Transport and the economy

Memorandum from Invensys Rail

1. Invensys Rail welcomes the opportunity to make a submission to the Transport Committee’s inquiry into transport and the economy. We are the UK’s leading manufacturer and supplier of state of the art rail signalling, control centre, rail automation and automatic train control products to Network Rail and London Underground, with offices across England and Scotland and with a manufacturing facility in Chippenham.

2. We are also a leading international supplier, meeting the needs of high speed, mainline and mass transit customers in over 30 countries encompassing North America, Spain, India, Latin America and the Asia Pacific region, including China and Australia. We have, for example, designed, manufactured, installed and commissioned the train control and communications technology for seven of the last eight high speed lines in Spain and for the Spanish metro, and nine of the twelve Beijing metro lines. We employ over 4,000 people worldwide, including around 700 people in the UK.

3. In the context of significant fiscal consolidation, it is essential that transport spending is appropriately targeted to ensure that taxpayer value is maximised. This submission is focused on the type of spending that should, in our view, be prioritised in this environment to help achieve this aim while improving, for the long-term, the capacity, reliability and running costs of the UK rail network.

4. The key points of our submission are:

· Research shows that investment in the railways provides a high return for the Government in terms of jobs created (directly and indirectly) relative to other industries, and in securing matching investment by the private sector

· Demand for rail travel is growing fast and capacity on the rail network is failing to deliver. Investment, in particular, in signalling technology can play a central and cost-effective role in addressing this challenge in a fiscally constrained environment

· Independent research we have commissioned shows that on a pound for pound basis, the greatest increase in transport capacity (including highways) for the least price is secured from investment in railway signalling and train lengthening

· Railway signalling technologies lie at the heart of improving the performance of the railways, not only by driving out costs and increasing capacity on the network, but also though wider non-safety critical operational benefits in areas such as reduced fuel burn, better asset management and improved passenger information

· Given the cost-effectiveness and the operational benefits of investment in new rail signalling and train control technology, the case for prioritising transport spending in this area is all the more compelling in the current economic environment

CASE FOR INVESTMENT IN RAILWAYS IS STRONG

5. Rail is a major UK industry with excellent employment economics. It has the potential to be a significant engine for job creation and economic growth and, as such, a key industry in helping to drive the economic recovery.

6. The industry currently employs approximately 268,000 people. Of these, some 112,000 people are directly employed by the industry, working for employers whose core businesses involve the movement of passengers of goods by rail (Train Operating Companies and Freight Operating Companies) and management of the physical infrastructure (Network Rail and Eurotunnel). Indirect employees, including people working for engineering companies and equipment suppliers such as Invensys Rail, account for 75,000 jobs. The remainder work for companies that depend upon the demand for goods and services generated by the spending of direct and indirect rail employees – 81,000 in total.

7. Given the Government’s commitment to reducing the fiscal deficit, it is vital that every pound of taxpayers’ money is invested to greatest effect, as the Committee acknowledged in its call for evidence. Choosing to invest in areas that deliver the widest benefits to the economy as a whole in the most cost-effective way is clearly critical in this regard. The rail industry has high economic multipliers, both in terms of job creation and attracting additional private sector investment.

8. Analysis shows that every ten additional direct jobs in the railways generate 14 indirect jobs in the wider economy; this compares very favourably with other industries – for every 10 direct jobs created in the automotive industry, for example, only 5 indirect jobs are created. As such, rail represents an efficient investment opportunity in terms of job creation. Furthermore, for every pound invested in the railways by the Government, the industry generates £1.30 in its own funding. Thus, for example, £1 billion invested by the Government would generate £1.3 billon from the private sector – a total of £2.3 billion. Research suggests that this investment would support the creation of an additional 52,000 direct, indirect and other rail-induced jobs.

9. We believe that these figures demonstrate the real value of investment in the railways, especially at a time of economic difficulty. With public expenditure across government departments under serious pressure in the forthcoming Spending Review, investment in the railways should be a high priority relative to other spending options.

INVESTMENT IN SIGNALLING TECHNOLOGY SHOULD BE PRIORITISED

10. Considerable pressure is being placed on the rail network by rising passenger demand, a trend which is set to continue despite the tough economic conditions. Clearly, safety must be an issue that underpins every aspect of the investment strategy for the railway, and cost-effective investment will be an overarching consideration given the Government’s programme of fiscal consolidation, but two other primary objectives for rail investment must be to improve performance and increase capacity.

11. In the last railway Control Period, Invensys Rail reduced the cost of its signalling systems by some 30% and further cost reductions are possible. Major technological advances, some of which are discussed in the next section of this submission, are being made which will result in further increases in rail capacity by enabling trains to be run more frequently and closer together on the existing network, as well as costs coming down further, potentially significantly, and will provide wider operational, non-safety critical benefits in respect of fuel efficiency, asset tracking and passenger information.

12. There must of course be a balanced investment strategy across the various transport modes. However, independent research undertaken for Invensys Rail demonstrates that investment in signalling and train control systems provides the greatest increase in capacity on a pound for pound basis, second only to train lengthening (which itself is not always an option), compared to all other forms of transport investment including road widening. While investment in new railway lines and roads provides the greatest absolute increase in capacity, this is very expensive. The following table demonstrates the point.

[Source: Invensys Rail Transport Capacity Research Paper – A comparison of the cost of different methods of increasing capacity in road and rail environments, Credo, November 2007]

13. Substantial reductions in departmental budgets, including the transport budget, are widely anticipated in the forthcoming Spending Review, and a tough settlement for the railways is expected for Control Period 5. Public funds for investment in transport generally, and in the railways in particular, will be constrained for years to come. Against this backdrop, priority should be given to those investments which provide the most cost-effective incremental increase in transport capacity. The case for investing in new rail signalling and train control technology becomes even more compelling in these circumstances.

14. All too often, however, public policy discussions over rail investment focus on the procurement of new rolling stock without a full appreciation of the importance of investment in new signalling technology as a pre-requisite. But there is little point in investing in new trains unless the signalling system is first upgraded to maximise the performance of that stock. This clearly points to investment in new signalling, train control and communications systems being a priority, especially over the next decade, in order to optimise the benefits of other rail investments.

BENEFITS OF NEW RAIL SIGNALLING TECHNOLOGY AND INNOVATION

15. The railway today has a mixture of technologies and approaches to train protection and control. Some of the signalling systems in place use mechanical systems and designs dating back at least a century. While they rarely go wrong and are still safe, these systems are difficult to maintain and change, and require significant manpower to operate them. But technological advances are being made that are central to delivering greater capacity and, importantly in the context of deficit reduction, driving more value through the railways. Two areas of innovation that could bring particular benefits to the UK railways – ERTMS and modular signalling – are considered below.

ERTMS

16. Network capacity can be increased through the use of signalling technology based on the European Railway Traffic Management / European Train Control (ERTMS / ETCS) standards. This technology will facilitate the transfer of rail signalling systems from track side to in-cab, with considerable opportunity to reduce the cost of maintaining signalling systems. The Department for Transport’s 2007 Rail White Paper envisaged that emerging technology in this area would start to be rolled out from 2014-15.

17. Invensys Rail has considerable experience providing ERTMS / ETCS equipment for Spain’s high speed rail lines, as well as in Australia, New Zealand and Turkey, where equipment based on the ERTMS standards is also being deployed. The computing power of this emerging in-cab signalling and control technology is such that it can import significant operational functions into a train that substantially enhance its performance and reduce the costs of operation. Indeed, rail signalling and train control technologies are no longer simply a safety function of the railways and should be judged by their ability to deliver value beyond safety and train reliability.

18. The amount of additional capacity realised through the implementation of ERTMS / ETCS depends on the particular nature of the railway. UNIFE, the European rail industry association, has indicated that increases of 15% increases on already optimised lines are typical and this can be increased to around 25% on lines with mixed traffic – as is the case in the UK. Some estimates have put the potential capacity enhancements generated as high as 40% on mainline railways. Furthermore, ERTMS / ETCS can enable a train to be driven at its optimal speed relative to other trains around it, ensuring optimal deceleration and acceleration and thus significantly reducing fuel burn and wear and tear on the track.

19. The major challenge associated with the deployment of ERTMS / ETCS is not the reliability of the technology. Rather, it is the management of the benefits accruing across the various industry stakeholders, determining how the costs and benefits should be shared, and also to what extent the roll out of the new infrastructure should be driven by future rail franchise contracts (given the presence of much of the technology on-board the train and the wider public policy benefits of such technology). As the capacity increases and cost savings of this technology are potentially significant, its implementation on the railway should be prioritised during the next rail Control Period.

Modular signalling

20. Modular signalling is a major initiative that the UK rail industry has been driving forward in recent years. Originally seen as a means of providing a business case for the upgrade of secondary lines, particularly those with mechanical technology, the benefits of this approach are now becoming clear for many signalling systems. Modular signalling seeks to adopt the ‘plug and play’ approaches of industries such as telecommunications, and offers much greater flexibility in how train control is provided compared to existing signalling systems.

21. Invensys Rail’s modular signalling solution is constructed from a small number of standardised units that contain all of the equipment necessary to carry out a particular function. Much of the testing of these units is carried out off-site and they can be installed very quickly by a small team without excessive equipment. The system will bring typically 40% to 45% reductions in the cost of providing signalling for secondary lines. This alone represents a potential saving to the railway of around £150 million per year.

22. These savings are generated not just from the changes in design, testing, installation, standardisation and modularisation of equipment but also from significantly reduced project durations, reduced time on-site and reduced needs for civil work, heating, lighting and environmental control equipment. Such modular systems can also be compatible with ERTMS (as is the case with our own modular solution).

IMPORTANCE OF LONG-TERM PLANNING FOR THE RAIL INDUSTRY

23. To ensure that the rail industry and its suppliers understand how the railway is expected to develop over the long-term and the infrastructure and technology that will be required to achieve this, and to help guide the long-term public and private investment needed to underpin this, we believe the adoption of a well-defined long-term strategy for the railways is essential. An approach to procurement and investment which is highly transactional in nature, as now, rather than based on long-term objectives and strategic partnerships weakens the supply chain to the long term disbenefit of infrastructure owners and the government.

24. The Periodic Review, High Level Output Specification and Statement of Funds Available structures undoubtedly help the railway industry to plan on a longer term basis than was the case prior to rail privatisation. However, these planning structures remain transactional in nature and short-term in focus.

25. A long-term strategy, perhaps taking the form of a strategic 30-year Control Period that sets out in high-level terms a clear developmental path for the railways, would help to guide future funding requirements, investment decisions and product and service developments. This is vital for the supply chain, especially those at the high technology end of the industry such as Invensys Rail, if we are to continue to have the confidence to invest in research and development programmes, and the recruitment and training of skilled engineers. Such a long-term Control Period would overlay the existing 5-year Control Period structure, guiding the specific investments that take place within each five year block.

26. While the lack of long-term planning is not a barrier, as such, to delivering new signalling and train control systems it does nonetheless result in a sub-optimal approach to research and development, and to a pricing strategy which may offer less value for money than would be the case if suppliers had greater certainty over their longer term order books. We would urge the Government to give this approach further consideration in the context of its rail value for money review.

CONCLUSION

27. The world has changed considerably since the Eddington report was published in 2006. Given the scale of the budget deficit and the new Coalition Government’s overarching policy commitment to reducing it, difficult spending decisions will have to be made across Government. We recognise the complexity of these decisions, but getting them right will be absolutely critical to the delivery of the Government’s strategies, in transport and other policy areas, for the foreseeable future.

28. Investment in rail signalling and control technology may, to the outside observer, seem like a second order issue within the spectrum of competing demands for limited public funds. We fully appreciate the huge pressure that the Government will be under from a wide range of competing interests in this regard. But when narrowing down the debate to what spending should prioritised, and in particular what the priorities should be for transport investment, we reach the inescapable conclusion that signalling investment should be among those priorities.

29. Invensys Rail recognises that it is not a disinterested observer in the debate over future investment strategies for the railways in general, and in signalling and train control systems in particular, and that we would be a potential beneficiary of any decision to prioritise spending in this area. However, the evidence shows that emerging rail signalling and train control technologies can play a central role in materially improving both the cost and efficiency of the railways as, as such, would be the right way in which to invest limited resources.

September 2010