Transport Committee - Minutes of EvidenceHC 1001

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Oral Evidence

Taken before the Transport Committee

on Monday 4 March 2013

Members present:

Mrs Louise Ellman (Chair)

Sarah Champion

Kwasi Kwarteng

Karl McCartney

Lucy Powell

Iain Stewart

Graham Stringer


Examination of Witnesses

Witnesses: Brian Simpson MEP, Chair of the Transport and Tourism Committee, European Parliament, Keir Fitch, Deputy Head of Cabinet, European Commissioner for Transport, and Sian Prout, Head of Unit, Single European Rail Area, European Commission, gave evidence.

Q1 Chair: Good afternoon and welcome to the Transport Select Committee. Could you give your name and organisation?

Brian Simpson: Brian Simpson; Member of the European Parliament from the north-west of England. I am Chairman of the European Parliament’s Transport for Tourism Committee.

Sian Prout: I am Sian Prout. I am Head of Unit for Rail Transport in the European Commission in the Directorate General for Mobility and Transport.

Keir Fitch: I am Keir Fitch. I am the Deputy Head of Cabinet to Siim Kallas, who is Vice-President of the European Commission responsible for transport.

Q2 Chair: Thank you very much. Could you tell us what you expect the new railway package to achieve?

Keir Fitch: We have a number of objectives with the railway package. Fundamentally, the Commission produced a White Paper on the future of transport two years ago. It looked at how we addressed the need for transport to underpin the European economy, the need to deal with what we foresaw as being a very substantial increase in transport volumes by 2050, and the need, at the same time, to move away from oil for climate change and fuel security reasons.

The rail package is trying to ensure that rail is in a position to play a very big role in the future growth of the transformation of transport by, first, completing the creation of a genuine single European rail area. There has been a lot of legislation over the past 20 years gradually developing common technical standards across rail, and gradually opening up, particularly, the freight market to a more liberal system.

In this package, first, we create a system where there will be a single series of safety certificates for rolling stock in Europe and for train operating companies. They will get a certificate once and, essentially, can operate everywhere, which saves a lot of costs and time and allows the market to respond much more quickly. Building on experience from a number of member states that have opened up their passenger rail markets to competition or competitive tendering, which have seen very good results both in terms of growth in passenger numbers and savings to the public purse, we want to extend those models across Europe so that there is the possibility for railway companies to develop European services properly, both in terms of underpinning their international services but also offering, we hope, new and innovative services within member states. It would also increase the quality and cost-effectiveness of public services, which are a very large part of the railway market, through using some of the disciplines of a tendering process.

Finally, we want to ensure that there is a railway structure in which this competition can happen by looking at what we call governance issues. It is essentially ensuring that there is at the centre of the railway a strong network manager responsible for the entire operation of the rail network from the long-term planning of infrastructure through the path allocation-the timetabling, effectively-through the day-to-day operations of the railway and including the maintenance of that railway. Experience from the UK and France, in particular, has told us that that needs to be in a single body and strongly managed from the centre, but it ideally needs to be separate from the train operators, who can then both compete with each other but co-operate closely with the network manager to ensure the seamless transport service that we need.

The package includes various measures to create the idea of a strong network manager at the centre but also a number of possibilities if member states wish to keep what we call the holding company structure, where there is a network manager that is still part of the same corporate group as train operators. In that case, there are very strong safeguards to ensure that the network manager at the centre of the railway cannot abuse that position to help the train operating companies that are linked to it.

Q3 Chair: This sounds all right, but it is very generalised, is it not? How would you ever know if you had achieved it? Are you looking for specific rates of growth, usage of the railways or of fares coming down? What objectives do you have on this? Can you answer, Mr Fitch, or maybe Ms Prout could tell me?

Keir Fitch: In terms of the objectives, the first one with the certification is straightforward. We will move from a system at the moment where, if trains are certified in one country and then somebody wants to use them in another country-which is very often technically possible-that process currently takes several years and several million euros in many cases. With the new structure, we eliminate that entirely. There will be a single certificate that is valid throughout Europe.

In the impact assessments that underlie the proposals-

Q4 Chair: That is one specific thing. In terms of looking at the railways as a whole, how would we ever know if this package, if implemented, was successful? Are you looking at a rate of growth of usage of rail in the UK or in Europe as a whole? What is it that you are looking for that would enable us to judge if this was a successful package or not?

Keir Fitch: Fundamentally we are looking for growth.

Q5 Chair: Growth in all countries equally or growth across Europe; what would it be?

Keir Fitch: We would like the rates across Europe, as far as possible, to meet those that we see in the best-performing member states at the moment. Although there are sectors such as high-speed rail in much of Europe and the general passenger market in countries like the UK and Sweden that have seen very rapid growth over the past 10 or 15 years, the overall situation across Europe at the moment is that rail use is pretty much flatlining, with significant declines in some parts of southern and eastern Europe. That is what we want to reverse.

Q6 Chair: But you do not have a figure of growth that you want to achieve.

Sian Prout: No, we do not have a figure.

Q7 Chair: Commissioner Kallas said that some European rail markets are faced with stagnation or decline. Do you apply that description to the UK rail market?

Sian Prout: Absolutely not. In fact, our impact assessment shows that the UK market is very much a market of growth over the last 10 years. As Mr Fitch was just saying, we have seen levels of growth of around 50% or 60% in the rail market. In Sweden, we have seen similar figures. We are trying to introduce the sort of best practices of countries that have liberalised their rail markets, because it is only in the liberalised markets that we have seen those rates of growth.

Q8 Chair: Does that mean you think that the rail market in the UK is right and this package is to do with other countries?

Sian Prout: We believe that the rail market in the UK is a very good example of managing rail today. Obviously, improvements can be made, but for us it is a very good example to export elsewhere. It is not the only example; there are other examples that we have seen of growth in Germany and Sweden. There are other markets as well.

Q9 Chair: But you do not have any specific figure for the growth you want to see in the rail market.

Sian Prout: We do not set down figures or targets in the proposal itself, but if all countries were to achieve the type of growth that the UK and Sweden have seen over the last decade, we would really have a huge success with this package.

Q10 Chair: Mr Simpson, do you have a view on the package as a whole in terms of its objectives?

Brian Simpson: I can give you a view, but as you are probably aware, the Parliament has not yet started its process of examining in detail the six bits of the package that make up the fourth railway package. You will be aware of what we did in the past with other rail packages. One of the problems has been the lack of implementation of some of those rail packages by member states in the past.

To go back to your question-does this package have less of an impact on the UK than others?-without a shadow of a doubt it does because of the way that the UK has set itself up in the railways since the privatisation, for right or for wrong, whatever your views are. We are where we are, and clearly the United Kingdom is well down that track of liberalisation and privatisation. Therefore, in my view, the effect of the fourth railway package on the UK will be less than will happen with other major countries within the European Union that have not gone down that line of liberalisation or privatisation.

The one area where I would caution there could be effects on the UK is in the rail freight sector and the need to ensure, particularly, pathways for the freight sector and the channel tunnel, where there are always discussions about the rules and regulations that appertain to the channel tunnel.

For me, the key issue is this. The problem we have with railways at the moment on the mainland of Europe is getting them to cross borders. In effect, in Europe, we have 25-or 26, if you take Croatia-separate railways running to their national standards and not coming together in any way. There are odd exceptions with Eurostar, Thalys and so on, but in the main, there are separate railway entities working in a separate national structure, which means that facilitating cross-border traffic becomes increasingly very difficult, particularly for rail freight. That is what I want to see come out of this fourth railway package. I want to remove the technical barriers that give you the situation of everything grinding to a halt when you hit a national border.

Q11 Chair: You say that this package would not have a major effect on the rail system here because we have already made a number of changes. Where would the changes be made-which countries?

Keir Fitch: Where would the changes that affect this country be made?

Chair: No.

Sian Prout: Where would the impact be felt?

Chair: Yes. Where would the impact of this package be felt if it went ahead?

Keir Fitch: There are a number of elements. In terms of the opening of the passenger market, either allowing true competition in the passenger market by private operators establishing competing services or through operators bidding for public service contracts, it would have a very big impact in most of Europe. At the moment, the passenger market is liberalised here in the UK and Sweden, and in Germany in so far as there is the possibility to have open access services and most of the regional services are tendered by the German regions, by the Länder. There are limited open access services in Italy, Austria and the Czech Republic at the moment. Beyond those countries, the markets are very largely still run by integrated national railway operators. All of those countries would therefore have to change these systems.

Q12 Chair: Is it right that lobbying by Germany and France changed the original proposals?

Keir Fitch: This is a very complicated and clearly a very politically sensitive package. We have been in very close contact with all member states, including the UK, but, yes, including France and Germany.

Chair: I asked you about Germany and France.

Keir Fitch: There were all sorts of drafts that were developed over a long period of time. Of course there were representations made, particularly from Germany. We are in the business of politics-trying to produce proposals that will get support in the European Parliament and the Council. We changed the proposals in an iterative process to produce something that is still, no doubt, very controversial in both Germany and France but which we thought produced the best balance between the various conflicting objectives.

Q13 Chair: Was that change in relation to the relationship between infrastructure providers and operators?

Keir Fitch: Yes. In the final package, we have ended up with an option where either we have what we call total unbundling-an integrated infrastructure manager, which is completely separate from the train operators-or we now have the possibility of member states retaining a holding company. This is something that we always expected we would end up with at one point in the negotiation but we ended up introducing it early on. That means that both the infrastructure manager and train operators are within the same group, but at the same time in our proposal there are very strict separation requirements within that holding, and also-this is the most important innovation-a possibility for other member states not to allow a holding company to compete on their territory unless and until the member state from which that company comes has satisfied the Commission that it really is providing a level playing field at home to all the people who try and compete in that market.

So, yes, we made some changes, but we made them with some very strict and, we believe, appropriate safeguards.

Q14 Iain Stewart: Following on from that point, there is a provision in article 2 that a state can bundle the tendering of services up to one third of the national network. There will be a suspicion that that will just play right into the hands of the big operators such as Deutsche Bahn, SNCF and NS, restricting access to potential new operators.

Keir Fitch: With tendering, we have tried to balance between, on the one hand, a concern we had that some of the smaller member states would simply try and tender their market as a single entity and do it in a way that, frankly, would be impossible for anybody except the incumbent to bid for, and on the other hand, a concern that if we set a limit purely by, in qualitative terms, the number of train kilometres, we would end up forcing large member states like the UK and Germany to have so many separate tenders that it would become extremely expensive and unmanageable.

We do not really fear that most of the bigger countries will simply go for three franchises. In the UK we know we have 19. In Germany, as I said, they already have a system where each of the 16 Länder has responsibility for the provision of regional passenger services. There are already, at a regional level, 16 entities offering tenders; and they often offer several. In Germany, you are already looking at a situation where there are probably 30 or 40 separate contracts. We do not fear that this will be abused in that way.

Q15 Iain Stewart: If I can just follow on from that, we visited Germany as part of our Rail 2020 inquiry. As you say, there is a clear difference between the intercity market and the regional one. Under these proposals, is there not a danger that the regional commuter services will continue to be operated by a large number of different contracts, but the core intercity lines will effectively still be controlled by Deutsche Bahn South, Deutsche Bahn Middle and Deutsche Bahn North? Is that not the risk in these proposals?

Keir Fitch: At the moment, the intercity market in Germany is not covered by this tendering requirement at all. In Germany, the intercity lines are run on a purely commercial basis, as we understand it. Under the open access provisions of the legislation, anybody else who wants to run an intercity train service in Germany can go to the German authorities and say, "I want to run a train service", and providing they have the requisite safety certificates, essentially they will be allowed to. The reality is that there are already a couple of services like that in Germany. There is a service from Köln up to Hamburg.

Q16 Iain Stewart: We found there were two, which is not many out of a national network the size of Germany.

Keir Fitch: There is an interesting question as to why that is. If you talk to Deutsche Bahn-I know you have one of their representatives here later-they will tell you that they find the economics of those long-distance services quite marginal. The alternative would be to say that there had to be some kind of franchised or tendering system for not only the public-supported services but also the commercial services, which is the route the UK went down. We hope that by making it easier to gain access to the railways through the package, through addressing some of the governance issues with the rules on Chinese walls and so on that we have put in place to ensure a proper separation between infrastructure managers and train operators, we end up with a market throughout Europe where it is much more attractive for competitors to come into those markets and offer services.

If you look at Italy, for example, again you have a system where the intercity routes are already supposedly open to competition. You will find quite effective competition now happening on the high-speed line that runs from Naples up through Rome to Milan. You have a competitor there, NTV, which is taking something like a quarter of the market, but since NTV came into the market it has grown very substantially. Both the historic operator FS and NTV are gaining new passengers and at very good rates. Competition does seem to work there.

Q17 Iain Stewart: I have one final technical question. Can the bundling of services be a mix of commuter, regional and intercity lines, or does it have to be on types of operator?

Keir Fitch: We have tried to be quite flexible in the package. There are some basic competition law concerns flowing from the treaty that we have to respect. When member states define public service obligations, they have to be proportionate and, to some extent, necessary. We are very well aware that railways are networks where some apparently non-profitable services feed some apparently profitable services, but the things co-exist together. What we have provided-you will find this in the amendments proposed to the PSO (regulation 1370/2007)-is that member states have to go through a process of defining what they need for public services and then tender accordingly. They are allowed to have a very broad choice in the bundles of services they put together precisely to allow a network effectively to continue to ensure that there is not undue cherry-picking of profitable services with, therefore, rather negative consequences on public finances and so on. We have tried to deal with that.

Q18 Chair: Mr Simpson, did you want to comment?

Brian Simpson: Yes. This is like a déjà vu meeting. The Commission came to some of the Transport Committee meetings, but I sat this side and not that side. Excuse me for that.

To go back to Mr Stewart’s question: was there lobbying from France and Germany? You bet there was lobbying from France and Germany. There is no question about that. Whether or not it was for the Commission then to respond is a matter of judgment whether you think they are dealing in realpolitik or whether they were going to go straight ahead, particularly on the unbundling issue. Even where we are now, I cannot guarantee, for example, that the members of my Committee will support the Commission line as to what has come out. There are still some very strong opinions from countries like France, Germany and Austria against the unbundling, but there are others that are saying we should go for full unbundling.

One of the dangers in some respect with the Commission’s proposal is that we could end up falling between the two stools and ending up with something that nobody likes. There is an issue there that certainly our members are looking at very carefully and there are some strong opinions from the countries I have mentioned. It is barricade stuff and "over my dead body" type of thing. There is a lot of work still to be done to convince my Committee that this is the way forward as well.

Mr Stewart, you mentioned frustration with some of the services. Germany has two or three, but some countries have none. Germany is not the worst at opening up in that sense. There is a concern. This is one of the problems you have to look at when you are dealing with European railways. It is the complete difference and diversification between eastern Europe and what the railways have there compared with western Europe. It really is the haves and the have-nots, if I can put it as bluntly as that. You are looking at service levels declining in eastern Europe, whereas we in the UK, and in some of the other member states, have an increase in patronage.

The key issue here is rail freight in Europe. Frankly, Chair, I think rail freight is a whisker away from drinking in the last chance saloon in Europe. It is that critical. One of the problems is that you cannot get rail freight across a national border. You can get a 40-tonne or 42-tonne lorry across a national border because it is interoperable; the railways are not. That is one of the things that my Committee is going to really home in on. How do we get these trains across borders rather than the present system of every train stopping at a border?

I can tell you, Chair, that it took them five years to decide whether to have three red lights, two red lights or one red light on the back of a freight train. Following that, they had another discussion as to whether the red light should flash or not flash. Those are the problems we are dealing with on a day-to-day basis.

Q19 Graham Stringer: I want to go back to what Mr Fitch was saying about Chinese walls between the infrastructure companies and the train operating companies. In the Commission’s proposals, would that stop subsidy and the transference of funds between the infrastructure companies and the train operating companies, or would it not?

Keir Fitch: It would. In fact, there is a separate element in the proposal that makes very clear that the only moneys that can be paid by the infrastructure manager back to the holding company have to be seen to flow straight through to a dividend to the ultimate owner of the holding company-in other words, back to the state in virtually all cases. We have been extremely strict on that because it is obviously the area where there is the greatest concern from competitors and potential competitors.

Q20 Chair: Will the alliances that are currently being developed in the UK between Network Rail and the train operating companies be allowed to continue and develop under this package?

Sian Prout: We discussed the alliancing system last year with the Department for Transport and Network Rail. From what we understand of the alliancing, there is full compatibility with our proposals in the fourth package. We see no reason why the alliancing could not continue.

Q21 Chair: So the answer is yes.

Sian Prout: We are continuing the dialogue, but the answer is yes.

Q22 Chair: Will the direct award of contracts for less than 10 years be illegal or inadmissible under the package?

Keir Fitch: One of the major innovations of the package is to try and ensure that we get competitive tendering into the public service market. In general, in future, there will have to be tendering of those contracts. There is the possibility if it is retained-it is in article 5(5) of the proposal-for there to be emergency awards for periods of less than two years. There is a degree of flexibility allowed, but the primary objective is to ensure that services are tendered.

Q23 Chair: At the moment, the UK Government have exercised flexibility in relation to the West Coast Main Line and to some of the other franchises. Would all of those things be permissible under the package?

Keir Fitch: The West Coast Main Line, as I understand it, would be because that is effectively part of the emergency extension allowed under article 5(5). The position on the East Coast Main Line, if we are now beyond the two years permitted, which I think we probably are, may become something in the future where a different solution would have to be found.

Q24 Chair: Under the package would that make a different solution more likely?

Keir Fitch: Under the package it would clearly be limited to a two-year direct award for emergencies. With the East Coast Main Line, if I am correct in saying it has gone beyond the two years, they would now have had to do something different. Yes.

Q25 Chair: You propose greater powers for the European Rail Agency. Will it have the resources to take on new responsibilities? Why do you think it needs more powers?

Keir Fitch: Why we think it needs more powers is very clear. At the moment, to compare rail with aviation or road, if you want a plane certified, you go to the European authorities, to EASA, the aviation agency, or if it is a Boeing, you go to the FAA, and we recognise their improvements. If you want a motor vehicle certified, any member state does it. They give it type approval, and that is valid throughout Europe.

The situation with railway rolling stock today, though, is that it has to be recertified for each member state that wants to run it. We are in a situation now where the major manufacturers are trying to build essentially similar trains to run everywhere in Europe, but they still have to go to each authority in turn to get them certified to run on their tracks. This is just a very expensive and very slow process, which ultimately means that either public authorities or the customer, the end passenger, is paying more. It is also severely weakening our railway manufacturing industry.

We need to address that. The existing legislation has gone some way to address it. The starting point was that for historic reasons, every railway in Europe had very different technical standards and it simply was not possible to take a train across borders because it would not work with the signals or anything else. With the new standards, we are getting towards a system where there will be common standards across Europe, or where there aren’t, we understand the differences and they are fairly simple and easy to deal with. To date, though, we have not matched the standards with an authorisation system that is also pan-European. That is the step we are now proposing to take.

In terms of your question about resources, the Commission, like everywhere else, is of course under severe resource pressure. We have negotiated that there will be an extra 43 staff for the agency to take on the extra work, but we will of course continue to depend on working very closely with the national safety authorities. In fact, what we will have is a solution that is common across all sorts of other regulated areas in Europe, whether it is drugs or food safety, or even to some extent what we do in the aircraft area. Individual National Safety Authorities are given responsibility by the agency for assessing a particular kind of train and informing the agency whether it meets the technical requirements, but it will then be for the agency to take the final legal responsibility for certifying, or not, that train or whatever other kind of equipment it is.

Q26 Chair: But there are areas where the European Rail Agency would be duplicating powers that the Office of Rail Regulation now operates. Are you aware of that?

Keir Fitch: We are aware that at the moment many of these things are done by individual member states. In fact they are required by the current legislation to do that work. Yes, we are perfectly well aware of what they are doing. What we are saying is that in future, rather than rolling stock being certified by, in the UK’s case, the ORR, and in Germany’s case by the Eisenbahnamt, in future there will be a single safety certificate granted at European level by the European Rail Agency. As I say, that might well be granted after much of the detailed technical work has been done by EBA or ORR or whoever, but there would be a single certificate and, in principle, that means that the train is then certified to go everywhere within Europe.

Brian Simpson: The problem is this. Let us take as an example a locomotive that you want to run in three or four countries. To certify it takes you eight years and costs you €3 million. That is the situation at this moment in time. The problem is that the rail agency is dealing with 11,000 separate national rules. That is what they are trying to deal with at this moment in time. It goes back to history and what has happened in the past. As we know, railways love to tell us about the past. I say that as a railwayman. That is the problem that we are being faced with here, and that is why one of the crucial elements of this package for my Committee is how we will progress on the interoperability and the role of the rail agency.

As has been said, the big Airbus A380 got its certificate from EASA. Everybody else then accepted that. All we are asking for from the rail agency is a similar system that you can put in for the railways. At this moment in time it has denied us. I have looked carefully at what people who are coming before your Committee have submitted in their written evidence and what they have also said to you orally. I can only go on what they have said to me orally. I have yet to come across anybody, apart from the national rail regulators, who does not think it is a good idea to bring everything together-the technical specifications going on now and the certification to bring it all together on a European basis.

There are going to be issues of overlap, and that will have to be looked at. Coming to your question on staff-this is a crucial one-we will have to look at the whole of the agency staffing structure, not just the rail agency but others as well. One of the problems is that we are working on the European Commission staffing structure. In order to be appointed to the rail agency, you have to have the same criteria and qualifications as for the European Commission. I think that is nonsense. I want the best safety people on railways at the rail agency, not whether they can speak four languages.

The other point is that because of the Commission’s employment strategy, everybody is moved around. One of the dangers at the moment with the rail agency is that, having built up an expertise, in a couple of years’ time they have to move. Why? Because that is the Commission’s way of working.

One of the things my Committee will be looking at is those practices of how you take these people on and how you retain them. We are certainly thinking about the safety agencies like EMSA, ERA and EASA being taken out of that kind of Commission employment practices and as separate bodies.

Sian Prout: We are not trying to supplant all the work of 25 national safety authorities with 43 additional staff. The model that we propose is co-operation between the European Railway Agency and the national safety regulators in the member states. There is nothing in the proposals that would indicate that the staffing at national level of the safety authorities should reduce. That is obviously a subsidiarity issue, and it is for the member states to look at themselves once the new model is up and running. We are just proposing 43 extra staff for these additional tasks that the agency would take on.

Q27 Graham Stringer: I am slightly surprised that you use EASA as an example. This Committee found, when EASA was set up and functions were transferred from the CAA, that it was not fit for purpose and it was a bit of a disaster when it was set up. Putting that to one side, basically, rail regulation and safety in this country work pretty well at the moment after the accidents 10 years ago. What would be the extra cost to this country of joining a European regulatory body?

Keir Fitch: There should not be any extra cost.

Sian Prout: There will be savings that we have estimated in the cost-benefit analysis across Europe of 500 million over 10 years to the rail sector.

Q28 Graham Stringer: What about to the national Governments? Are you saying that, compared with the ORR at the present time, there would be less cost in this country, or would there be a transfer from what is a pretty effective organisation at the moment, which does not really need many changes? In other parts of Europe there are less high standards, I would say, and less effective bodies. Within that overall saving, would this country have to pay more or less?

Keir Fitch: We would expect it to pay less. The objective is that, instead of the ORR and, say, the Germans and French all approving separately for their own network locomotives or other rolling stock, which is essentially the same, it would be done once at the European level. Instead of paying three times, or however many times, you would be paying once for it.

Q29 Chair: You said before in answer to my question that the national organisation may well still do the detailed work, but it would then be looked at at a European level.

Keir Fitch: Yes, but what would happen-as I say, this already happens if you look at other sectors where we have European regulatory bodies-is that one of the national safety authorities would be selected, whether by some form of contractual means or Buggins’s turn, to do the detailed assessment. It may be that if there are trains being manufactured by Bombardier in Derby, it would be appropriate for ERA to contract that work back to the ORR to do. But if there were trains coming from elsewhere in Europe, then that would go perhaps to the Eisenbahnamt or to the French authorities or whoever, but it would still only be done once. Once it had been done, that particular class of train would be able to run throughout Europe on the basis of a single approval rather than having to be reapproved by all the other national safety authorities.

Q30 Graham Stringer: What you are proposing is that the regulation and safety of the infrastructure would remain with the national authorities but the rolling stock authorisation would be done at a European level.

Keir Fitch: The rolling stock authorisation and also the basic safety certificate for the train operators in fact.

There is just one other thing to add. This is something that has been very clearly asked for by pretty much the whole of the rail industry-both the manufacturers and the train operators, including many of the biggest operators in Europe. They have all come to us and told my Commissioner very firmly and very directly that, for them, this is one of the biggest obstacles that we need to eliminate. This is something that has absolutely full industry support.

Sian Prout: I would add one last word on the resources. The 43 extra staff are resource-neutral because they will be funded through a system of fees and charges, which is also operated in other agencies. We tested this with the sector, and the sector was perfectly willing to pay the fees and charges for the certification on the basis that instead of having three, four or five different certifications as they have today, they would just have one single one so it would reduce costs for them.

Q31 Graham Stringer: It is possible to envisage a situation, though, isn’t it, where you have separate regulation for rolling stock and infrastructure, where you get conflicts between the standards and regulations set for the rolling stock compared with the standards that you want for the infrastructure-that one might determine the other?

Keir Fitch: There shouldn’t be. Through what we call the TSIs-the technical standards for interoperability-for the future, the standards for both infrastructure and rolling stock are determined at a European level. Where there is an issue, of course, is that we are dealing with a huge amount of history where, for historic reasons, there are different systems in member states. The way this is envisaged as working under the directive is that you have your basic authorisation granted at European level and then the infrastructure managers have to create what we call an infrastructure register. Network Rail is already fairly well advanced with that. It indicates the specific technical characteristics of individual routes so that the train operator can then check against the register to make sure that its train matches those requirements. There is an obvious issue with the UK that although the track gauge is the same as is common throughout Europe, the rolling gauge-the height and width of trains-is much less. Clearly, if you are going to run in the UK, you need to make sure that your trains are of the right size.

Graham Stringer: For them to go through the tunnels.

Keir Fitch: Yes.

Q32 Chair: Mr Simpson, did you want to comment?

Brian Simpson: I just reiterate the point that certainly from my Committee’s point of view, there is frustration that we cannot get trains across borders in 2013.

Q33 Chair: Ms Prout or Mr Fitch, could you give me one example of something contained in this package that will make cross-border services more successful for passengers and for freight? I want a quick answer and something very specific. Is there anything specific? Let us take passengers first. Is there a specific item in this package that will make it better for passengers?

Keir Fitch: Yes. There is the fact that you will have a single certificate, so that if you want to run a train and you have just got your train, you know it is authorised for the whole of Europe and you will just go and run with it. That should make it a lot easier.

Q34 Chair: That is for passengers and for freight.

Keir Fitch: That goes for both passengers and freight.

Q35 Chair: That is a specific thing you can pick out that would make cross-national services easier.

Keir Fitch: Yes, in terms of making that happen.

Chair: Thank you very much for coming and answering our questions.

Examination of Witnesses

Witnesses: Lord Tony Berkeley, Chairman, Rail Freight Group, Richard Brown CBE, Chairman, Eurostar International Limited, Johann Metzner, Head of Transport Policy Europe, Deutsche Bahn AG, Jean-Pierre Ramirez, Railway Network Director, Eurotunnel, and Nicola Shaw, Chief Executive, HS1 Limited, gave evidence.

Q36 Chair: Good afternoon and welcome to the Transport Select Committee. Would you give your name and organisation, please?

Lord Berkeley: I am Tony Berkeley, Chairman of the Rail Freight Group.

Richard Brown: I am Richard Brown, Chairman of Eurostar.

Johann Metzner: I am Johann Metzner, Head of Transport Policy Europe of Deutsche Bahn.

Jean-Pierre Ramirez: I am Jean-Pierre Ramirez. I am the Railway Network Director at Eurotunnel.

Nicola Shaw: I am Nicola Shaw, Chief Executive of High Speed 1.

Q37 Chair: Which part of the rail package do you think is good? Are there any parts you think are bad? Who would like to start? Could we have brief answers but important ones?

Lord Berkeley: In respect of freight it is all pretty good. The discussion that I have just heard, especially from Brian Simpson, about the importance of getting free flows of freight across Europe is absolutely fundamental. You will have seen in my evidence the problem that UK manufacturers have had in getting approval for rolling stock to operate in France. You have also heard about previous trouble with Siemens trains ordered by Eurostar and by Deutsche Bahn. I am sure you will hear about that. I think having one single agency is an excellent idea. However, it is not enough.

Rail freight competes with road. It is in the private sector generally, in this country anyway, and does not get subsidised. It needs the comfort of knowing that it is going to get fair access to the network at charges that are the same and paid by everyone. This is why I welcomed the original structure of the fourth railway package. I am much less happy about the introduction or the retention of the holding company model, which I think causes problems for operators-not just in Germany; we have heard about that. The channel tunnel is a holding company, and I heard last week that the latest proposal from SNCF in France is to completely merge its operations with the infrastructure manager, which means that it will be very difficult for any other operator to get through the country at all.

I am very sad that the Commission has had to make this change. I just hope that it will not get changed for the worse even more going through the Parliament and the Council because unless we get fair competition all the way across Europe, rail freight is not going to grow.

There is one last thing, Madam Chair. We have five operators of rail freight in this country. It has grown by about 60% since the splitting up and privatisation. In France it has dropped by 50% because, frankly, the customers say the service is so awful. It gets held up, and the other operators, such as are able to operate, get treated very badly, so the customers turn to road, which they will continue to do unless we can get it right. When Brian Simpson says we are in the last chance saloon, I hope it is not true, but I am worried.

Q38 Chair: Mr Metzner, do you agree with those comments? You are presumably very pleased that the holding company is still there.

Johann Metzner: First of all, thank you very much for inviting us to this hearing today. We fully support the objective to open up national rail passenger markets. There are still significant asymmetries today. Some markets are open and some are less open. We think it is an essential part of a single European railway area to have equal access rights for all operators. This is something that we entirely support.

We would have wished that the market opening date could have been slightly more ambitious, but of course we understand that there are countries that need to prepare for market opening.

When it comes to improving the legal framework for interoperability in Europe, we also entirely subscribe to the objective. Today, the authorisation process for placing rail vehicles into service is very costly, lengthy and difficult. It does create an administrative market entry barrier for companies.

The enhanced role of ERA is also a very important and essential point of the fourth railway package. Of course, what Ms Prout said about the role play between ERA and national safety authorities, which will still remain in place for some time and will not be dissolved, is crucial. The co-ordination between existing national safety authorities and ERA must be well designed. The analogy can be drawn between EASA and the aviation sector.

When it comes to further measures of unbundling, it is important to understand that we already have strict requirements of independence in terms of legal and organisational structure and in terms of decision making when it comes to timetabling, path allocation and charging. We also have strict separation of accounting. All this has been transposed in Germany. Only last Thursday, on 28 February, the European Court of Justice confirmed that holding models are in compliance with EU law if certain specifics are met, which is the case. We do not think that, in order to help the railway sector in Europe, it is necessary to impose further measures of separation.

It should also be noted that on 15 December 2012, which is a little over two months ago, the recast of the first railway package was adopted. It contains a large number of provisions enhancing EU rail regulation, which is positive, in terms of access to service facilities, charging regulation, transparency of financial flows and the relationship between the infrastructure manager and the state. These measures need to be transposed by June 2015. We think that it would be sensible to transpose these measures first and to have them evaluated. That would give them the chance to prove their effectiveness and then, maybe if it is necessary, to discuss a new round of legislation, but we think this should be done first.

Q39 Chair: Would you say that the current arrangements, to be continued now, between the infrastructure owner and the operator in relation to Germany and Deutsche Bahn are in the interests of the German rail system rather than the system in other countries?

Johann Metzner: I think it has been proved that non-discriminatory access in Germany works. In 2012, the market share of non-DB companies in rail freight rose to 28.5%; in regional passenger services it rose to over 25%-26%. We think, yes, it has been proved to work, and we do not see a need to continue with further measures of unbundling at this point in time.

Q40 Chair: Mr Brown, could you give us an idea of what you think is positive in the package and any areas that you think are not?

Richard Brown: Yes, certainly. As far as Eurostar and international passenger services are concerned, frankly there is not an awful lot in it for us because it is principally about domestic liberalisation and unbundling. Having one organisation responsible for certifying rolling stock would be a step forward, but it needs to be said that the devil will be in the detail as to how that happens and how the European agency liaises with national agencies. It would need to adopt the most efficient existing system for existing countries rather than an amalgam of 26 different systems, if it is to be more efficient. Until we see the detail, it is difficult to comment.

We would say that, frankly, the package does not go far enough if you want to open up international passenger services for faster growth. Why do I say that? Infrastructure costs are our largest cost. Infrastructure costs for railways increase essentially linearly with distance, unlike airlines. Each national infrastructure operator sets its own level of charges to set domestic policy. When you add those up across a number of countries-for instance, London to Amsterdam-the total of what we would have to pay were we to go to Amsterdam, which we would like to do, is simply not economic given the market prices. We would like to have seen this package contain provisions for much stronger regulation within each country in terms of the predictability of infrastructure prices going forward. If you are going to invest in new trains, you want to know what you are going to be paying for infrastructure access a good many years ahead and what the inflation clauses are going to be-they do not exist on most European infrastructures-and the level. If you merely add up national infrastructure charges country by country, you will not see strong growth, and particularly new through services being operated to the amount that most people would like to see. Stronger regulation of the level and predictability of infrastructure charges is, we would say, the most important single obstacle to faster growth for international passenger.

Q41 Chair: Mr Ramirez, do you have the same view about that?

Jean-Pierre Ramirez: Our view regarding the fourth railway package, for starters, is, indeed, that the positive part of that is the rolling stock authorisation. At last, hopefully, when that is in place, it will accelerate the process for having new rolling stock approved and new entrants having easier access to rolling stock. However, we very much hope that we are not going to have to wait until then for that to happen. That is within the Government’s remit to approve.

In our particular case, the regulator is the Intergovernmental Commission, which is run by both the French and UK Governments. We are now in a situation where we have been working with new entrants for the last three years to try to help them enter this market. We hope that we will not have to wait until these new powers for the European Railway Agency come into force to have authorisation for those new trains in the channel tunnel and to open up the market to competition.

There are other barriers regarding the passenger market. We have put those in our written submission. There are issues with excessive and disproportionate security arrangements, considering the fact that it is land transport and not airline transport. We could develop that separately. That is a problem in the case of longer destinations, where you simply cannot afford to have a security base at a number of stations over a longer distance only for cross-channel traffic. Today, you can get on board any type of train across Europe, including from anywhere in Europe up to Calais, and from Folkestone or Ashford to London, or anywhere else in the UK, without such stringent or costly security arrangements as we have elsewhere. We will develop that. Unfortunately, there is nothing in the fourth railway package that is going to do that. That is more a matter for Government to work with the infrastructure manager and train operators.

The third point is that I would agree on the fact that there is very anarchic growth of infrastructure charges across Europe. In our particular case, the charging framework was put in place for the channel tunnel 25 years ago. That gave predictability over the very long term on our access charges, with a lower than RPI indexation formula. We welcome the fact that in the UK we now also have a long-term indexation formula for access charges. That is not the case on the continental side, where longer distances have to be travelled. It creates pretty much a problem of uncertainty for the new entrants that we are working with. They may be investing in the long term to develop a service, with an open-ended liability on the access charges that they may be paying in France in four or five years’ time and so on. If you look at the record over the last five years, there have been very high access charge increases, both on the French and UK domestic networks. They are well above inflation. That is something that needs to become predictable over the long term. Again, perhaps further rail packages could improve that, but at the moment it is up to national Governments to charge operators a little bit more when they want to, in order to reduce the burden on the taxpayer eventually for running the railway.

As to freight, of course there are improvements in the approval of rolling stock, potentially at a central level, which will facilitate the approval of locomotives for different countries and so on. Unfortunately, the same thing does not entirely apply to track. Part of the earlier debate was on that. It will affect signalling systems in the future and, hopefully, electrification, but there are still problems with the gauge of the track; and that was touched upon. It is a very important problem for the UK network and for rail freight going forward where you have special wagons that need to be used for cross-channel rail freight. There are special wagons for the UK network, which are about double the cost of normal wagons in the European Union. That increases the cost of running rail freight services for the UK network.

There is one exception, as we wrote in our submission. There is one route for standard European gauge wagons coming into the UK, which is the High Speed 1 route. That is just the one route. It is limited, and it has been successful in attracting some traffic over time. I am afraid the fourth railway package does not, as far as we can see, do anything to resolve that.

Q42 Chair: Ms Shaw, what do you find positive about the package, and what is negative or missed out?

Nicola Shaw: Very similarly to my colleagues, the point about regulation and strengthening the regulation across Europe is very positive. The point about bringing together the infrastructure managers and getting better co-ordination between infrastructure managers across Europe is very important. For any customer of ours to run international trains, they need to operate over at least three pieces of different infrastructure-us, through the channel tunnel and then into France. If they want to go any further afield, they have to operate in other jurisdictions and other infrastructure managers. There needs to be an obligation on all of us to work together to provide paths that are available at the right times and provide information about those paths to potential and existing customers in a way that meets their needs. We are doing that already, but more of it is a very positive thing.

You asked about what is missing. I am very supportive of the point about security missing; it is not just security, but border issues generally. The UK is outside Schengen. That has implications for the passage across Europe of railway trains. We are working quite hard to think about how we overcome some of those difficulties. We have three operators who are talking to us about running new services on High Speed 1 through the channel tunnel, and they are all facing very difficult issues. They are getting great support from the UK with the Home Office in bilateral and multilateral dialogue across Europe, but they are difficult issues and they do need to be resolved.

Q43 Chair: Will the proposed changes for the European Rail Agency make a difference to any of the issues that you have raised to do with interoperability and running more services? Will it make any difference to that?

Nicola Shaw: The point is that we are not sure. Richard made this point very nicely. If the process that is proposed makes things more efficient, that would be very good. However, their lack of clarity about how it will actually work in practice still leaves us in a world of, "We hope so but we need to see the details."

Q44 Chair: Lord Berkeley, do you have a view? Will the European Rail Agency as proposed make any difference to freight?

Lord Berkeley: I think it will make a great deal of difference, without repeating what previous witnesses have said. I understand from many of the major manufacturers of railway equipment on the continent that we in this country are called "Treasure Island", because the complexity and cost of getting approval for rolling stock is an opportunity for adding a significant amount to the price. It is nothing to do with the size of the train; that is just metal- bashing. It is all the approvals and the equipment inside.

The second reason, as I put in my evidence, is that there is this problem about British- made wagons trying to get approval to operate in France. If they had been made in France, it would have been dead easy, but because they are made here there are 25 reasons for not doing it. I am afraid this is an issue that goes across Europe.

If one has to get approval from the ERA, then I suggest it could be just as easy to do it from this country. I know people don’t like change and they say it will be more expensive, but I have not seen any evidence of that. Even more importantly, it will mean that if we want to get approval to operate in other countries where there is resistance, for whatever reason, then the ERA will take an objective and efficient view. So I am very much in favour of it.

Nicola Shaw: I said that I think we don’t know, because getting that objective and efficient view is difficult. Deutsche Bahn has applied to the channel tunnel safety authority, which is a safety authority made up of representatives from the UK and France-just two member states. The last question was asked about its piece of rolling stock at the end of November 2011. By the publicised processes, it ought to have had a decision after the last question within three months. It remains outstanding that it receives the piece of paper that says it can take the train. We are 18 months on, and that is in an arrangement where we have two member states involved. If this process works, it should be a great improvement because the transparency and the working together should work.

Q45 Chair: You say if it is going to work.

Nicola Shaw: If it works, and that is where the jury is still out.

Chair: I am trying to work out if it actually will work.

Lord Berkeley: I am sorry, but may I just add something? The end result of this process for the DB passenger trains was that they almost got approval. The paper was signed. The French member of the IGC delegation returned to Paris and was promptly sacked for approving a German train. This is the stupidity of it; I am sorry.

Q46 Chair: We will leave that; we have got the point.

Mr Brown, do you think the proposals in this package are going to encourage the development of more services? Is it actually going to happen?

Richard Brown: As they stand, to be frank, I do not think they will do an awful lot to encourage the development of more services. The biggest blockage for us is to find a way to get more competitive access charges across all countries, which means each infrastructure manager collaborating. We are seeing signs of this beginning to happen with our existing four infrastructure managers, if you like, to give us an international discount, as already applies in the UK. We get that from HS1 now for uneconomic routes to help us develop them. We need that from each infrastructure manager. We need regulation to ensure that happens if you have a reluctant infrastructure manager.

Yes, I totally agree with both Nicola Shaw and Jean-Pierre Ramirez that border control issues are another major obstacle. They are as much an obstacle to us developing new services as they are to new entrants. I guess we just have more experience of dealing with the authorities and have learned to live with the constraints rather than challenge them as much as perhaps we should.

Q47 Chair: So you see the border issues as major issues.

Richard Brown: That is also a significant constraint on the opening-up of new services. It is an equal constraint on developing connections as it is on developing new through services. That needs to be simplified and streamlined to opening up new services.

Q48 Iain Stewart: Mr Brown, could you comment on the question I put to the previous panel about the bundling of franchises up to one third of the national network, wearing your hat as the author of the Brown Review rather than as Eurostar? Do you have a concern that that would play into the hands of the big operators and restrict new entrants to the domestic markets?

Richard Brown: I guess that has to be a concern. The challenge for the Commission and the European Union is that, with 26 member states, there is a huge variety in the situation, the economics and the technical stage of each individual railway. Trying to produce legislation that matches all 26 means that you are always at risk of having to settle for the lowest common denominator. I can well see why the Commission has proposed a one-third limit for the small networks and some of the eastern European networks, because the passenger services are relatively limited. It would be a disaster were Germany, Britain, France or Italy to package up one third. There has to be that risk. It depends on the willingness of the national authorities to follow the spirit and not just the letter of the directive.

Q49 Iain Stewart: I appreciate the point about having to have arrangements that can work in all member states, but is there not a danger that it just creates opaqueness, and basically member states can do whatever they want, irrespective of what the EU rules are?

Richard Brown: If we are honest with ourselves, to a degree that has been the pattern of all European railway legislation. A lot of the member states continue to do more or less what they would wish within what is a relatively loose framework. That has to be a risk, yes.

Q50 Karl McCartney: I apologise for not being here at the start. You might have covered this. Have you talked about freight and passenger services. Do you see in the future an amalgamation of the two for car/rail services through the UK and on to the continent? Currently, if anybody from the UK does not fancy driving all the way to the south of France or Italy, whether that is in the winter or the summer, they have the option of going to Amsterdam and catching a train from there, but no longer in the UK do we have car/rail services. Is that something you might see going through Eurostar and maybe further north when we get HS2?

Richard Brown: Certainly speaking for Eurostar, I am afraid the answer is no. We cannot see any way in which you could provide those sorts of services on an economic basis. To make it economic to carry a tonne of metal around as well as one passenger, or four passengers if you have a family in the car, and the amount of train space that takes up, you would have to charge thousands of pounds. It is no surprise that across most of Europe, motor-rail services are in decline because they are largely uneconomic.

Q51 Karl McCartney: If fuel prices keep going the way they are going and with your charges for just going across the channel, you are getting close to £1,000 if you want to get to the south of France-

Richard Brown: I said many thousands of pounds. The answer should be for us to provide through passenger services for the passengers and their luggage, and then seamless car hire or whatever arrangements at the other end so that people can continue their journey and enjoy the benefits of car travel without having to drive all the way. I am sure that is what most Governments would like to see to cut down the amount of car traffic.

Q52 Karl McCartney: Do you think that might happen?

Richard Brown: We already offer car hire. You can go to Gare du Nord now. You can book a car on our website or on your smartphone and have your car ready to pick up when you get to Gard du Nord, and likewise in London. That exists, but perhaps we should promote it a bit more.

Q53 Chair: Mr Metzner, how do you expect Deutsche Bahn to be affected by this rail package, if at all? Do you think there will be competition for running services in Germany? Do you think you will be affected in any way?

Johann Metzner: With regard to the market opening part of the fourth package, the market in Germany has already been open since 1994 in a combination of open access and franchised public service contracts. The market model that the European Commission is proposing pretty much already reflects the reality that we already have today.

To come back to what my predecessor said, we think it is a very good idea to give the European Rail Agency more power that will go beyond only giving technical opinion.

Q54 Chair: I am asking how Deutsche Bahn will be affected. Do you expect competition from overseas companies?

Johann Metzner: With regard to market opening, if countries have to open up their national rail passenger markets, this will, of course, create new business opportunities for DB subsidiaries. The market in Europe is already open in freight but not in passenger. The domestic rail passenger market opening could create new business opportunities.

Q55 Chair: But states will be allowed to tender for large bundles, up to a third of the network. Could anybody realistically compete with Deutsche Bahn on that basis?

Johann Metzner: In my understanding, this proposal is designed for member states, who would today put the whole passenger network in one contract and then have it operated for a long period, be it 10, 15 or 20 years. I do not think that cutting the market into three pieces is specifically addressed at a large operator like DB.

Q56 Chair: But would it affect you?

Johann Metzner: It will not affect Deutsche Bahn in Germany because we already have a largely decentralised way of organising regional rail passenger services. We have 16 Länder, and they themselves are subdivided. This specific provision is designed to keep member states from declaring the whole network as one contract and by doing this seal the market off for a very long time.

Q57 Kwasi Kwarteng: Clearly, you state publicly that you are all for liberalisation; that is Deutsche Bahn’s general position. I want to know whether you can tell the Committee about movements within Germany. What is the resistance towards greater liberalisation in this area, if any?

Johann Metzner: As I said, the market in Germany is already open. We have 370 railway undertakings. The market share in freight of non-DB companies is 28.5%, with an increasing tendency. In regional rail passengers it is already over 25%, so there is no resistance to the opening up of the market.

Q58 Kwasi Kwarteng: Forgive me, but members of the Committee have been to Germany and we have spoken to Deutsche Bahn, among other players in the country. There was a suggestion that it was quite difficult for competitors to enter Deutsche Bahn’s market, given the size of your balance sheet, the amount of rolling stock you have and the scale of your operations. I just wanted to know what you thought about that.

Johann Metzner: I think we have to differentiate between two different types of market. One is the regional rail passenger markets, where tendering takes place. There, we have companies from abroad-from Italy, the UK, France, Denmark and the Netherlands. So there is no problem entering this market. What you are probably referring to is the fact that in the open access sector there is not much competition. This is not because the market is not open but because the circumstances for going into the market are completely different. There is no public money in the open access market, so the financial effort to go into this market is much higher and cannot be compared with the regional franchise market. Of course, we have strong intermodal competition between the private individual in a car and low-cost airlines. Competitors will go into the market segments where they think it is easier and where they can calculate over a time span of five to 15 years.

Q59 Chair: Mr Ramirez, could you tell us very briefly what is the most important thing that could be done to enable more use to be made of the tunnel?

Jean-Pierre Ramirez: On the passenger side, it would be access to trains-authorisation for trains. It would have to be done pretty much now, this year. It should have happened a couple of years ago, and there is really no reason to delay it further. We should not wait until ERA is provided with new powers, if it is provided with new powers, by 2015, otherwise this liberalisation will only happen towards the end of the decade.

Chair: That is the most important thing.

Jean-Pierre Ramirez: That is for passengers. The next bit will be the luggage security arrangements.

For rail freight it is infrastructure. We have problems with infrastructure on the UK side. The gauge is wrong; it needs to be released and improved for access to the channel tunnel. In France, it is quality. Tony Berkeley mentioned that earlier. The quality across the French network is quite disastrous at the moment because of problems they have with the way it is organised and the way it is separated between the owner of the infrastructure and the people who maintain it and so on. They are aware of it and are working to reunite it. Hopefully it will improve, but at the moment it is quite difficult for operators to operate in.

The last problem is that, because services are international and go across the Alps, there is a problem with the length of the trains. Trains are cut short by over a third to get through the Alps. If you are looking for a train going to Italy, it is potentially 50% more free revenue with no extra cost. That would considerably boost traffic.

Q60 Chair: In relation to the British Government, what should they be doing now in terms of negotiating on this package? Are there any red lines? Who would like to offer me a view on that?

Lord Berkeley: I hope that this time, and I have great confidence that they will, the British Government will not only look after UK interests-as has been said earlier, it does not have much effect on the UK itself-but look to see what would be useful to do in the package to make it easier for British operators and suppliers to operate across Europe. That sometimes means that if a particular clause in the legislation does not affect us very much but it is very important for our companies on the continent, let’s accept it; let’s welcome it. I do think there is an enormous feeling of goodwill towards Britain on these issues because of the thought that goes into some of our structures and procedures. People like to take a lead from what we do. I hope that we are going to be positive and look at all these things, not just from what happens here but what the effect will be on the rest of the continent and all the problems that we have heard today.

Q61 Chair: Mr Brown, are there any specific things on which you think the Government should be negotiating?

Richard Brown: I have a few quick suggestions. First, on rolling stock authorisation, the Government need to press to make sure that the process is simplified and not just standardised across Europe. As a suggestion, if they are going to delegate approval to a single national authority, then it should be done as safety is done now with a Part A certificate, with only such local detail as is necessary done in individual countries. That would make sure that rolling stock is then genuinely simpler to get authorised.

They should continue to press for stronger regulation and encourage the existing regulators to work even harder together and agree a provision to allow for a negotiation of access charges across national boundaries, which currently does not happen. There should be the negotiation of pathways as well so that we can occasionally have a degree of priority. At the moment we take third place in looking for pathways. Behind national services and high-speed services, international comes last. It is not surprising that some of our timetables are not as good as our passengers would like if they want to connect.

Q62 Chair: Ms Shaw, do you have any proposals for what the Government should be doing?

Nicola Shaw: I would support those things. I would also say that we should try to avoid perversity of outcomes. The discussion we had about a third of the size of a network being franchised is in order to deal with one or two issues in smaller member states. At one stage in the development of the package, there were arguments that the infrastructure operators should not make profits, for example, in order to prevent this issue about holding companies. There must be an incentive for infrastructure operators, particularly mine, of course, as a private sector operator, to make a profit because that is good for the long term and for reinvestment in the infrastructure. I think we must avoid perverse outcomes.

I would also say that they need to continue to work at the bilateral level as well as the multilateral level, to make sure that some of these difficulties are addressed. We have talked about the CTSA, but we have also talked about Border Agency issues. I am afraid they have to cover a range of bases, not just railway, both at multilateral and bilateral level.

Q63 Graham Stringer: Can I follow up with one question? I am slightly surprised, Lord Berkeley, that you have previously said there would be subsidy from infrastructure companies into holding companies. That is one of your criticisms of what has happened or of the proposals as they apply to Germany and the compromises that have been made. Have you changed your view? Do you accept what Mr Fitch said in the session before, that the Commission’s proposals will stop any transfer of funds from the infrastructure companies to the operating companies?

Lord Berkeley: No, I don’t because I do not believe that Chinese walls work. It is fine having them there, but, first of all, you probably need a regulator to have the power and the ability to investigate these things and then somebody to enforce any penalty. This particular issue in Germany is part of the infraction process that the Commission is taking against Germany for allegedly having a flow of money from the profit from the network up to the holding company and-what I am concerned about in my case-possibly down to DB Schenker, the freight company, which would give it a possible unfair subsidy against its competitors.

I do not think that the present structure would solve that problem. I do not think it would solve the problem in France, where really none of us have much clue as to what is going to happen, except, as other witnesses have said, it is awful at the moment and there is not much intention of getting it better.

I must say that we also have a holding company issue with Eurotunnel. One thing that Mr Ramirez did not mention was the price for going through the tunnel. Richard Brown mentioned it. With regard to freight, I do not know whether you have seen the evidence from MDS Transmodal that I submitted to the House of Lords inquiry about 18 months ago, but I can give it to you; it basically says that they think the price for a freight train to go through the tunnel should be reduced from £3,000 to £1,000 if it is going to grow any traffic.

I hope that the British Government will stand firm and not say that a holding company is all right because we have one in the channel tunnel. We are being infracted in this country, with France, because of the structure of the channel tunnel and other things-the French Government is being infracted for the things I have mentioned, and so is the German Government. It is a bit odd that these three countries are all being infracted against by the European Commission, while we are all saying, "It’s all right here but it isn’t all right there", and all that.

I am not happy with what the Commission has done. I understand why it had to do it, but a complete separation as we have here is much cleaner and much fairer. I think it will encourage much more new investment and new operators coming in to get across the frontiers.

Chair: On that note we must end. We will ask the Minister some of those questions. Thank you very much for coming.

Examination of Witnesses

Witnesses: Rt Hon Simon Burns MP, Minister of State, Robin Groth, Deputy Director, Rail International and Safety Policy, and Nick Bisson, Director, Rail Policy, Department for Transport, gave evidence.

Q64 Chair: Good afternoon and welcome to the Transport Select Committee. Could you give us your name and position, and also your team?

Mr Burns: I am Simon Burns, Minister for Transport.

Robin Groth: I am Robin Groth. I lead the International Rail Team.

Nick Bisson: I am Nick Bisson, Director of Rail Policy.

Q65 Chair: I understand that you want to make a statement, Minister.

Mr Burns: If it is agreeable to you, I thought I would just say thank you very much indeed for inviting me again. I wanted to give a very brief overview of our initial response and views on the fourth railway package. Obviously I welcome this Committee’s interest in it, but you will appreciate that we are still very much in the process of considering our position on the detail and the implications of the proposals and consulting with other Government Departments. All I can give this afternoon is very much our initial position.

As you know, the UK has one of the most liberalised rail networks in the EU. The Government supports the approach for further market opening in the domestic EU passenger transport travel markets. However, we want to ensure that the proposals implemented as part of the package are flexible enough to work within the UK public passenger transport structure and are compatible with our plans for rail reform.

Evidence gathered by the EU indicates that about 40% of passenger kilometres in the EU are accessible to new entrants. This implies that significant market opportunities could arise, both for British rail firms and for those from the rest of the EU, if the Commission’s proposals for competitive tendering and the rolling-stock market pass into European Law.

The proposals that have been put forward will be the subject of both consultation with stakeholders and considerable negotiation within the EU context in the months to come. We will continue to engage with the Commission, the European Parliament and other member states to ensure that any concerns are addressed in the final text.

As you will know, last Wednesday the European Scrutiny Committee recommended the package for debate on the Floor of the House, after your Committee has reported and before the 7 June Transport Council.

I hope that was helpful as a general overview.

Q66 Chair: Thank you. Could you give us any idea of the sorts of consultation you will now be engaged in to make sure you get a full view of the participants?

Mr Burns: We will have a wide range of consultations and will supply the text to relevant interested parties and stakeholders. We will have discussions and meetings with stakeholders within the industry, within passenger groups and other organisations that have an interest, as well as within Government during the coming months.

Q67 Chair: As you see the package at the moment, which areas do you expect to be changed in relation to how the system works?

Mr Burns: It is rather difficult at this stage to start identifying a whole series of areas where there may be change, particularly going into the minutest detail. As I said earlier, we are very much in the initial stages. There are some areas we are particularly interested in looking at because we are not necessarily convinced of the obvious benefits of the recommendations. For example, some of the benefits for domestic rail transport are less obvious at the moment. We cannot see how a significant proportion of the additional demand and cost savings detailed by the EC in its impact assessment would translate to the domestic rail sector here in the UK. That is partially because we do have such a liberalised system here at the moment.

Q68 Graham Stringer: I have three very different questions. We have heard from the Commission previously that it wants to set up a European Rail Authority, and it was using EASA as one of its models. We have one of the safest rail systems in the world in this country. We have got there by taking very swift action after the crashes just over 10 years ago. Does it worry you that if we move to a European regulatory system and if we need to make quick changes in the future, we will not be able to make them as quickly at a national level in the way that we did after the Hatfield and Paddington crashes?

Mr Burns: Sorry, are you going to ask all three questions in one go?

Graham Stringer: No, because they are very different.

Mr Burns: Fair enough; I thought you might.

We will want to look very carefully at the ERA proposals because there may be some advantages in how it works as envisaged at the moment. There would be a quicker time scale for registrations and dealing with interoperability. What we don’t want to do is create increased bureaucracy. There is a balance between some of the advantages that there may be in this country in having a uniform system that can improve systems and procedures in other EU countries, but we would not want it to become a massive bureaucracy that might impinge upon what happens in this country. We will be looking at that carefully. We will be examining it and consulting with stakeholders before we reach any final decisions as to the pros and cons of the overall package.

Q69 Graham Stringer: Is it the Government’s policy to get exemptions from this package for the London underground system, and other light rail systems in London like Docklands and light rail systems in other parts of the country?

Robin Groth: I wanted to add something on the work of ERA. It is about promoting much closer working between the European Rail Agency and bodies in the UK. There are lessons to learn from other rail incidents across other parts of Europe. A lot of this is about closer working rather than necessarily causing bureaucracy and delay. I do not know if that helps.

Graham Stringer: You are terribly optimistic about European institutions.

Mr Burns: Going back to light rail, as you know, it is within the scope of the existing regulation 1370/2007, which relates to public passenger transport services by road and rail. The key provision in article 5(2) of the existing regulation that allows a competent local authority to provide local transport services itself is unaltered by the changes proposed in the fourth railway package. We do not consider that the safety, ERA or interoperability proposals within the package will affect light rail. We consider also that the provisions that affect Directive 2012/34 in relation to rail market access will have no specific effect on light rail services either.

Graham Stringer: And London underground. Thanks.

Mr Burns: Yes.

Q70 Graham Stringer: The third question is very different. Again, we heard from the witnesses from the Commission and in some of the written evidence that there had been a lot of lobbying from Germany to modify the original proposals for much greater liberalisation. We have just heard from Lord Berkeley that he was sceptical that the proposals from Germany that would allow holding companies to be the train operating companies and be related to the infrastructure companies would allow cross-subsidy and would make it much more difficult for other train operating companies internationally to operate within Germany and potentially in other countries if that structure was put forward. Do you share Lord Berkeley’s worries about that?

Robin Groth: There are a lot of opportunities for UK firms abroad. Only recently we have seen that National Express have just won some contracts in Germany. UK firms are already making some progress there. There are opportunities in the fourth rail package to improve the position for UK-based companies. We need to look at the detail closely in relation to the conditions associated with holding companies. There are some quite tight conditions, but it is a question of looking more closely at the actual text as to whether that will be beneficial in the long run.

Q71 Kwasi Kwarteng: Obviously you are going to have to go to Europe to negotiate some of these issues. What resistance do you expect? With whom do you think you could form alliances and from whom do you think you will get resistance?

Mr Burns: I think at this stage it is too early to be able to say definitely, "This country will support us", or "This country will be against us." When it boils down to it, there will be different support for different issues throughout the whole package. We come in one way and maybe Sweden would be particularly supportive because, like us, they have a very liberalised market. We may find that Germany is supportive in many ways because they are fast liberalising their markets, but I suspect there are other individual issues where other countries will have shared concerns to ours, and there will be some countries that may not support our views at all. I cannot give you a definitive answer at the moment because it is just too premature.

Q72 Iain Stewart: One of the areas of concern is the provision in article 2 that will allow states to bundle up franchises to the extent of one third of the national network. That could play into the hands of the state operators and squeeze out potential new entrants. Is that something of concern?

Nick Bisson: As we go through this, it is one of the things that we will need to look at. The Commission has a challenge in dealing with the diversity of member states. There are some countries that are sufficiently geographically compact where you might not want more than three. That is what they were thinking about. Conversely, there are others that are much larger than that and where a wider range of contracts would, as you suggest, enable a greater degree of competition, market opening and realistic opportunities for others to come in. Looking at that and how that article plays out through the negotiations, whether there is a slightly more flexible way of trying to tailor that to different circumstances, is a very valid question.

Q73 Iain Stewart: Is there a risk that in accommodating the differing needs of all member states, we arrive at a very opaque set of regulations that will effectively allow each member state to do what it wants?

Nick Bisson: As you probably heard earlier, the Commission’s ambition to get this right is very strong, but we will have to see how the negotiation goes.

Q74 Iain Stewart: Do you think it is feasible to have a flexibility that will not just be a cover to member states to do what they want? Is that feasible, given the diversity of the European rail market?

Mr Burns: I would certainly hope so. It remains to be seen some way down the line. Given the determination of the Commission, and also of many of the member states, to get a package that in its final form is workable, beneficial and seeks to aim at greater liberalisation, one would hope that during whatever discussions or negotiations there are to get the final agreement those sorts of special interests are squeezed out.

Q75 Chair: Security and border issues have been identified as major problems in relation to greater use of the channel tunnel. Are you addressing those and looking at them in a cross-departmental way?

Mr Burns: Absolutely. We work very closely with the Home Office, which, as you will appreciate, is the lead Department on security issues and the security of our borders. We work very closely with them because, as you will appreciate, this Government has a very firm determination to ensure that we have secure borders. A considerable amount of work has been going on, as you are aware, with regard to the cross-channel services and the channel tunnel. Work is still being done on the situation, which you are very familiar with, with regard to Lille. More work will have to continue to be done as more services are provided through the tunnel from Europe into Britain and vice versa.

Q76 Chair: Can you identify any areas where you are concerned about the issue of subsidiarity and where you think that might be threatened?

Nick Bisson: Robin may wish to add to this, but I suspect the main one is the question that we touched on earlier about the role of the European Rail Agency and how that works with national regulators.

Q77 Chair: Are there any other areas?

Robin Groth: The Commission’s intention is to have a one-stop shop. The European Rail Agency is a one-stop shop. The ambition is to make vehicle authorisation a much smoother process to reduce delays, but in order for that to work there is potentially an issue about how more work is done there and less done with the Office of Rail Regulation. That is probably the issue that we need to explore the most, and see in which way we can get that balance right to achieve the wider ambitions but to make sure of the best use of local knowledge.

Nick Bisson: The other one would be the level of detail around what is required, I suspect, in the transport plans that the package envisages being the prerequisite to underpin the tendering arrangements that are then put in place.

Q78 Chair: Is this to do with the definition of a "competent local authority"?

Nick Bisson: Partly, but-more than that-just the level of prescription over what has to be in that plan and how it is prepared.

Q79 Chair: There is also a suggestion that what is defined as "a competent local authority" should not include both rural and urban areas. That issue has been raised with us. Is that something that you think is one?

Mr Burns: It is an issue. There is also the issue of those local authorities that do not have any rail services within their boundaries. Those are issues we are going to have to look at, discuss and thrash out, to come up with a meaningful and sensible solution.

Q80 Kwasi Kwarteng: How do you think this fourth railway package will affect some of the alliances that Network Rail have been building with train operating companies? Do you think it will be the same? How do you think that will develop?

Mr Burns: Basically, I think it is compatible.

Robin Groth: We have identified that there are great opportunities with alliancing for closer working. We need to take our experience in the UK, where we have separate infrastructure managers and train operators, and say, "We have two separate organisations here. We have encouraged them to work closely, and that is the success of the alliances." We have to make sure that the final drafting works-it boils down to the drafting-but that it also achieves the Commission’s aims of trying to ensure the full separation of infrastructure and operations. In the UK, we have some really good pragmatic experience that we can bring to that discussion and say, "Look, this is how we believe this will work", and see if we can get that drafted into the final wording.

Q81 Chair: I appreciate that you have to engage in consultations on the package. At this point, is there anything that stands out to you as a clear concern and a red line that you would not want to cross?

Mr Burns: A red line?

Chair: Is there anything of that importance that strikes you? You don’t look as if there is.

Mr Burns: Not per se as a red line, because that has a certain finality to it. Given that this is open to discussion and negotiation, there is not a red line, to use your terminology in the way that I understand it, but there are, as we have mentioned, a number of areas that we want to look at extremely carefully. We want to make sure that this does actually do what it is cracked up to do-liberalise the market and open it up from some of the procedures and ways in which some member states perform, and not, on the other side, create some bureaucratic nightmare.

Q82 Chair: What form is your consultation going to take in relation to our current transport operators?

Robin Groth: We have already set up some stakeholder meetings. There will be discussions with Network Rail. We have invited the Association of Train Operators with the regulator, so we have already set up some working groups where we can get people who are familiar with the details. We can listen to their concerns and see if we can get a consensus for a UK view.

There is an important point here. In the Commission, they really are interested in the experience of people from the UK. Our challenge is to try and bring together as much of that as possible to gain a consensus for the UK position. We already have some things set up for the next few weeks, and we will keep building on that in the way the Minister described.

Q83 Chair: Are freight operators involved in the discussions?

Mr Burns: Yes, absolutely.

Q84 Chair: Could you give us any idea of the timetable for this? How long do you envisage your discussions taking place?

Robin Groth: We have some discussions set up for this week and next week, so some of it is very soon. We also need to think about the way in which the package is being dealt with in Brussels. It is done piece by piece; so we need to bring those things together.

Chair: If there are no further questions from members, thank you very much.

Prepared 22nd April 2013