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)
WHY SUBSIDISE RAIL?
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)
TRANSPARENCY
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)
REGULATION
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)
HOW TO DO IT
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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