out that work. I am not sure that any train operator
today wants the capital risk of that.
Q63 Kwasi Kwarteng: But
do you see the benefits of train operating companies running tracks
and signalling, or perhaps even running railway stations?
David Higgins:
They do today.
Kwasi Kwarteng: Yes, but
could you describe—
David Higgins:
Absolutely. I think there is great benefit in train operating
companies running stations. I think there is even more benefit
in them doing longterm maintenance and upgrades on them.
They can do it in areas that suit the customers; they can perhaps
do it cheaper than us. Of course, absolutely, I have no issues
with that whatsoever. But the fundamental thing is that we run
a very complex, ageing network where, with asset management knowledge
after nine years of intensive work, we are only getting up the
learning curve. Everything we have learned in the last nine years
has only made us smarter. There is a huge amount to go. If we
lost what we have learned in nine years, we would have to be crazy.
Q64 Chair: How
are you going to find the £185 million additional efficiency
savings?
David Higgins:
Which efficiency savings are those?
Chair: The £185 million
identified in the spending review.
David Higgins:
That is through a combination of capital works and some of our
renewals programmes. Internally, we have identified where those
areas are.
Q65 Chair: What
involvement have you had in the discussions taking place on structural
change of the rail industry?
David Higgins:
Extensive. We have been extensively involved with the Department
and the regulator, and of course we have inputted into the McNulty
review. I don't think there is any concern that we haven't been
consulted on that. In fact, I know Sir Roy McNulty well from my
past jobs, so I am sure we have plenty of access to make our points.
Q66 Chair: Have
you been discussing the future of rail itself with Ministers?
David Higgins:
Yes. There are a lot of working groups, and a lot of outside consultants
that have come in and done various studies in this stage of it.
So, yes, they have talked about where rail fits, the role of operators,
wideranging topics.
Q67 Chair: What
points have you been putting?
David Higgins:
I think it is up to McNulty. He is about to report this month.
I think it would be presumptuous of me to try and pre-empt what
Sir Roy is going to say.
Chair: I am not asking
you to pre-empt what he is saying. I am asking you what you have
been saying.
David Higgins:
What we have been saying? We have inputted into various consulting
reports. I have not been in many of those reports myself
personally but we have put in lots of reports. I just don't think
it is in any way constructive to give small parts. Ultimately,
it is a report which the industry needs to own, which we will
welcome and implement. It is a matter of weeks away now and I
am sure he will come and present to your Committee here. I leave
it to Roy to communicate his own findings.
Q68 Chair: But
what about outside the McNulty report? There is a ministerial
working party, isn't there, looking at the whole future of the
industry?
David Higgins:
There is a working party at a director level of the Department,
including ATOC—the Association of Train Operating Companies—the
regulator, and myself. I have sat on the first of those meetings.
That is looking at a wide range of topics but it has drawn no
conclusions yet.
Q69 Chair: Are
you going to make cuts in the capital programme or in any other
part of the programme to meet those spending review targets?
David Higgins:
No, we are not changing any outcomes. We will look at efficiency
gains, besides the earlier statement about the £50 million
on the station upgrades.
Q70 Gavin Shuker: On
a slightly separate note, when will Network Rail be subject to
freedom of information?
David Higgins:
That is a decision for Ministers, and I think it is on hold until
after the value for money and the White Paper that comes out at
the end of this calendar year. Ultimately, it is not a decision
of Network Rail, but it is a decision that the Government and
Ministers need to make. If they so do it, I welcome it. I have
operated under FOI for years and I don't have any problem with
it at all.
Q71 Steve Baker: As
Dr Kwarteng said, neither fish nor fowl, neither public nor
private; subsidy, taxpayer guarantees, heavy regulation.
David Higgins:
The best of both worlds.
Q72 Steve Baker: Marvellous.
In such a world, is it possible that we actually overproduce rail
transport?
David Higgins:
Sorry, that we overproduce?
Steve Baker: Is it possible
that we subsidise it to such a degree that people make choices
to travel by rail that they otherwise wouldn't make?
David Higgins:
It is a very valid point. I think greater transparency and greater
cost allocation to route will open that issue up for debate. That
is very important. In some cases, absolutely not, and we could
not keep up with demand on the commuter network coming into London.
In other areas, the level of public subsidy is very substantial.
Whether that is proper value for money and whether the public
and politicians want to do that, it is up to them to make that
decision. But you need the information.
Q73 Steve Baker: With
that in mind, I am conscious that high-speed rail is likely to
serve the top quintile of the income range. What is your view
on high-speed rail?
David Higgins:
Why get into that debate? I suppose all I would say is, forget
about the speed—this is an interesting debate—and
think about capacity, because within six to 10 years West Coast
is full, even with other trains. You know the only way then to
cope with demand is that they should just push the prices up.
That is the challenge. We have the challenge now. You look at
Thameslink. It is a great project. Thameslink is absolutely undersold.
What it will do for the commuters from Bedford through to Brighton
is fantastic. Do you know why it was called Thameslink 2000? Because
it was supposed to be finished in 2000, but it is going to be
finished in 2018. That is because successive groups, Governments,
you name, put it off. Do you know when the first study was done
on Crossrail? It was in 1990. That is when it was supposed to
start.
Steve Baker: I must just
say I am extremely grateful to Mr Higgins for reminding us
that Government projects with grand ambitions often slip.
Q74 Chair: But
they are happening, aren't they?
David Higgins:
They are happening. They are fantastic. No one understands the
change that Thameslink will deliver to London commuters. It will
take the pressure off the Northern Line. It is a fantastically
complex project. I was down there the other week going through
it all. At London Bridge the signalling is just amazing. In peak
hours, through that channel, you get one to two trains an hour.
That will move to 24 trains an hour when it is fully implemented.
It will just change commuter patterns.
Chair: Are there any further
questions from anyone? Thank you very much, Mr Higgins, for answering
our questions and we look forward to questioning you again on
rail matters. Thank you very much.
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