Rail 2020 - Transport Committee Contents

6  Conclusion

Creating a vision for rail

74. We welcome the Government's recent confirmation that there is a case for subsidising the railway, for environmental, social and economic purposes.[113] It makes a welcome contrast from the understandable focus on reducing the subsidy, in the context of the UK's wider economic problems. However, the Government must do much more to explain why the taxpayer should subsidise rail and where that money is spent. At present, the Government cannot demonstrate how the subsidy achieves the purposes it has set out and nor can it explain what level of subsidy it thinks is appropriate.

75. On our visit to the Netherlands, Germany and Switzerland we saw different models for organising railways, each based on state ownership and with a clearer sense of what the railway was for. For example, in the city-state of Berlin there was a concern that the population was in decline and migrating towards the neighbouring state of Brandenburg, and a belief that an integrated public transport system was a means to address this: whereas in Switzerland there was a commitment to good links between the principal cities and good timetable connections. In all three countries there was much more focus on end-to-end journeys, with integration with bus networks, bicycle hire and low carbon vehicle hire.[114] These examples show how the specification of rail services can be linked to the wider purposes of the rail subsidy. We recommend that in developing a new framework for rail franchising the Government focus more on wider policy objectives, such as the promotion of sustainable end-to-end journeys, the quality of the passenger experience, or economic or social development, alongside the premium payments offered by train operating firms.

76. If the savings identified in the McNulty report do not materialise we cannot rule out radical structural reform of the industry in future. It should be noted that these savings do not take account of further spending which might be necessary to cater for further increases in demand. The suggestion in the McNulty report that the Government's "predict and provide" approach to rail capacity might not be sustainable could provide the context for difficult debates in the next decade about how to cope with rising demand if extra capacity is unaffordable.[115]

77. Everyone agrees that the fragmentation of the railway has generated costs which initiatives like alliances now seek to minimise. Ironically, some of the reform proposals now being pursued, including alliances and the decentralisation of franchises, have the potential to make the railway still more fragmented. David Higgins, Chief Executive of Network Rail, spoke of the possibility of an "explosion of overheads".[116] This is a key risk for the industry to manage. It remains to be seen whether the Rail Delivery Group will have the motivation and clout to do so.

DfT and the ORR

78. The current Government has tried to take a step back from the management of the railway but has instead found itself embroiled in a gigantic row about the West Coast Main Line franchise plus a series of consultations and debates about quite detailed aspects of rail. There is a degree of inevitability about this. The Government does not formally own Network Rail, but guarantees its enormous debts; the Chancellor of the Exchequer has used investment in rail projects as a tool for boosting growth; and the Government will always be responsible for keeping the railway running if train operators or even the infrastructure manager pull out. More than this, there is a presumption in Parliament and amongst the wider public, that the Government is accountable for what happens on the railway.

79. However, DfT is not an economic regulator and the West Coast Main Line franchise episode suggests that the department lacks commercial nous. We have suggested earlier that DfT should consider delegating responsibility for awarding and managing franchises to an arms-length body. There is also more scope to delegate work to the Office of Rail Regulation so that it monitors and challenges the efficiency of the whole industry, not just Network Rail. If ORR takes on this role it will need to develop a thorough understanding of the economics of the entire rail industry so that it can set appropriate savings targets and apply pressure in the right places to ensure that savings are made. In 2011 the Public Accounts Committee published a damning report on the ORR, describing its relationship with Network Rail as "too cosy" and concluding that "it is disappointing that after 10 years' existence the Regulator still does not properly understand the reasons for the gap [between Network Rail's efficiency and that of the most efficient European operators]".[117] We asked Richard Price, ORR's chief executive, about these criticisms and he defended the role ORR had played in reducing Network Rail's costs in recent years.[118] We support the notion of a single economic regulator for the rail industry. It makes sense for the ORR to take on this role, but in doing so it must show it has the capacity and credibility to deliver savings across the board.

Our vision for rail

80. Our vision for rail in 2020 includes the following elements:

  • Clarity about the objectives of subsidising rail and how these can be achieved
  • A clear link between policy on rail and other aspects of transport policy, for example a focus on sustainable end-to-end journeys
  • A strategic approach to policy-making by DfT which does not sacrifice democratic accountability; assisted by a strong industry regulator, and an effective industry leadership
  • More transparency about the costs of rail, which helps with scrutinising different approaches to organising rail operations (eg alliances, different forms of franchises) and debates about the costs of new services and infrastructure
  • Passenger interests more clearly taken into account in deciding questions of rail policy
  • More modern, flexible fare and ticketing options and a clear long-term policy on regulated fares
  • No diminution in existing safety standards.

113   ROR 26B (letter from the Minister of State to the Committee Chair, 26.Nov 12). Back

114   For comments on this issue in the UK context see ROR 22 (Campaign for Better Transport) paragraph 1.3. Back

115   McNulty summary section 6.2.2. Back

116   Q69. Back

117   Public Accounts Committee, Forty-first Report, Session 2010-12, Office of Rail Regulation: Regulating Network Rail's efficiency, HC 1036, pp5-6. Back

118   Qq720-21. Back

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