Rail 2020 - Transport Committee Contents

Conclusions and recommendations

Subsidising the railway

1.  The debate about the size of the rail subsidy raises a number of questions. Is a subsidy justifiable and, if so, what should be subsidised and to what extent? Although the ORR has direct responsibility for regulating the efficiency of Network Rail, how can the Government ensure that the efficiency of the train operating companies is improved? Does the McNulty report point towards the need to restructure the rail industry again, or can efficiencies be achieved within existing structures as he recommends? How can the industry continue to grow without soaking up more public money? These questions provide the context for our inquiry and report. (Paragraph 20)


2.  We recommend that the DfT publish the assumptions underpinning its analysis of the ratio of taxpayer to farepayer funding on different types of rail service. (Paragraph 25)

3.  We believe that there are justifiable economic, social and environmental reasons for subsidising the railway. However, the Government does the railway a disservice by its inability to articulate more clearly why it subsidises rail and what taxpayers get for their money. We recommend that the Government publish and consult on a clear statement of what the rail subsidy is for and where it should be targeted. (Paragraph 28)


4.  We fully endorse the call in the McNulty report for more transparency in the finances of the rail industry. Comparisons between routes and franchisees of how and where money is spent will help drive efficiency savings by shining a light on complacent management, waste and profiteering. Commercial confidentiality should not be used to block legitimate requirements for information given the amount of public money at stake. (Paragraph 32)


5.  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. (Paragraph 79)

McNulty's analysis

6.  The £3.5 billion savings which the McNulty report identifies are undoubtedly challenging, particularly as their achievement would require a large number of companies to work together to make the railway's current structure work more efficiently. We support the general approach recommended by McNulty, but with concerns about some specific issues which we set out in this report. If these savings do not materialise, the arguments for more far-reaching structural changes will be compelling. (Paragraph 36)

7.   We recommend that the DfT and ORR keep a close eye on the work of the RDG to ensure that it acts in the best interests of the farepayer and taxpayer, rather than of established rail interests. (Paragraph 38)


8.   Firstly, any changes to staffing, terms and conditions and salaries should be made within the context of a wider programme of changes made throughout the industry and after full consultation with trades unions. Any changes in the numbers and duties of station staff should not be pursued solely to reduce costs but should reflect changes in passenger ticket-buying behaviour and be designed to improve the passenger experience at stations, including safety (Paragraph 41)

9.  In addition, we are very concerned that proposals to reduce staffing at stations and on trains could make the railway less safe, particularly at night, and deter women and vulnerable users from travelling by train. We recommend the Government develop a strategy for improving the security of the rail network, as well as perceptions of how safe the network is. (Paragraph 42)

10.  The ORR must ensure that the high standard of rail safety achieved in recent years is not jeopardised by different ways of working between Network Rail and train operators. We recommend that the ORR devote additional resources to monitoring safety in areas where Network Rail and a train operating company have formed an alliance. (Paragraph 45)

11.  We recommend that in considering proposals for alliances and joint working between Network Rail and train operating companies the ORR pay particular regard to protecting the interests of passengers and firms outside of the alliance. There must be clear procedures for revising alliances' working practices or ending such arrangements if it can be shown that they are disadvantaging passengers or other operators, particularly freight. (Paragraph 46)

12.  We recommend that the Rail Delivery Group, working with Passenger Focus, develop and publish a clear strategy for improving retail facilities on stations and trains. This would be welcomed by passengers and could generate extra revenue to contribute to achievement of the McNulty targets. (Paragraph 49)

13.  We recommend that the ORR take a cautious approach to approving the sale or redevelopment of former railway land, given that with the growth of the industry that land may be needed again for rail in future, while responding promptly and positively to proposals for disposing of genuinely surplus land. (Paragraph 50)

What now for franchising?

14.  The collapse of the West Coast Main Line franchise competition has raised serious doubts about the DfT's capability to manage major procurements as well as about its internal organisation and governance. A number of franchise competitions have been delayed while the Government reconsiders its policy on franchising. There are likely to be significant costs to the taxpayer, well in excess of the £40 million to be repaid to the four firms which bid to run trains on the West Coast Main Line. Confidence in DfT has been badly shaken. Ministers, current and former, as well as senior officials, have many questions to answer about this debacle. We will be asking these questions, and expecting clear answers, in the weeks to come before reaching our conclusions on this matter. (Paragraph 12)

15.  although we acknowledge that Government micro-management of franchises can be costly and stifle creativity, there is a balance to be struck with democratic accountability. In particular, there needs to be an effective mechanism to reconcile fairly the competing demands for train paths on congested lines, for example between fast and stopping inter-city services, commuter trains and freight traffic. Franchise specification should include a reasonable level of detail about service levels and timetables, so that ministers can be held properly to account for matters which directly affect passengers (Paragraph 57)

16.  we are not convinced that DfT as currently structured is best placed and resourced both to set rail policy and do the detailed work necessary to run each franchise competition. we have sympathy with the argument that franchises should be let and managed by a DfT agency or arms-length body. Under this arrangement, DfT would specify what it wished to be delivered under the franchise and the new franchising body, employing staff with appropriate specialist, commercial skills, would let and manage the contract. It is important that any change can be made without the need for legislation, since this would further delay the programme for franchise re-letting (Paragraph 58)

17.  We see merit in continuing with longer franchises, in order to encourage investment by franchisees, but we recommend that the Government explore options for reviewing contracts every five years. This would enable contracts to be adjusted to take account of changed circumstances, particularly in the economy. Clear parameters for ending contracts early would need to be established at the start of the process and there would also need to be a different approach to evaluating bids for contracts. We suggest this could involve spreading out premium payments over the full length of the contract or weighting payments so that the offer of generous premium payments in ten years or more would be heavily discounted. (Paragraph 59)

18.  Any further redesign of the franchise system will take time to get right. We therefore recommend that for those franchises which need to be re-let in the near future, the DfT specifies contracts of medium length, of seven to ten years. (Paragraph 60)

19.  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. (Paragraph 75)

20.  We agree that there is scope to devolve control over some rail franchises to local or regional bodies and we support the Government in looking at how to achieve this. (Paragraph 65)

21.  If the services within the current Northern franchise are devolved we recommend that the Government consider whether there are elements which could be individually franchised (similar to the situation with Merseyrail) and look to involve all of the emerging local transport boards in the north in the governance of the franchise. Alternatively, the DfT must retain reserve powers to vary the specification of the franchise to ensure that the interests of the whole region are protected. (Paragraph 65)

Fares and Ticketing

22.  We welcome the decision not to proceed with RPI+3% increases but are concerned about where that leaves the Government's fares policy, especially at a time when it is attempting to reduce the cost of rail to the taxpayer. We recommend that the DfT set out a long-term policy on regulated fares. (Paragraph 71)

23.  We recommend that the Government rule out forms of demand management which would lead to even higher fares for commuters on peak time trains. (Paragraph 72)

24.  The Rail Delivery Group has an opportunity to step up to the plate and show its effectiveness by spearheading the swift implementation of innovative ticketing technology throughout the rail system - certainly by 2020, preferably by 2015. We call on the RDG to respond to this recommendation by explaining its plans in this area and providing a clear timescale for implementation. (Paragraph 73)

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Prepared 4 January 2013