To be published as HC 329-iv

House of COMMONS



Transport Committee

Rail 2020

Tuesday 4 September 2012

Maggie Simpson, Nigel Jones and Christopher Snelling

Michael Roberts, Paul Plummer, Jeremy Candfield and Dr Richard Wellings

Kaj Mook, Joel Brook and Simon Rutter

Evidence heard in Public Questions 340 - 458



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Oral Evidence

Taken before the Transport Committee

on Tuesday 4 September 2012

Members present:

Mrs Louise Ellman (Chair)

Steve Baker

Jim Dobbin

Julie Hilling

Kwasi Kwarteng

Mr John Leech

Paul Maynard

Iain Stewart


Examination of Witnesses

Witnesses: Maggie Simpson, Policy Manager, Rail Freight Group, Nigel Jones, Head of Planning and Strategy, DB Schenker, and Christopher Snelling, Head of Supply Chain Policy, Freight Transport Association, gave evidence.

Q340 Chair: Good morning and welcome to the Transport Select Committee. Would you give us your name and the organisation you are representing? This is to help our records.

Maggie Simpson: I am Maggie Simpson. I am from the Rail Freight Group.

Nigel Jones: I am Nigel Jones from DB Schenker.

Christopher Snelling: I am Christopher Snelling from the Freight Transport Association.

Q341 Chair: Could you give us an idea of which types of rail freight you think are going to grow and which you think are going to decline? Mr Jones, perhaps you would like to start.

Nigel Jones: One of the main features of rail freight in the last 10 years has been the way in which the movement of containers-what is usually called intermodal freight-has continued to grow and is continuing to grow. It has now overtaken the movement of coal as the largest commodity that is moved by rail in this country. Ever since railways were invented, coal was the single biggest commodity that railways were partly invented for and certainly moved. But that has now changed and will continue to change. The movement of containers, both from ports to inland distribution terminals and increasingly internally within the country and through the channel tunnel, will be the main feature dominating rail freight over the foreseeable future and certainly for the next 15 or 20 years.

Q342 Chair: Would anybody like to add to that or put another view?

Christopher Snelling: I would endorse that view. We tend to represent the customers and the logistics industry in general who want to be users of rail freight. Certainly from our side the desire over the next few years is for a massive increase in the use of containerised services, particularly for the retail industry as well as manufacturers. That is where we would see the real growth opportunity that is worth pursuing for rail freight.

Maggie Simpson: It is fair as well to reflect on some of the more traditional commodities. Although coal is flat or is possibly declining-it is certainly volatile-there is potential for movement of biomass by rail if coal-firing up power stations takes off in the way that some people believe it will. Waste by rail is another potential sector that is showing some interest. There is also an increase in the movement of petrochemicals as the pipeline network becomes older and in need of some investment in places. Although I absolutely support the fact that the principal growth will be in the intermodal sector, there are some bulk areas where we certainly expect sustained performance and some growth.

Q343 Chair: Does growth of 4.3% per annum in tonne-kilometres still seem to be the best estimate of likely growth? That is what was in the Initial Industry Plan.

Nigel Jones: Yes. 3% to 4% was the range that was expressed in the Initial Industry Plan. This is what has been achieved post-privatisation, albeit there was a dip during the recession. The sector has recovered strongly. Last year it grew by about 10%, and 3% to 4% is seen as wholly achievable.

Q344 Mr Leech: How much is rail freight policy dictated by ports and shipping companies and their decisions on where they move their containers to?

Nigel Jones: Ultimately it is decided by end customers. It is decided by the people who are causing the goods to move. They decide where they buy those goods and whether they buy them within this country or whether they are imported. They will decide which port of entry is used. Depending on the port of entry, if it is an imported good, for example, there will then be a choice as to whether the distribution is by road or rail. There are many different influences, but I think the key influencer is the principal in the transaction. It is the person who is causing the movement to take place.

Christopher Snelling: There is clearly a very strong role for the shipping company in deep sea traffic in terms of which port they are choosing to operate out of. If a customer’s goods are being carried with MSC, they might switch their links from Southampton to Felixstowe. There is then a less direct link as to whether it is road or rail you are using from that port. All of the major container ports such as Southampton and Felixstowe will have very good rail/freight links. The choice is still there even if the deep sea shipping line does change their calling pattern.

Q345 Mr Leech: Would it be fair to say though that, if there was a better distribution of containers around other ports in the country, there would be more potential for growth in rail freight?

Christopher Snelling: The note of caution I would want to sound on that is that, as an island economy, we do not get to control where the deep sea ships call. The major challenge we face in the UK is getting the deep sea ships to continue calling in the UK at all and not seeing ourselves bypassed as they call simply to the larger ports on the continent and have the goods trans-shipped. If we end up being reliant on that, it adds delay and cost to our supply chain, which is not a good thing. There is a limit to the extent that we can redirect deep sea calls anywhere around the UK because we are in a battle just to keep them coming to Southampton, Felixstowe, London Gateway and places like Liverpool for things like South America or North America’s traffic.

Where you do get short sea calls, which will make a much wider use of ports, you are obviously into a different market, because, as you have moved around the UK, the onward distances that you need to move may be a lot less and the volume of containers may be smaller. Therefore, the market economy for rail versus road changes compared to the mass movement into Southampton or Felixstowe, which then might have to travel up to the north-west or Scotland.

Q346 Iain Stewart: In the interim period between now and the high speed network opening, rail freight is going to be competing for a finite amount of capacity on the West Coast Main Line and East Coast Main Line. Are you concerned that your needs will be squeezed out by passenger needs?

Maggie Simpson: At the highest level, yes, we are concerned to make sure that there is enough capacity to enable the growth that we are forecasting and which is being delivered to continue. Having said that, there are a number of things that help. Rail freight has been successful in running very much longer trains. We have seen something like a 32% productivity improvement in the last five years as more goods per train are being conveyed. There are still more opportunities to exploit more trains at the weekend, which is particularly critical in the retail sector. With Sunday afternoon traffic in particular, there is not so much of that as there should be-and possibly again overnight. Ultimately, yes, on the main routes it is important that rail freight capacity is protected as the passenger timetables evolve and passenger traffic grows in the period up to High Speed 2.

It is also important when we are thinking about the development of High Speed 2, with the necessary builds and contracts that underpin that, that the rail freight capacity that is promised as a consequence of High Speed 2 is safeguarded. Experience suggests that, faced with choices in the future between additional passenger services and freight, it is not always as easy to safeguard the freight capacity as we would like to think today.

Q347 Iain Stewart: Can I follow up on what they are calling the "Electric Spine"? Do you think that will help relieve the pressure on the traditional north-south routes in the country or is it different?

Nigel Jones: I think it is different. It may do. In one crucial aspect it does open up new opportunities. The Midland Mainline, which is the railway line north from St Pancras to Leicester, Nottingham, Derby and Sheffield, has historically had a very constrained loading gauge so that the size of the containers you can take on railway wagons is reduced. Electrification north of Bedford will change that. The use of the Electric Spine will offer the opportunity for intermodal freight to access the midlands and the north via the Midland Mainline in a way that has hitherto not been possible. One of the consequences of the Electric Spine will be that investors and developers looking at strategic rail freight interchanges will now look at sites adjacent or close to the Midland Mainline in a way that they have never done hitherto. The main flows of traffic from Felixstowe, London Gateway or Southampton to the north and the north-west are less likely to benefit in any significant way from that element of the Electric Spine. Through-running hauled by electric locomotives in the fullness of time is a different matter, but in terms of capacity there is a less obvious relationship for the traditional flows of traffic.

Q348 Chair: Is there a business case for investment in new electric locomotives on that Spine?

Nigel Jones: That is one of the challenges that the HLOS has given us as a sector. We have invested about £1.5 billion in new equipment since privatisation, a lot of which has been locomotives. Something like two thirds or three quarters of the freight locomotive fleet is new since about 1998. With a life of 30 to 40 years, making a case for premature replacement of that fleet with electric traction is going to be challenging. We have to remember that we are talking here about an electric network that will be in place at the end of the next control period and in subsequent control periods. We are talking five, six or seven years in the future. That is why I say it is a piece of work that we, as a sector, have got to do with Network Rail in working out what the opportunity is and whether there is a case, or how we make a case, for investment in more electric locomotives. We do have some but we don’t have a large fleet of electric locomotives.

Q349 Jim Dobbin: Mr Jones has touched on the issue of freight terminals. Are there sufficient freight terminals around the country?

Christopher Snelling: From our perspective, talking with customers and potential customers, their access to terminals in the right location is still one of the factors holding back the use of rail freight. There is a direct relationship. It is not just a capacity issue. In order to make the economics of rail freight work for a user, the terminal has to be quite close to wherever it is you actually want to be. Having the variety and choice, and a wide spread of that, has a direct relationship. The more you have of that, the more rail freight you will have because the more customers will be able to make use of it.

Q350 Jim Dobbin: Following up on that, are you saying that some of the existing terminals are geographically not best placed?

Christopher Snelling: No. Generally speaking, they are in good places and they are very well used in consequence. But, if you have more terminals in more locations, it enables more potential customers to start making use of rail.

Nigel Jones: That is going to be an issue particularly in London and the south-east. That is probably the region that has the least number of strategic rail freight interchanges, particularly for containerised traffic, looking at what the market is going to demand over the next 10 or 15 years. That is where there is a particular challenge in getting planning consents through the planning process at all, let alone in any quick time, to deliver the capacity that is needed to underpin the growth.

Q351 Steve Baker: On capacity, are you satisfied with the way that capacity is allocated to freight?

Maggie Simpson: Network Rail and, particularly historically, the Rail Regulator have generally been even-handed on that. We have been pressing for probably a decade now to have strategic freight capacity defined and safeguarded in the timetables so that those paths, which are already in the timetable in many cases, are clearly marked and allocated and therefore can’t be inadvertently lost by pathing of the trains across them or small sections being used. It is particularly important because freight runs across so many routes and the alignment of paths between routes is often as critical as the path itself. It has to be aligned at the port, the terminal and on multiple routes.

I have to say that progress on getting that has been slow at best. It is a real concern moving forward, particularly as decentralisation progresses, that, even where there are paths in the timetable, the connectivity of those and therefore the usability of those will be lost. There needs to be some action on that.

Q352 Steve Baker: Can you imagine circumstances within which you were able to buy the train paths you need in some sort of auction arrangement so that you are able to compete with passenger trains for access to those particular paths?

Nigel Jones: That would be quite challenging because the nature of the access we require to the network is fundamentally different from the passenger railway. To put it at its most simple, we operate freight trains in response to customer demand, whereas passenger trains are planned and operated in anticipation of customer demand. Therefore, our requirements are more flexible. Customers’ requirements change, sometimes over surprisingly short periods of time. The access regime has to cope with that as well as the way the passenger timetable is put together.

Historically, it has done that reasonably well. There are collisions from time to time and disputes, but by and large it has worked quite well. It is absolutely essential, as Maggie has just said, that capacity allocation and management remains on a national basis for freight. It is absolutely essential because of the nature of the industry. We would certainly see that as remaining in some sort of system operator role rather than in any sort of devolved structure, concessions or whatever rail reform might bring in the future.

Q353 Steve Baker: Do you recognise a tension between the two positions that you have just sketched? On the one hand there is the need for flexibility in access to train paths, but on the other there is a call for an amount of strategic freight capacity to be set aside well in advance. It seems to me that, within that, there is both a tension and a possibility to waste train paths and run inefficiently. Do you think that is a reasonable point?

Nigel Jones: I understand that. It has to be a dynamic process. You can’t just say, "That’s a strategic freight right and therefore it is a strategic freight right for the next 10 years." If the underlying commercial demand changes, then we as a sector have to say, "Yes, it has changed and we no longer need that right", or "We no longer need that path", and we can give it up. We do do that. Allocating and using train paths, and giving train paths up, is a very detailed process. There is a lot of work involved in it, but we understand that it has to be dynamic so that the best use is made of overall capacity. We are always open as a sector. If the passenger railway comes and says, "We want to change our timetable and run more trains because we have the opportunity, but you operate a freight train that is causing us a problem", if we can move it we will within the bounds of what our customers require us to do.

Maggie Simpson: Over the last 10 years, bearing in mind the recession, the volume of increase is something like 16% more goods on 32% less trains. As a response to trying to squeeze as much as you can out of the network, there has been a resounding success in trying to achieve that. There are less freight paths held today than there were historically for more goods being moved.

Q354 Chair: You keep raising major concerns about the potential conflict between having more devolution in the way the rail service is operated and the importance of a national system for freight. You are represented on the Rail Delivery Group. Do you feel that is sufficient to safeguard freight’s interests?

Nigel Jones: Yes. We play a full role in the Rail Delivery Group. We play a full role as a sector in all the industry groupings, committees and arrangements, because that is the best way of getting other people to understand what our requirements are and protecting our own interests. We are so different from the passenger sector and we don’t feel we can stress that difference enough. Hence we will remind our colleagues in the industry, you and other people that freight’s needs are for a national network and a national requirement, such as train planning, at a time when other parts of the industry might very legitimately be moving in a different direction. Whatever solution is appropriate for them may not be appropriate for us.

Q355 Paul Maynard: I want to return to the Electric Spine, a phrase I think we will be heartily sick of before too long. If I have understood your answers correctly, this is a project that will only occur if you choose to take a decision to commission further locomotives. You implied that there were six to seven years to go before you would need such locomotives. It may be a sad reflection on the state of rail procurement policy in this country, but six to seven years suggests to me that you ought to be starting now if you are going down that path.

Nigel Jones: I understand that. That is why I said we have started work. What is Government policy towards rail freight? It is driven by a vision for the sector of a strategic freight network. That is underpinned by nine characteristics, one of which is more use of electrification; others are capacity and capability for rail freight. The emphasis over the past five or six years has been on delivering greater capability in the sense of the ability to move bigger containers and greater capacity for rail freight. What this latest HLOS has done is to change, if you like, the Government’s priorities as to one of those characteristics of the vision for a strategic freight network. We now have to work out our response to that challenge, which we have.

I fully understand that it takes four or five years in general to specify, procure and deliver electric locomotives, or any locomotives, unless there is an off-the-shelf model readily available and the manufacturer has spare capacity. I don’t think there necessarily is a dislocation between the time scales that are implied for doing the physical work to the infrastructure and making a case and then subsequently investing in locomotives. That is the work we have to do, but you have to start somewhere. Do the locomotives come before the infrastructure? That is never going to happen. The infrastructure always has to be the bit that is going to come first with moving from diesel to electric traction. That is what the Government have signalled in the recent HLOS. There is also a lot of detail still to be worked out with electrification as far as rail freight is concerned. It is the detail of which lines, which loops and which connections are going to be electrified that is vital for us. If there is not connectivity between the West Coast Main Line, the Great Western Main Line, the Midland Mainline and the East Coast Main Line, it is no good for us because our services don’t just operate out and back along the main lines. They cross all the main lines, as Maggie said earlier. The real detail of which specific pieces of infrastructure are going to have the wires put up-will that link between the two lines be electrified, and will the link into freight sidings, depots and yards be electrified?-is absolutely vital for us to work out what the scope is for moving from diesel to electric haulage. That is part of the work that the industry has to do over the next couple of years.

Maggie Simpson: To be clear, if you wanted to go today and buy a loco-diesel or electric-to run in the UK there is not one available. You can’t buy the diesel locomotives because the flexibility package of non-road mobile machinery, which was passed by the European Commission in November of last year, has still not been transposed into UK law so you cannot buy diesel. There are no new electric locomotives that have a certificate for the UK-i.e. the right gauge. As we sit here today you cannot buy a new locomotive.

When people are looking at future strategies, they have to decide principally whether they are going down a diesel or electric strategy. The joy to me of the HLOS is that it starts to move the tipping point for that decision across to electric. It may be that there are no new electric locomotives for a decade, but at least it is a decade and not 50 years. There is no doubt that, with fuel prices remaining, at best, volatile, a long-term move to electric traction has to be in the sector’s best interest. I think it is terrific that it is recognised in HLOS, not just in the Electric Spine but in the paragraphs that talk about future electrification, CP6 enhancements, looking at other links to ports and such like into the future. It will help people make those choices.

Q356 Paul Maynard: Mr Jones has spoken a bit about what he thought characterised rail freight policy. Can I suggest that possibly what drives it is a need to ensure that in any given transport policy statement rail freight gets a paragraph so that the interest groups can’t say, "We have been ignored"? That obviously makes it difficult for Members of Parliament and indeed others to observe or to interpret what the sum totality of rail freight policy is. To what extent do you think we now do have a coherent policy? Maybe you could sum it up for us in a few words even. I just see the occasional bauble flashing through a ministerial statement without knowing what the sum totality is.

Christopher Snelling: From my perspective, the development of the Strategic Freight Network has been a very good example of as "long term" as Government ever get. It has been a consistent programme and the system behind it has worked very well. The investment has been delivered on the ground and the projects have worked. In terms of developing the infrastructure in the right way in line with what industry needs, that has been a classic example of it working very well. Generally, we would be quite positive about Government policy on rail freight over the last 10 years at least. There are aspects such as planning, in particular, where it is not delivered on the ground because other considerations come into play. The Government might set a reasonable policy for strategic rail freight interchanges, but then getting those delivered through individual planning inquiries becomes impossible.

Q357 Paul Maynard: Eddington stressed the importance of access to international gateways, and ports were a key part of that. Over time we have seen piecemeal improvements to various ports around the country. To what extent do you feel the Eddington vision has been delivered? If there are gaps, either in what has been constructed or even what has been announced but not yet constructed, why do those gaps exist? Do you feel the current Government are still buying into the Eddington vision, particularly given what you have said about decentralisation?

Maggie Simpson: If we had not had the Eddington Report, frankly, we wouldn’t have had the Strategic Freight Network. Out of all the Government papers that I have lived through, I would say it was probably the most successful in promoting rail freight growth. The investment that has come out of Felixstowe and the gauge clearance out of Southampton has delivered a 10% market share gain, but I share concerns about other aspects of Government policy, although not necessarily DfT policy. Certainly planning remains a sore point. Whether we need more legislation or whether, frankly, we just need to take decisions on the things that are already gathering dust on our desk might be a good place to start. More recently the debate about freight access charges and the seeming change in policy from the Rail Regulator towards rail freight is of particular concern at the moment.

Q358 Chair: Do the Government have a coherent trans-modal policy enabling freight to move from road to rail and maybe to water? Is there a coherent policy?

Christopher Snelling: In some ways the markets are quite different. When you are looking at the short sea shipping side of things, which is the complementary market that we are talking about, it is predominantly international along with some coastal. By and large they have applied the same thought processes to those, but the Government involvement in short sea shipping is of a very different type. Obviously it is not running over tracks, the development of which is funded by and large by the taxpayer. The ports themselves are of course private concerns as well.

There is some disconnect in grants policy. Rail and short sea shipping are treated in slightly different fashions, although effectively, in environmental terms, they are doing the same job. There is a bit of a disconnect there, but otherwise there are a lot of differences because it is a very different market in terms of Government involvement.

Nigel Jones: There has been an increase in consistency. There has been a growing consistency, particularly, as we keep mentioning, in the development of the vision for a Strategic Freight Network. That has been a consistent and flexible approach to rail freight, but also the relationship between some elements of road and rail, for about five years across two Governments. That has given a stability that has not always been there. You would have to say that there are still big structural differences between road and rail freight. The way in which road freight is charged for access to the road network is completely different from the way that rail freight is charged for access to the rail network. There are still big structural differences that we have to deal with. Roads are a major competitor. We compete with each other as freight operating companies but our real competitor is road transport. Whilst I think there is a general Government policy that would like to see more freight on rail rather than road, there are still some big structural impediments that we have to face in trying to achieve that.

Q359 Chair: Would you say there is a level playing field between road and rail?

Nigel Jones: I would not, no.

Q360 Chair: What would need to be done to make it a level playing field?

Nigel Jones: If you want to operate a lorry to move a container from a port to an inland terminal, it is really quite a simple process. You need an operating licence, so you go down to the Post Office and buy a vehicle excise duty certificate for whatever the class of lorry is, and that is it. Then you go off and you do your business. Effectively the road network is free at the point of use, with relatively minor toll exceptions. There is no need to have access rights, train plans or plans for engineering works. There are big structural differences that ultimately manifest themselves in the cost base. Rail has some advantages and road has many advantages. Is it an absolutely equal playing field? No, I would say it is not.

Q361 Chair: The ORR has proposals for changes for access charges in the next control period. What are your views on that?

Christopher Snelling: We are very concerned about what we have heard about the proposals so far. We were just talking about a level playing field for road and rail. One of the disadvantages of rail that our members see when they come to attempt to use it is that it is a far more complex system. As Nigel was just alluding to, you have to go through a lot more hoops. That is a significant disincentive for our members to consider using rail freight.

We fear that some of what the ORR is proposing will add to that complexity. If you go down routes of geographical charging or if you are splitting up the freight market as much as possible, anything that adds to that complexity makes it frankly more and more difficult to quote to customers about what kind of service they are going to get. That is leaving aside the central issue that if costs increase there will be modal shift. Certainly from the point of view of the logistics industry as a whole, it comes across as a process set in place where rail freight charges are going to get more complex and possibly higher in future, and that has the danger of putting people off considering switching to rail in the long term if they see that every five years we could be going down this route of increasing difficulty.

Maggie Simpson: It is worth remembering that, on coal, the ORR have concluded in their consultation that, if they set a charge for coal that led to a 10% per annum reduction in the volume of coal over and above any exogenous factors, that would be acceptable. They have been unable to explain in their consultation why a 10% per annum reduction in coal volume is acceptable but a 10% per annum reduction in any other commodity sector-or indeed passenger or open access passenger or anybody else-would not be acceptable. We have questioned that. We have not had a response to that. Why is 10% per annum the acceptable number? What is the impact of a 10% per annum reduction in coal volume-whatever you think of burning coal and the overall energy policy-on operators who don’t run their coal business in a vacuum and who share drivers, locos and infrastructure? There are some very serious implications as well on domestic open cast production that have not been properly addressed. Certainly members of mine up in Scotland are very concerned about the future impact on their business. If you take it overall, in the absence of a proper impact assessment, looking not just at the direct issue of whether electricity bills will rise as a consequence but how it will affect the overall sector and the secondary impact on other factors, this just simply has not been considered. That is on top of the points about complexity which Nigel and Christopher have made as well.

Q362 Jim Dobbin: Following your line of thought, Chair, I am looking at the whole of the freight business. Surely it is in the interests of the consumer and the people of this country that that is done as efficiently and as simply as possible. Are there any round table discussions that take place between the different competitors-air, road and rail-to try and achieve some consensus? I say that because I asked a question a few years ago on this very issue about transferring from road to rail. I was called in by my local HGV group and asked why I had asked that silly question. What is your view on that? It seems to me that there should be more.

Christopher Snelling: Certainly the FTA plays a role in this area. We have our Freight Transport Council. Underneath that we have Road and Rail Councils, which then both feed into one collective grouping. We try to come to consensus industry views on that. It is fair to say that whilst the majority of people work in a very collaborative fashion-and rail operators accept that road is a vital part of the logistics network, and most road operators are very happy to see the use of rail wherever possible, to exist as a complement to road-there will obviously be some operators who are wedded to road freight and don’t take any interest in rail. That is the way of the world, but we certainly have mechanisms to try and come to a common logistics view.

Nigel alluded earlier to a level playing field for rail freight. What we always want to see is a levelling up. We want to achieve the maximum efficiency within every mode because the modes do have different roles to play. From our point of view we don’t get anywhere in the long run by hindering one mode to try and protect another. What we want to see is the optimum efficiency in all modes.

Nigel Jones: Some of our customers are road hauliers. We work in partnership with road hauliers and logistics providers to offer solutions to end customers. Sometimes those commercial relationships are quite complex because we will compete with one person for one set of traffic and we will be collaborating with them for a different set of traffic. We have to remember which meeting we are going to.

Q363 Chair: One of the McNulty suggestions is that Network Rail should cease maintaining lines to freight standards if there is little likelihood of freight use. Are you comfortable with that suggestion?

Nigel Jones: We have been involved in working with colleagues in Network Rail because there are parts of the rail network on which there is no freight and which, to be honest, there is no reasonably foreseeable freight use simply because of the nature of the economic geography of that part of the United Kingdom. We are comfortable, provided not just ourselves and Network Rail but all potential stakeholders-whether that is local authorities or local businesses-have had a say on that. If there is a consensus that that is a good thing to do, and if Network Rail can make efficiencies and cost savings from doing that, it would seem to me to be a very sensible thing to be done.

Q364 Chair: Is that view shared or are there concerns?

Maggie Simpson: Within reason, it is a very sensible thing to try and identify assets that don’t have any realistic prospect in the modern age of ever being used and allowing them to be either maintained less cheaply or, if it is land, disposed of or whatever. We need consistency so we can’t end up with charging policies and frameworks or routeing policies that change every few years, because people who are looking to invest in major interchanges need to know that, once they have built it in that field in Leicestershire or wherever it is, they are going to be able to serve it properly in the long term. There is a risk of saying, "It’s very expensive to maintain this route; this year go that way", and next time round flip it back. As long as we have consistency in the routeing strategies pinned to the Strategic Freight Network concept, then I don’t have a problem with looking at the other routes.

Q365 Chair: The Government are said to be considering new infrastructure projects. If that is the case, what would you like to see happen to support freight?

Maggie Simpson: I would like to see the planning applications that have been sitting on Ministers’ desks for over a year decided.

Q366 Chair: Are there any other suggestions?

Nigel Jones: This comes back to electrification. It is making sure that the real detail of the rail network that is going to be electrified is maximised and that the maximum amount of sidings, entry into yards, customer terminals and connections between different main lines and different running lines is electrified. If you are going to move the industry towards an electrically hauled future, I think the quicker we can move with the majority of the network, the better.

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

Examination of Witnesses

Witnesses: Michael Roberts, Chief Executive Officer, Association of Train Operating Companies, Paul Plummer, Group Strategy Director, Network Rail, Jeremy Candfield, Director General, Railway Industry Association, and Dr Richard Wellings, Deputy Editorial Director, Institute of Economic Affairs, gave evidence.

Q367 Chair: Good morning and welcome to the Transport Select Committee. Would you give your name and the organisation you are representing, if any?

Dr Wellings: I am Richard Wellings. I am Head of Transport at the Institute of Economic Affairs.

Paul Plummer: I am Paul Plummer. I am Group Strategy Director at Network Rail.

Michael Roberts: I am Michael Roberts, Chief Executive of the Association of Train Operating Companies.

Jeremy Candfield: I am Jeremy Candfield, Director General of the Railway Industry Association.

Q368 Chair: Do you support the Government’s overall strategy in HLOS? Have they got the right priorities?

Paul Plummer: Perhaps I can comment first; I am sure others will. Very broadly, yes. We have done a lot of work across the industry to say what we thought should be the strategy for control period 5 and where we thought, as an industry, Government should be investing in growing capacity. A lot of those things are reflected in the HLOS, so in very broad terms we see that as very positive. It is continuing to invest in infrastructure, which delivers real value not just to users of the railway but to the economy as a whole.

Q369 Chair: Are there any other comments?

Dr Wellings: I would say no. The Government have not dealt with the fundamental problem that the rail industry is hugely distorted by subsidies and other distortions such as the planning system. Basically, the central planners in the DfT are groping about in the dark. They don’t have an idea of genuine levels of demand or genuine prices because we also have price controls. Basically, before embarking on these absolutely huge investments at taxpayers’ expense, they ought to get the fundamentals right and remove these distortions and, in particular, the subsidy regime.

Q370 Chair: What would you like to see change?

Dr Wellings: I would like to see the subsidies phased out and a change in the planning laws that force developers into corridors around railway stations, for example. There needs to be a change in the tax regime as well so that there is a level playing field with other transport modes.

Q371 Chair: Are there any other changes that anyone would like to see?

Michael Roberts: I would add my voice of support to the comments of Mr Plummer, not least because the HLOS largely reflects a lot of the work that the industry, which in large part is private sector, has been engaged in for the last 18 months. The railways have been extremely successful since privatisation. We want to continue being successful. We regard investment over the long term as a key part of that. The HLOS underpins that investment. It will be investment that is paid for, yes, in part by the taxpayer but increasingly by the fare-paying passenger. I think there are some issues, which have been raised by Dr Wellings, that are legitimate about the degree to which the industry is cost-effective and relies on subsidy, but the Government are clear, as indeed is the industry, that in earning our opportunity to continue to invest we also need to improve our cost-efficiency, which is very much what we are trying to do.

Q372 Chair: Mr Candfield, do you think HLOS reflects the industry’s view sufficiently? Has anything been missed out? Would you like to see any changes?

Jeremy Candfield: Broadly, yes, I do. The supply industry is involved in the planning process to which Mr Plummer referred. We are engaged in that and we see the priorities very much as are reflected in the IIP-the Initial Industry Plan-and which are broadly reflected in the High Level Output Specification. What I would add, if I may, from a supply perspective, is that it is especially helpful to see plans being laid out, which, although they relate to five years, are of strategic significance for the longer term. That gives supply industry companies a significantly greater degree of confidence and, in principle, willingness to invest in training and facilities than would otherwise have been there. The repeated references to a rolling programme of electrification, for which we have been asking for many years as being the most economical and optimal way of delivering electrification, is especially welcome.

Q373 Chair: Is there enough there to support the supply industry?

Jeremy Candfield: So far as electrification is concerned, yes, there certainly is. There may be some other areas where it is not quite so clear, but, broadly speaking, we are talking here about a major investment programme by comparison with where we have been in previous years. The straightforward answer to your question is, yes, there is.

Q374 Mr Leech: Dr Wellings, you argue that there is no economic case for the improvements because of the cost to the taxpayer. You suggest that taxpayers are already paying about £5 billion a year in subsidy. As far as you are concerned, that is an unacceptable level of subsidy. What would be an acceptable level of subsidy?

Dr Wellings: Zero. I would like to see it phased out over a period of, say, 10 years to zero.

Q375 Mr Leech: What impact do you think that would have on fare prices on trains and the number of passengers who could afford to use them?

Dr Wellings: It would vary. I don’t think it would have much impact on, say, the London commuter market, which I think is probably fundamentally economically viable, particularly if we also liberalise the planning system so that rail companies could make money from property development as they do in Japan. At the other extreme, you have railways in places like rural Wales that are very poorly used. I think they should definitely close down. There is no economic case whatsoever to keep them going and there is also no social case.

Q376 Mr Leech: On the basis that there is a subsidy taking people out of cars and reducing carbon emissions, in your studies what impact would there be on carbon emissions and on the cost to congestion as far as the economy is concerned? Have you done any of that work?

Dr Wellings: It is a myth about carbon emissions. If you closed the entire rail network down overnight, the impact on carbon emissions would be barely measurable. There are two reasons for that. One is that it is quite a small share of overall transport use. The second reason, of course, is that we are talking about a different market from cars. A high proportion of journeys are into central London, for example. These would probably hypothetically go on to coaches and buses, which are more efficient than trains. It would actually be barely measurable.

There is also the effect of subsidising people to move further and further away from where they work through cheaper train fares. You end up, for example, with long-distance commuters through the season ticket system. Although the rail journey might be relatively efficient from an environmental perspective, in terms of the whole lifestyle they probably emit more than if they lived in inner London or close to work.

Q377 Mr Leech: Would I be right in assuming that the other members of the panel probably disagree with Dr Wellings?

Q378 Chair: The general suggestion seems to be that, if subsidies are required to keep the service going, then the service should not be run. Am I right, Dr Wellings, as a general statement in the way you are looking at it?

Dr Wellings: That is right. There should be zero subsidy. I don’t want to do it overnight. I realise that it will affect people in certain areas.

Chair: That is what you would like to see.

Q379 Mr Leech: Dr Wellings was not able to say what impact that would have on train fares and passenger numbers. Perhaps people in the industry could give us an indication of what the impact would be with a zero subsidy.

Paul Plummer: I don’t agree with the simple proposition as it was put, but there are a number of things underneath that. First of all, clearly we have acknowledged that the industry as a whole can improve efficiency. The subsidy peaked at around £6 billion. It is now closer to £4 billion, and by the end of the next control period in 2019 it will be down towards £2 billion. There is then a public choice as to what one does with that. Does one want to see further reductions in subsidy? Does one want to invest that in growing the railway or does one want to change the balance between fares and subsidy? There are public choices there.

Q380 Mr Leech: The subsidy will be down to £2 billion at the end of the control period.

Paul Plummer: At the end of the next control period.

Q381 Mr Leech: If we were to make the subsidy zero, what impact would that have on the cost of rail fares and the number of passengers joining or leaving the railways?

Paul Plummer: You could obviously do it in a number of ways. One would be to have substantial increases in fares, which has obvious implications. I cannot quantify that for you. The other would be that it is easy to run a purely commercial railway but it would look like a very different railway from the one today. That is not in the sense of physical infrastructure, but how we would use it. Reference was made to a London commuting railway, but there isn’t such a thing as a simple London commuting railway. We have a mixed use railway. If one wanted to eliminate subsidy on that railway, one would stop investing in capacity to grow the peak, because that fundamentally costs a huge amount of money where you have that capacity constraint. One would stop a lot of commuter service in favour of longer distance services into London, which would have radical implications as well. There are different ways that one can do it. The way that we approach this, working very closely with the rest of the industry and with the Government, is to try and optimise within what the Government says it wants to buy from the railway as a good thing for the country because it is so fundamental for the economy.

Michael Roberts: The impact of taking subsidy down to zero will ultimately depend on decisions by Government, either in terms of what it wants to see happen with fares-and members of the Committee will be aware that nearly half of the fares that exist are regulated directly by Government-or it may mean that less of the investment that is being proposed under HLOS in increasing capacity, tackling overcrowding and addressing journey times would occur, with downsides and negative impacts on passengers.

Ultimately, we believe there is an ongoing case for some degree of public support for the railways on the back of the wider benefits that the railways deliver to the country. The industry proposals, which in large part have been endorsed by the Government in the HLOS, envisage that for every pound invested in the investment proposals the country would benefit four and a half times to the better. That would be through direct benefits to passengers in improved journey times and the ability to get a seat at peak time, wider transport benefits such as decongestion of the road network that would otherwise happen, and wider economic benefits such as the increased ability of some of our major cities outside London, such as Manchester and Leeds, to compete in the global attraction of business.

Q382 Steve Baker: Mr Roberts, you have reminded us that prices are tightly controlled by the state. They are not just covered by the supply and demand of transport. Mr Plummer, you have just explained some of the effects of removing subsidy. If I turn this round, would you agree with me that your argument amounts to saying that tight state control of prices plus large subsidies has produced enormous distortions in people’s transport patterns? I think that is just another way of looking at the argument you have advanced.

Michael Roberts: The combination of the two has certainly influenced the ultimate demand and the pattern of demand for rail transport. There is no denying that.

Q383 Steve Baker: If I was to look for an area of agreement between you and Dr Wellings, it is that the railway is not a free market operation, the state is tightly involved in it, and that has produced a system that works otherwise than it would have done if it were determined by people’s free choices.

Michael Roberts: That is correct. Most markets are imperfect. The rail market has a heavy degree of intervention by Government. Most players in the rail industry have argued in different ways for a lower level of Government intervention because, ultimately, the greater use of market forces, we believe, will lead to a more efficient use of resources.

Q384 Steve Baker: What is the role of reducing subsidies in liberating those market forces?

Paul Plummer: I will try and answer that. One area where we certainly strongly agree with Dr Wellings is the need for much greater transparency about where costs are incurred, what decisions drive those costs and therefore how collectively we make decisions about how we want to grow. That is a strong area of agreement. If, on the back of that greater transparency, decisions are made that as a country we want to continue to subsidise the service as a railway, then we would want to continue to provide that. That is where we would come from on that.

Q385 Steve Baker: Dr Wellings, in your article for City AM in July you were highly critical of the Government. You said that "cynical political calculation seems to be the driving force of policy". You talked about the railways as a classic example of a politically distorted market. You have also said, without reading the whole article, that many of the projects are motivated by politics rather than economics. Could you give us some examples of where these things can be seen?

Dr Wellings: Yes. The most telling example from the recent plans was the plan to electrify the branch lines in south Wales. Of course the Welsh railways already have perhaps the highest operating subsidies per passenger mile in the whole network. We already have a false market, a rigged market, and yet we are going to invest good money after bad in this already hugely subsidised market. It seemed to me that the Government were allocating new schemes across the country to pay off various special interests. Few of them made any economic sense to me. For example, if you wanted a fast train up to Sheffield, it can already be done by the East Coast Main Line in an hour and three quarters. There just isn’t the demand for that kind of service. The idea to spend this money electrifying the Midland Mainline to make some very tiny time savings didn’t make any business sense to me.

Of course the worst example of all is High Speed 2, which has a very low cost-benefit ratio. We saw road schemes being cancelled in the Comprehensive Spending Review that had a benefit-cost ratio over three times High Speed 2. There is no economic logic at all behind current transport policies.

Chair: We are on rail today, though.

Q386 Steve Baker: I would follow it up by asking this question. Isn’t it true that all Government investment decisions, including right across transport, are influenced by politics to some degree?

Dr Wellings: What we have is basically a thinly veiled version of Soviet-styled central planning here. It is hugely centralised with the DfT and politicians making the big decisions. This is in a morass of economic distortions from price controls, subsidies and distortionary tax treatments as well. These people just can’t make sensible investment decisions because, first, it is hugely politicised, and, secondly, because we don’t have genuine prices or genuine levels of demand.

Q387 Paul Maynard: Entertaining though the show is, I would return to the HLOS statement. There is something in it for everyone, I thought. One goodie that struck me was the Western Access rail route to Heathrow. Mr Plummer, I understand it is meant to be subject to a satisfactory business case. As I understand it, there has been an economic appraisal. Quite what are you waiting for? Am I being cynical in suggesting that you are waiting for BAA money?

Paul Plummer: There is an element of that, yes. That wasn’t at the heart of our Initial Industry Plan, but it is something that we have been working on with BAA and the Department for Transport. We think there is a good case there but there is more development work to be done. One of the questions as a result of that is who should pay for it. There is the extent to which BAA, among other people, benefit commercially from that investment and whether they should pay for part of it. That is a conversation we are having with BAA and I am sure that BAA are having that conversation with the Department as well.

Q388 Paul Maynard: Does uncertainty over aviation policy impede the development of this project? I know we are not going into aviation policy.

Paul Plummer: That has not been part of the conversation we have had with BAA as an issue.

Q389 Paul Maynard: I would also ask Mr Candfield about procurement and ancillary issues. In the MOD, defence procurement has always had a strong element of planning, understanding the importance of what they call "drumbeat", ensuring we have the skills base and the sovereign capability to ensure a steady supply of skilled people who can project manage. It has not always been the right outcome in terms of cost-effectiveness, but the concept has been there.

Do you now feel that in terms of rail procurement, the Department for Transport is reaching a phase where it now understands the importance of trying to ensure that we actually have the skills base that can deliver very ambitious infrastructure goals?

Jeremy Candfield: I cannot speak for the Department for Transport of course.

Q390 Paul Maynard: I am asking for your opinion.

Jeremy Candfield: My view is that the Department for Transport has been very helpful in promoting and encouraging the development of the National Skills Academy for Railway Engineering in which all three of our organisations played a central part. It is still the case-and it will take quite some time to change-that we see cycles of procurement going through the industry. I have already said that we welcome particularly what has been said in the HLOS about electrification, but it follows a long period when there has been very little new electrification in this country at all. There are clearly skills issues that we are talking about, particularly with Network Rail, in seeking to resolve that.

To an extent some of the cycles are inevitable but there are some that are not. We are working with our other industry partners, and to an extent with the Department for Transport, to seek to smooth these out. In fact the whole concept of the HLOS itself is very helpful in that regard. It is frankly very helpful for the industry to have assurance for a period of five years on what its funding is. I work with quite a number of countries in overseas markets where funding for the railway is determined every year and it is not a good place to be. It is very difficult to work in that situation. Certainly we do have problems. We have not yet fixed all the problems to do with feast and famine, but we are in a much better place than we have been in the past and that we see in some other countries.

Q391 Paul Maynard: Many political observers agitate for what they call shovel-ready projects, as if there are gangs of marauding workmen on the streets waiting to start digging something up and doing something. Do you think that that is a helpful concept or is it rather a misnomer? Is there ever such a thing as a shovel-ready project?

Jeremy Candfield: Others on the panel may have views on that as well. For a lot of railway work, because the railway is an integrated system, the amount of planning that is required for any substantial change is very substantial and involves a lot of parties, and it requires quite a lot of planning. There are some things that can be done shovel-ready. There are some works on stations, for example, and buildings and matters of that nature. They can sometimes be accelerated very quickly. I have no information on what might be available in that category now but there are some works of that nature. They are relatively limited as a proportion of the investment programme as a whole. Most railway investment takes time to plan, procure, organise and deliver.

Q392 Iain Stewart: Mr Plummer, in an answer to an earlier question you referred to the mixed use nature of many lines in the country. An earlier panel of witnesses raised some concerns about rail freight having sufficient access to the lines within the passenger sector. There are competing needs between commuters and faster intercity journeys. Do we have the right mechanism for fairly apportioning capacity on our network?

Paul Plummer: Broadly, yes, again. It is one of the reasons why, even with what we are doing at the moment, which is devolving accountability locally and looking at alliancing with operators, we preserve and hold dear within Network Rail the fact that it is still a network and we need to be able to plan and allocate capacity at a network level. Beyond that, if we are not able to reach agreement with our customers, with their competing aspirations, then the regulatory framework ultimately provides for ORR to make decisions about that. What we have been trying to do is to look much further ahead in long-term planning and the route utilisation strategy process to say what the best use of capacity is and then to feed that into the competitive process and make sure it does not constrain competitive process at franchising, so that there is scope for innovation.

Ultimately, Network Rail has to sell access rights to somebody and flush out whether there is a case for further investment in there. The process has lots of checks and balances in it, which makes it quite challenging sometimes, particularly as we are using up and have used up more and more of the spare capacity and we are getting to the point where we have to make further investment. Even beyond that, getting to the point where you can’t sensibly incrementalise yourself forward with the existing railway so you are into big step change, do you want to do something radical like build High Speed 2, on the basis that incremental work does not give you enough any more? Does that begin to answer your question?

Q393 Iain Stewart: Mr Roberts, from ATOC’s perspective do your members, such as London Midland, feel that they get a fair bite at the cherry compared to Virgin or FirstGroup or whoever takes over West Coast?

Michael Roberts: I thought we were answering questions about freight and the respective merits of freight.

Q394 Iain Stewart: It is about how we apportion the capacity on the network fairly between the different operators, be that freight, commuter traffic or intercity traffic.

Michael Roberts: I don’t think there is an issue there for our members. Going back to the earlier questioning in respect of priority given to passenger and freight operators in the round, issues to do with the relative charging mechanisms aren’t one of the major issues of concern for our members. With regard to the interaction between, say, freight and passenger operations, I think there are three things from the perspective of train operating companies.

The first is that, where paths are allocated to freight operators, their use is well planned and that, once a path has been identified, it is used at the time that has been set aside. The second is that, for any freight train that then uses that path, it runs reliably, because a broken down freight train causes significant disruption, as indeed does any broken down train. Thirdly, as part of the wider industry desire to see increased capacity in response to growing demand for rail, whether it is by passengers or by freight, we have supported the industry-wide call for investment in a Strategic Freight Network, which, again, the Government have largely endorsed in their HLOS proposals.

Q395 Jim Dobbin: Some experts would argue that rail freight in this country is possibly less efficient than it is in our European counterparts-for example, France and Germany. If that is your understanding, what are the lessons that we could learn if you agree with that statement?

Paul Plummer: I suspect you should have been asking that primarily of the previous panel. From our perspective the issues are around how we allocate the capacity.

Q396 Jim Dobbin: The reason I have asked the question is that Dr Wellings was making an issue about subsidy and so on. I am just trying to get your view of how freight is run in Germany and France.

Dr Wellings: I would just add that it may be partly to do with the distances involved. A high proportion of the freight in this country is run over very short distances-for example, between Immingham docks and the Yorkshire coal-fired power stations or Immingham docks and Scunthorpe steelworks. If you have shorter routes, this tends to be less efficient than the very longest hauls allowed on the continent, so it could just be a question of geography.

Paul Plummer: I would agree. Efficiency, in that context, is a very stark word. It may be that the cost per mile of a service running over a shorter distance is higher, but that doesn’t mean to say it is less efficient in meeting the market requirements. I was trying to answer your question in terms of the way we allocate capacity. Certainly we have some legitimate questions that we are working on with freight operators about the overall network capacity for freight. The previous witnesses were commenting on that in terms of some of the work we are doing with them where they don’t need us as infrastructure manager to maintain the capability, whereas in other areas we need to provide additional capability, diversionary routes or whatever, so that they can meet their customers’ requirements as efficiently as possible.

Q397 Chair: What sort of savings can the rail industry make in the next control period? What would the reduction of annual industry costs be by 2019? Who can tell me that? What are you assuming can be delivered?

Paul Plummer: The Initial Industry Plan set out our view on that a little while ago. That was ultimately input into the Government decisions about the High Level Output Specification and the statement of funds available. What we now have to do is produce our strategic business plan which says how we are going to deliver that.

In the Initial Industry Plan, in very simple terms, in Network Rail’s element of the costs, we highlighted the fact that we have already achieved a lot of the potential savings highlighted in the McNulty report. We effectively said that we could commit ourselves to delivering the low end of the savings identified by McNulty over the next control period.

Q398 Chair: How does that relate to the figures that the Government are assuming in HLOS?

Paul Plummer: I was going on to explain that. The statement of funds available now has assumed that we deliver that commitment but that we go beyond that and, in very simple terms, on the infrastructure side of the costs that we end up halfway between the high and the low end of the range identified by Sir Roy McNulty. To achieve that, bearing in mind that we already thought the Initial Industry Plan figures were challenging, certainly raises risks and there is a possibility that we won’t get that far. Certainly we are committed to taking it as far as we can, and in the strategic business plan we have set that out in more detail, but at the moment we don’t have the detailed plans for that. We are talking six and a half years away. No business would know precisely what efficiencies it is going to achieve over that time period. We have to-and will-do that in more detail. There is then the train operators’ side-

Q399 Chair: Mr Plummer, does that mean that the industry is not certain it can deliver the reduction of annual industry costs of £3.5 billion by 2019?

Paul Plummer: Absolutely it means that.

Q400 Chair: In that case do some of these HLOS schemes become questionable?

Paul Plummer: I will answer the first part of that question first. There are things that we need to do within the industry to enable us to achieve as much efficiency as possible. We have talked here before about how we work collectively in terms of alliancing. That is a key issue. There are things we need from Government in order to be able to deliver the outputs they want as flexibly as possible. Those are some of the discussions we will be having.

If, at the end of that, choices are made that suggest those dependencies can’t be delivered-some of them by us but others from Government and elsewhere-then choices have to be made as to whether you want to deliver all the outcomes. That is not where we are at the moment. We are committed to driving this as far as we can and getting a strategic business plan that goes along as far as possible towards that. At the moment, sitting before you today, we are part-way through that process so I can’t give you a definitive answer.

Q401 Chair: Mr Roberts, did you want to add to that?

Michael Roberts: First of all, I support Mr Plummer’s points that we cannot today commit and say that the £3.5 billion that you have referred to can be achieved by 2018-19, which is the year that is in question. That is not to say that we aren’t seeking and striving to meet that aspiration.

I would say that two things are important here. The first is that the Rail Delivery Group, which has been in existence for just over a year, has a clear programme of work looking at those areas identified by the McNulty review where we think there is significant opportunity to improve the cost efficiency of the industry. One of the biggest areas, for example, is asset management, where a different way of working between Network Rail and the train operators potentially has major scope to improve cost efficiency. That is something that the industry has taken as an issue under its own initiative and it needs to be taken forward.

The second material point, particularly with regard to the scope for train companies to contribute towards that end goal on cost efficiency, is that we believe that the framework within which train companies provide train services through the franchising agreements needs to be reformed to give greater flexibility to train companies to deliver better services. That greater flexibility will enable us to do that at lower cost.

In principle, the Government have said that they support that agenda and have been taking that forward through some of the recent competitions, but I think there is still some way to go yet before that reform is fully fledged and therefore delivers the train operators’ ability to contribute to the cost-efficiency goal.

Q402 Paul Maynard: On that specific point, what aspects of the Government’s franchise reform proposals do you feel have yet to be implemented?

Michael Roberts: If I could start with what I think has happened that is favourable, we have seen a move towards longer franchises. Longer franchises, if nothing else, allow train companies to invest and implement initiatives that not only deliver better services but also help reduce cost. We have also argued for more flexibility in the way the service is specified that they are then asked to run. Again, we have seen some movement in that direction. For example, in the invitation to tender on the West Coast competition there was some flexibility offered to operators around the timetable that they were allowed to bid against. We think that in that area in particular, in service specification, a move to a more output-based approach to specifying what the Government want as part-funder of the franchise agreements would be helpful in allowing the train companies to innovate more in how best to deliver those objectives.

Again, there are some positive signs. For example, we are seeing a move towards Government expecting train companies to deliver against improvements in the National Passenger Survey ratings of customer satisfaction. That is exactly the sort of outcome-based approach to specification that we want to see more of. As I say, I think it is work in progress at this stage.

Q403 Paul Maynard: Given that a lot of franchises are being let in a relatively short space of time, do you have any concerns that the opportunities further to reform the franchise process along the lines you indicate is perhaps limited because the DfT lacks the time to implement those changes, and that this represents the end of franchise reform rather than the beginning?

Michael Roberts: It is certainly a challenge. We have said before that, within the space of the next couple of years, as an industry we have a generational opportunity to change the way in which we provide and procure train services. It is something like 70% of the market in terms of the revenue being put up for competition. If we get it right now, not only is that important in terms of scale of the market but also because we are now letting these competitions out for a 15-year process. The decisions now will effectively determine the future of the market for a longer period of time.

Q404 Paul Maynard: As you state, we are having longer franchises. Do you believe the franchise appraisal process can carry out the comparison of rival bids that far into the future adequately to make a valid judgment? I think "valid" is the word.

Michael Roberts: Clearly it is a complex and sophisticated piece of work that needs to be done. If we look back, to give us some sense of how capable the Department is in carrying out this function, we need to recognise that, for example, the National Audit Office has looked at past competitions and work which the Department has carried out and has indicated that the DfT has been incredibly effective at achieving good value for money for the taxpayer.

Going forward, we are clearly looking at a different proposition in competitions. There are longer franchises and a different risk and reward balance between the client-the Department-and the provider in terms of train services. We are looking at the need to look longer term in forecasting and the like. It is more sophisticated at a time when the Department has gone through, like many other Departments, a reduction in headcount. Clearly there are some challenges, but past performance by the Department suggests that there are strengths upon which to build rather than this necessarily being a cause for despair.

Q405 Chair: What are you assuming the split will be between the traveller and the taxpayer in relation to fares by 2019? What will the proportions be of who pays what?

Paul Plummer: We are assuming in the Initial Industry Plan a continuation of the existing fares policy. If that changes then we would change that, but we have simply applied that policy as it was at the time.

Q406 Chair: It would be the same. Is that assuming RPI plus 3% as the cap on average increases in regulated fares in 2013 and 2014?

Paul Plummer: Initially.

Q407 Chair: Those are the assumptions that you are working on.

Michael Roberts: Those assumptions were built in and they followed what we understand currently to be Government policy. That was the reason for building those assumptions in.

Q408 Mr Leech: How reliant are train operating companies on growing the number of passengers as opposed to cutting costs? My understanding is that the emphasis has been on growing the number of passengers and increasing the revenue rather than necessarily cutting the costs. Have the train operating companies got the balance right?

Michael Roberts: The record of train companies since privatisation in the mid-1990s has shown that they have been extremely successful, notwithstanding some of the constraints and limitations of the franchises that I mentioned before. They have been extremely successful in both growing patronage-the number of passengers-and revenue. The figures approximately for an increase in patronage are 80% and an increase in revenue of 60% over that period of time. That in turn says two things. First of all, notwithstanding a lot of the concern around fares that reasonably and legitimately exists, train companies have been successful in offering a service that is sufficiently attractive, at a fair price, for people to want to pay to use it. The second thing is that it shows that we are on firm foundations in terms of our longer-term objective as an industry of trying to shift the balance of effort for paying for the costs of running the railways from the taxpayer to the passenger. Ultimately, that feels very consistent with the sort of instincts expressed, in perhaps a slightly more extreme way, by Dr Wellings.

Q409 Mr Leech: Is there a danger in the future, if passenger numbers don’t grow as much as train operating companies are assuming they will, with the change in franchises and less restrictive franchises, that train operating companies will then reduce staffing levels and services available to passengers part-way through franchises and that ultimately passengers will get a worse deal?

Michael Roberts: When bidders apply and compete to operate a franchise, they clearly look at both the opportunity to grow the market and to increase revenue on the one hand, and to deliver those services that achieve that in the most cost-effective way. Looking over the long term, they clearly seek flexibility both to continue to grow revenue and to deliver services in the most cost-effective way in order to deliver a payment line which is fixed at the outset. That is one of the reasons why we have argued for franchise reform of the sort that I mentioned before.

Q410 Steve Baker: We have talked a lot, Dr Wellings, about capacity allocation. Could you think of a couple of ways in which the current mechanism for capacity allocation could be improved?

Dr Wellings: Ideally I don’t think we should even be in this place having this discussion. The Government have basically imposed a complex and hugely costly artificial structure on the industry. I think the industry should be left to its own devices to find the optimal level of vertical integration, for example. Personally, I think there are good reasons to believe that you would end up with vertical integration if the market was left to its own devices. Then, basically, the owners of the tracks would be the same people that ran the services. They would determine who had access to those tracks as the private owners of that infrastructure. It is a far simpler system and you don’t have all these parasitic lawyers, highly paid consultants and senior civil servants who raise costs for both passengers and taxpayers. You could remove all those layers of bureaucracy.

Q411 Steve Baker: This is radical stuff. It is usually me saying these things. Other people have sat on these benches and advocated the nationalisation of the railways. You have suggested that this is already thinly veiled Soviet socialism, I think you said. Many of the resources are privately owned and operated so it is this hybrid system. You are advocating radicalism. Wouldn’t it be better radically to nationalise or privatise the whole thing? Is it sustainable to keep going in the way that we are?

Dr Wellings: It can limp on in the way that we are going now but I would be sceptical as to whether huge cost savings can be delivered unless there is serious structural change. I would advocate going back to privatisation but doing it properly this time and removing all the political control and regulation. We lost all the real benefits that privatisation can bring, which are things like entrepreneurship, innovation and flexibility. That did not happen because the politicians wanted to retain tight control over the railways. In many ways it was a sham privatisation. Yes, revisit privatisation, but do it properly this time and allow the industry to determine its own structure. That would probably mean vertical integration. Whether it would be large regional chunks, as we had in the 1930s, or a kind of British Rail plc, I don’t think politicians should try and determine that in advance.

Q412 Steve Baker: In my own experience, Dr Wellings, some of these arguments are met with the claim that it is just pure ideology. Could you explain why it is that you take this view? What are the impacts for society of not adopting the ideas that you are advocating?

Dr Wellings: One thing that is neglected in rail subsidies and support for these "grands projets" like High Speed 2 is the economic damage done by the taxes and borrowing that is needed to fund these projects. Every pound that is spent on these projects loses far more than a pound in the wider economy. The problem is that a lot of these costs aren’t very easily visible; so people focus on the concentrated benefits of new stations and so on but they forget that jobs are being lost across the whole country and businesses are closing down because of the wider economic impacts of the higher tax and the higher borrowing needed to fund these schemes. That is completely neglected.

There could be egalitarian arguments for subsidising public transport, but that definitely doesn’t apply to rail because the typical rail user is far wealthier than the general population.

Q413 Chair: I want to ask you about level crossing safety. It is an issue that this Committee has been concerned with. The Initial Industry Plan asked for £346 million for level crossing safety. HLOS allocates £65 million. What does this mean for making level crossings safer? There have been a number of very tragic accidents and there has been a commitment from Network Rail to put that right.

Paul Plummer: Almost regardless of where one ends up on that spectrum that you identify, we have to prioritise the funds we have to improve safety at level crossings. In many cases it simply wouldn’t be value for money to make that investment. We need to be very explicit and clear about how we are making those choices. Moving from the amount of money that we suggested towards the lower amount of money obviously means that we would not be able to remove as many level crossings as we were suggesting would be possible. Again, that is a choice to an extent in terms of the safety on roads at level crossings versus investment in other forms of transport and how you can improve safety elsewhere.

Q414 Chair: Are you likely to be able to add to that allocated amount?

Paul Plummer: Only if we outperform our business elsewhere and manage to redirect some outperformance into that money. That is what we have been doing in this control period. We have identified some of the outperformance from beating our regulatory targets and dedicated that to invest in improving level crossing safety. We can’t sit here and say we are going to outperform in CP5 because at the moment we don’t know how we are going to deliver CP5. I certainly can’t commit to that, no.

Q415 Chair: Mr Candfield, the Government want to boost the economy. Do you have any specific suggestions to make on what could be done to support the railway industries better?

Jeremy Candfield: The area of training was touched on earlier and it is one that is really very important. It is an area where the industry is likely to need some considerable investment in the next few years, not least in the case of the electrification programme. There are some other areas of training where Government are involved or are contemplating becoming involved in funding. We would see that as an area which is of considerable benefit to the supply industry as a whole, because we need more people-and it has been difficult not least because of the cyclical nature of investment programmes-and of benefit to the economy as a whole. Trained people will generally be people who are earning more than they would otherwise have been doing and will be contributing to the economy in that way. That would be my most immediate answer to your question.

So far as investment as a whole is concerned, of course there are bound to be areas in investment programmes where more can be done. There are bound to be areas where some degree of smoothing of investment expenditure would still be helpful. I will stick, if I may, to my original position that this is a good settlement. It envisages a very substantial investment programme and we are very supportive of it.

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

Examination of Witnesses

Witnesses: Kaj Mook, Head of Customer Service Transition, Merseyrail, Joel Brook, Property Director, Select Service Partners, and Simon Rutter, Director, Solum Regeneration, gave evidence.

Q416 Chair: Good morning, gentlemen, and welcome to the Transport Select Committee. Could I have your name and the organisation you are representing to help our records?

Kaj Mook: Kaj Mook representing Merseyrail.

Simon Rutter: Simon Rutter representing Solum Regeneration.

Joel Brook: I am Joel Brook, Property Director of SSP, which is a food catering company specialising in transport locations.

Q417 Chair: How are sites for development being identified?

Simon Rutter: If I can explain just a little bit of background as to how Solum was set up, Solum was a joint venture between Network Rail and Kier Property. It was established in 2008 and originally it went through an OJEU process. The original sites that we are bringing forward for development were selected for us by Network Rail. We are bringing forward three of those sites at the moment. Future sites are selected on the basis of a particular need for railway improvements, the need for commercial development in certain areas and on a collaborative basis. It has to be said that the Solum Regeneration model is not a one size fits all. It will only work in a specific set of commercial circumstances, but thus far is proving a success.

Q418 Chair: How can we be sure that the long-term needs of the railway are not being compromised by short-term developments? What are the procedures to address that?

Simon Rutter: In the past there was a danger-and it has often been talked about-of selling off the Crown Jewels. I think all the Crown Jewels may already have gone. All the sites that we have now are very complicated. They all have a little bit of history to them. I am sure people in various constituencies have seen sites that have not come forward even though they have been promoted.

Network Rail have put in place a very stringent procedure for site certification ultimately controlled by the ORR. The Regulator has final sign-off. Network Rail protect their land position because in each of the sites that we deal with they get land value, station railway improvements and because of the risks they are involved with they are now taking profits at the other end. I think it is a pretty robust model for Network Rail and certainly there is the idea of protecting the railway going forward.

Q419 Chair: Have you quantified the benefits to Network Rail and how profitable it is?

Simon Rutter: I could just give you some high-level numbers. What I don’t want to do is project forward. We are a joint venture which was established in 2008. It is fairer for this forum to talk about the schemes which we have on site. These are schemes that have been through planning and they are on site. Epsom is due to be finished towards the end of this year, Walthamstow is next year, and there is a site in Christchurch next year as well.

The gross development value for those schemes is about £60 million. Solum will make a profit out of those sites of about £5 million. That is relatively meagre but is potentially controlled by the difficult economic circumstances we are in. For Network Rail, out of those three sites, they will see value of just over £3.5 million. They will see station improvements of £3 million and they will obviously share in the profit. It is pretty robust for Network Rail in terms of the original model.

Q420 Iain Stewart: Is your regeneration solely related to stations and the surrounding land or do you have other parts of the railway assets?

Simon Rutter: Solum was set up as a joint venture with Network Rail, and we solely concentrate on assets that have Network Rail ownership as part of them. It is not just stations. We look at vacant sites that have been under-utilised. We are able to buy land next to stations to improve what might be the station offer, but we were set up as a specific Network Rail property joint venture.

Q421 Iain Stewart: The reason I ask is because as part of our investigation we visited a depot at Allerton in Liverpool that has now been brought back into use to manage extra carriages on the network. There was a risk that that site would have been sold off for housing. I want to probe a little bit more about how you identify the long-term needs of the railway as opposed to short-term commercial possibilities. What is your horizon? Is it five years or 10 years?

Simon Rutter: The joint venture was set up in 2008. It has a 10-year initial life with a potential extension for five years, so our intention is that we will certainly be around until 2023. The way that the original schemes were scoped was that Network Rail put together what was a detailed station design brief, which set out requirements for the railway as part of the development. That dealt with car parking and station capacity. All our stations are designed with a minimum life until 2055. It dealt with what you might call softer benefits such as cycling provision. All of our stations have a minimum requirement to increase cycling provision by 125%, if not more. The brief has been set by Network Rail and therefore set, in our view, by the rail industry. We are then led by that to put a commercial development around it that is economically viable so that the drivers for the railway come from the railway, and not from us as the private developer telling them what they can have.

Q422 Iain Stewart: Perhaps you are not the best person to answer this question, but I am still not clear who is identifying the long-term potential needs of the rail system in terms of depots, stations and everything else as opposed to selling it off for a short-term commercial gain. I am not clear in my mind who is making that decision and on what time horizon.

Simon Rutter: You are probably right; I am probably not the right person to answer it. In our mind the process that we go through in order to be able to dispose of or purchase railway assets goes through a rigorous internal process in Network Rail. There is internal consultation and external consultation through the ORR, which ultimately has the final sign-off. I suspect you need to ask Network Rail specifically a little bit more of the detail about how they do that.

Q423 Paul Maynard: I will try and ask the same question in a different way.

Simon Rutter: I will probably give you the same answer.

Paul Maynard: Have there been any projects that have come from Network Rail to you that have in any way had to be suspended, altered, changed or abandoned because they have identified a future operational need that they had not identified when they gave you the project, as it were?

Simon Rutter: Again, we are dealing with a relatively small number. We had seven originally. We now have 10 contracted and we have discussions on another four. It is fair to say that, of the 10 we have contracted, no. In effect what we are asking them to do on one or two is perhaps to look at a more strategic approach. We are working quite closely now with the alliance, particularly down on the Wessex route. There are some discussions coming out of the alliance that look at a longer-term vision for maintenance, for example. We are asking questions because that is what we were set up to do-it is to challenge the commerciality of parts of Network Rail. We are asking them questions about the necessity for maintenance in multiple locations, for example.

Going forward, we are talking about certainly one of the schemes. Definitively, we are not quite there yet with our contract. That is on the basis that there are a number of implications, particularly around freight, which determine that we are not quite in a position to enter that contract, and they are still making some decisions. I suppose the answer is yes, yes and no.

Q424 Mr Leech: As a follow-on from that, the collaboration with Solum Regeneration was set up in 2008.

Simon Rutter: Yes.

Q425 Mr Leech: With some of the places that you have identified, have there subsequently been any decisions made to postpone developments simply because of the economic circumstances, or is there an incentive to get these schemes built now even if they would make more money if it was held off for the future?

Simon Rutter: We have looked very carefully at the schemes that we have promoted. It is fair to say that, for example, the schemes at Guildford are big schemes in our world. Guildford has an end value of £175 million or £180 million. To turn the question round, in a different economic climate we would have brought some of those schemes forward much quicker. The economic climate has made us stop and think about what we are doing and check that what we are doing has the right drivers to it.

In terms of Network Rail, the way the contract works for them is that the contracts are in effect revalued once planning permission is granted. They don’t fix values at a point in time. They allow improvements in value to flow through the joint venture mechanism because they are not just selling land to Solum; they take the benefits of the joint venture.

Q426 Mr Leech: But you were given a remit to raise some revenue when you were set up in 2008. Is there a danger that we are looking at raising that revenue too quickly, whereas, if we waited for better economic circumstances in the future, there might be a financial benefit to holding off on some of these schemes even though you were given this 15-year period to do all this work?

Simon Rutter: If we look at it holistically, it is not just about the money, certainly not for Network Rail. From a Kier perspective it was about being a commercial organisation and being in a commercial position. That was the Kier financial incentive. But actually it was about more than that. For anybody who had been to Epsom three years ago, the station was pretty horrible. What you will find now is a station that has a new ticket hall, platform improvements and other improvements. The incentive was twofold. We want to get rail infrastructure improvements paid for by commercial developments. The other driver was around the financial returns.

Q427 Mr Leech: So it is not just about financial returns.

Simon Rutter: It is not just about financial returns. We are looking at places that we will be proud of as Solum going forward because these are about stations. We all know about stations and we want to make them gateways that people are proud of. Therefore, the drivers aren’t purely about the commercial elements.

Q428 Mr Leech: But is it not fair to say that, because this is a 15-year deal, there is an incentive for the partnership to get work done now and get it all completed, whereas from Network Rail’s perspective and from a financial perspective that may not be the best deal for Network Rail?

Simon Rutter: Again, it is fair to say that, if that was the case, with the seven schemes that we were originally ceded in 2008, we would be here in 2012 trying to put those on to site to fulfil exactly the criteria you are talking about. We have all recognised that we are in a difficult economic situation. Things should improve, but please don’t ask me when they will improve. From that base we will see the upside of that going forward. At the moment 2023 is a long time away. Our schemes are taking 18 months to get from drawing board to planning. They are taking about a year to get through planning. Dependent on other constraints, let’s call them-planning being one of them-we are on site and completing them in two years. At the moment we are not fettered by the end date. We are looking at what is right for a scheme with the benefits that Network Rail have sought, that have been identified by train operators and Network Rail, and progressing those in tandem.

Q429 Chair: Mr Brook, it appears that, when we go into a railway station and buy something to eat or drink, whatever brand we think we are buying, we are actually buying from Select Service Partners.

Joel Brook: That is a lovely thought.

Q430 Chair: Isn’t that a great monopoly?

Joel Brook: As I say, it is a lovely thought but not quite correct.

Q431 Chair: Tell me what is correct.

Joel Brook: We have a good share of the station retail catering market and there is a history to that. As a private company it goes back to 1988 with the privatisation of the British Rail catering company Travellers Fare. There is a long history, but, with 24 years of station redevelopments, open market tenders and endless competition from Costas to Neros to Prets to McDonalds and to Sainsbury’s, the choice these days is an awful lot wider than the brands that we operate. However, our market share is sufficient that it does allow us to create partnerships with people such as-

Q432 Chair: What is your market share at railway stations?

Joel Brook: I don’t fully know the answer to that. I will have a stab at it.

Q433 Chair: You can answer it the best you can, but we do need to have an answer to that.

Joel Brook: The only reason why I say I don’t know is that I don’t have access to all the information of all the competitors. My gut feel is that it is probably 30% to 40% these days. It is a fair chunk but it is a long way from a monopoly. One of the benefits, if I may try and take that-

Q434 Chair: Let me just stop you, Mr Brook. I just want to be clear what the situation is. If somebody goes on to a station and buys something under one brand name, is it actually that brand or could it really be SSP?

Joel Brook: It could be in fairness. If you were at Liverpool Lime Street station and you went into the Marks & Spencer Simply Food, that is a franchise operated by SSP. That is one of the benefits of ourselves having a fair market share and a fair market business so that we can create partnerships. We now have 36 Marks & Spencer’s Simply Foods on stations. Hopefully, we are using our involvement in stations to widen the selection that you have. Certainly, if you went into Costa at Liverpool Lime Street, that would not be ours. If you went into Caffè Nero, that would not be ours. We have a large business but it is a long, long way from a monopoly.

Q435 Paul Maynard: Do you have any plans to follow the practice of motorway service stations and start charging a premium to customers for the pleasure and honour of purchasing your goods in a high-cost environment such as a station?

Joel Brook: We don’t have any plans whatsoever to change the pricing structures that we have. Obviously we have our own brands, and Upper Crust is an example. We operate other people’s brands. Starbucks or Marks & Spencer would be examples of that. We have to agree pricing with those people, but we have no plans to follow the motorway route.

Q436 Chair: When you say you "operate" those brands, what exactly does that mean?

Joel Brook: They are franchises. We operate our own brands. Upper Crust is something that we own. It is a brand that we have developed. We operate some of the Starbucks on the stations as a franchise. Marks & Spencer on the stations are ourselves. Burger King we operate but we don’t own. We operate a number of brands, but a long way from all of them.

Q437 Paul Maynard: You operate at airports and at motorway service stations, both of which have a high cost base. There is an intention in policy to reduce the overall cost of the railway. Clearly one way of doing that would be to start to generate more revenue streams from existing shops and outlets on station concourses. If I think of Euston compared to five or 10 years ago, there is an immense variety. I would agree that there is no lack of choice, but there is also an upwards increase every year above, I would suggest, the rate of inflation in the cost of what you are charging.

Joel Brook: I would have to compare rates of inflation. Food costs have not been very kind to us, but that is not meant to be an excuse. As I say, we don’t operate on motorway service stations. Historically, there was a part of the company that was sold separately. We do operate in motorway service areas on the continent but not in the UK. We do have an airport business. We try and vary how we do that and maximise potential and so on. On the stations there is no intention whatsoever to change our pricing policy. You have already mentioned the increased competition at Euston. That just makes us work harder. It increases the competition and it is better choice for passengers. It creates more revenue.

One of the keys of where you should be going, in my view, is how you create more commercial space at reasonable cost in good locations on stations, whether that is to ourselves or not. Everything on the stations these days is open market tenders. Generally station rents are very high because that is what the market brings. Creating more space in an age of technology, do they need the booking offices quite the size that they are? Could you free up half a booking office, which is probably about the size of a small Marks & Spencer Simply Food or a small Boots unit, which is not ours? The key is to free up space in the right locations that are correct for the pedestrian flows and drive more revenue and customer facilities in that way.

Q438 Chair: Are you saying there is an open competition for each of these stations?

Joel Brook: Categorically, yes. We have a long history that goes back to 1988-

Chair: I am just looking at how it works now.

Q439 Mr Leech: How many stations do you operate on where there is no competition to you?

Joel Brook: I do not have a precise number.

Q440 Mr Leech: Are you able to provide us with that?

Joel Brook: Categorically, yes; no problem at all. That will be in places, for example, like Taunton where the nature of the station means that you would only have one unit. If somebody wants to market a second unit at Taunton, that really would not be under my control; that would be under the landlord’s control. I only manage what we manage.

Q441 Mr Leech: Euston Station, for instance, is one that anyone using the West Coast Main Line uses regularly. What proportion of the units there are yours?

Joel Brook: Euston Station, inside the main station, in fairness, is probably the highest proportion of any station that we have.

Q442 Mr Leech: I have picked a good example, then.

Joel Brook: You have picked a very good example. I could think of lots of other examples that would disprove the point, but even at Euston there is all the catering outside. In many ways station redevelopment sorts this out for itself.

Q443 Mr Leech: You did not really answer the question. Of the units that are there-

Joel Brook: At Euston Station I would say in totality 60%, but that is a high share in comparison to lots of other stations.

Q444 Mr Leech: Where you have no competition, are your prices the same as where you do have competition?

Joel Brook: Absolutely.

Q445 Mr Leech: Whichever station you go to, your outlet, whether it is Burger King or Marks & Spencer, you would have exactly the same prices.

Joel Brook: Our pricing policy tends to be identical within our own units. I think we probably have a Pumpkin Cafe at Taunton. The principle is that we are going to try and provide a service to people and take revenue and pay rent to the railways. We are going to do the coffees, the teas, the sandwiches, the confectionery, the newspapers and the magazines. There are certain locations where there is a benefit in having one operator who is trying to do a multipurpose unit.

The other point I would mention is that the railways have always operated on turnover rents. You can go back to 1846. There was a gentleman called William-

Q446 Chair: We just want to concentrate on the present. You spoke about giving a service. Does anybody specify what level of service is required and, for example, whether you can get a cup of tea in Southampton at 10 o’clock on a Sunday night?

Joel Brook: I understand that somebody once didn’t get a cup of tea at Southampton at 10 o’clock. I am not sure he wrote the entire report about that.

Q447 Chair: That was the Transport Secretary at the time, so it was all rather unfortunate. Does anybody else specify the standard of service?

Joel Brook: Every single operation we have has minimum trading hours. Every single one is agreed with the landlord. We have agreed product ranges. The answer is that in all our occupations there are in place minimum trading hours. If we are open, you are going to get a cup of tea. I don’t quite know the instance of 10 o’clock at Southampton one evening-hopefully, he had only missed it very shortly, but we do have those provisions, yes.

Q448 Iain Stewart: I would like to explore the change in the retail nature of stations. On the one hand you have what might be termed journey-related purchases such as newspapers, coffee and sandwiches. During the summer I was at St Pancras International. The number of shops there that had absolutely nothing to do with your journey was quite amazing. Do you see that there is a long-term trend that stations will become retail centres in their own right rather than facilitating a journey?

Joel Brook: I think stations vary. St Pancras is quite specific because it is international and it is a longer dwell time. You are providing a service to people who are going on holiday and travelling abroad. Therefore, their requirements become larger than a normal station. However, if you go back as far as the original Tie Racks and Sock Shops of this world, they started on stations, so it is nothing new.

There is a trend, if you look at King’s Cross, these days to add more varied retail. It is part of the travelling experience to buy products. There is also a slight trend to create upper level catering areas, which lend themselves more to casual dining rather than the grab-and-go catering. I do see a trend. I think it is a good thing. It has increased development and revenue for the railways.

Q449 Iain Stewart: The potential danger is that those opportunities are so lucrative that it starts squeezing out passenger space and booking hall facilities. Is there a danger that that might happen?

Joel Brook: Once again, St Pancras is a very specific example.

Q450 Iain Stewart: I wasn’t thinking specifically of St Pancras but generally.

Joel Brook: I don’t think so, no. I would take it the other way actually and say that it is time that we freed up some of the space in the ticket offices. If you go back probably even only 10 years ago, anybody buying a ticket would have queued up at the ticket office in the queue. The percentage of tickets bought online now is a great deal. I think it is time for a sensible review of space and a combination of rail and retail facilities to make that work better for the travelling customer. I don’t see any concerns from the passenger’s point of view.

Simon Rutter: An example is at Waterloo Station, where the high level walkway has gone in there specifically for that purpose. It is to take retail out of the passenger areas and put it somewhere else. What you find is that stations were historically places where people went to to get a train. Now they come to meet people before they get a train. What you find as a trend, say, at King’s Cross, is that you meet people because it is a nice place to go and meet somebody. The nature of stations is changing and therefore the passenger offer is changing too.

Q451 Paul Maynard: It was once said that the V&A was "an ace caff with a museum attached". How close are we to the point where Euston is an ace place to go and shop, with a platform accidentally stuck on the end? Isn’t that a real danger of where we are heading-that it is overly retail?

Joel Brook: You would have to ask Network Rail that question. I am only an operator of certain units there. Euston is quite well developed and it may be redeveloped in the future. There is plenty of space. The train information is there and the platforms are there. It only becomes an issue when people can’t find out where the train is going from and get on those trains. All the development of stations, if that is your point, is something you would have to put to Network Rail.

Q452 Chair: The report in 2009 said that the net value of retailing in catering to the industry was £135 million. Does that sound about right to you?

Joel Brook: It does. Before you ask me the question, I can tell you how much of that we paid. The answer is £45 million. That is probably broadly in line with my 30% of the market.

Q453 Chair: So you think that is about right.

Joel Brook: Yes, that sounds correct.

Q454 Chair: Mr Mook, you have been operating combined ticket and retail facilities on stations. Have there been any difficulties with passengers wanting to buy tickets and finding that they are stuck behind somebody with a complex consumer purchase going on?

Kaj Mook: That is a good question. Indeed, it is one of the complications of our M to Go concept. What we would like to do is provide our customers with everything they need for their journey in a one-stop shop. Of course there are some difficulties in combining a ticket office with a retail facility because you might end up with your sandwich behind someone who wants to buy a difficult long-distance ticket. Overall, especially on our network, with most of the journeys being relatively short with easy ticketing, for most of our customers it is about leaving the store with the sandwich and the ticket within, say, one minute. That is what we try to provide to our customers.

Q455 Chair: Your model has not been copied a great deal, has it? Why do you think that is?

Kaj Mook: No, it has not. There are some specifics about our concession agreement and why we came up with the M to Go concept. First of all, it was because of the fact that we were able to use a lot of the Dutch best practice that was brought to the UK by our owner group Abellio and also the relatively long-term concession agreement, which was 25 years. That provided us with the opportunity to give it a try and to develop the concept. We have been doing M to Go for about six years now and we are still working on a continuous improvement of the concept.

A third point, which is quite important, is that as part of our concession agreement we have to provide staffed ticketing facilities at all our stations. If you are in a situation like that, we thought that it might be better to make good use of that by not only providing our customers with tickets but with retail items too. Those are the different aspects particular to our concession agreement, and why we decided to come up with M to Go and why others might not have decided to follow us.

Q456 Paul Maynard: Obviously it is an innovative approach that I saw for myself at Liverpool South Parkway. When it was being introduced and you were transferring from the traditional model to this new one, what was the attitude of the trades unions locally?

Kaj Mook: Of course I was not at the company at that time but I do know that there have been plenty of discussions about getting staff from behind the bulletproof glass into a store and having to deal with customers face to face instead of from behind the glass. There were some concerns. It took about one or two years to get over that hurdle. We are now in a situation where our staff prefer to work in an M to Go over a traditional booking office.

Q457 Chair: Mr Brook, could you tell us if ticket barriers have any impact on retail sales at stations?

Joel Brook: The answer is they do. They categorically do. We fully understand why ticket barriers go in; it is not difficult to work that one out. They segment the market. They put people off circulating. People don’t like to try and juggle a cup of coffee through ticket barriers. Whilst fully understanding why they are there, they are not good for retail sales.

Q458 Chair: Can you quantify the impact in any way?

Joel Brook: It will depend on location. If you have one unit rail side and one unit land side, there will be a lesser effect than if you only have a unit that is on one side of the ticket barrier and so it restricts customer purchases, but we understand why they are there.

Chair: Thank you, gentlemen. We have had a very interesting session here. Thank you all for coming and answering our questions.

Prepared 11th September 2012