I leave you to imagine just how much our station estate could be transformed if we could do deals like this on a much bigger scale, as the petrol retailers have done with their forecourts across the country?
To facilitate this requires some vision at the directing mind of our railways and a willingness to tackle the powerbase of the TSSA and the RMT, coupled with a simple regulatory change. That this hasn’t happened shows again how our government’s approach to rail is holding our industry back.
So, we’ve looked at the main structural changes that have taken place over the past 21 years, and considered some of the things that perhaps haven’t gone as well as they might have done.
I’d now like to assess features relating to the position the industry finds itself in currently, and then go on to suggest how things could change in the future.
Planning and using network capacity
Alliance Rail Holdings has two significant applications lodged with the ORR for new open access services. One is an hourly fast service between the capitals of Scotland and England (calling only at Newcastle), formed of tilting high-speed trains and which would require the franchisee’s trains to play second fiddle and be overtaken en route. The other is a two-hourly service via Leeds, which would eat into the franchisee’s prime market of West Yorkshire.
The existing franchisee has a fleet of new trains on order and an ambitious proposed new timetable that will use up much of the remaining spare capacity on the route. It needs to make its new timetable as attractive as possible - with fast, repeating pattern services - if it is to realise its income projections and be able to pay the premia it has promised to government over the next eight years.
Without this new timetable it will undoubtedly experience severe financial strain. There have already been two failed franchises on this Blue Riband route, and the Government will be desperate to avoid a third. Equally, the Government needs the proposed timetable to work because it ordered the new trains itself and instructed the franchisee to use them. The trains are on a long-term deal where their full use is financially committed for 25 years.
The proposed new timetable is predicated on a series of infrastructure upgrades funded by government through Network Rail in the current Control Period. It is not yet clear whether the upgrades will be delivered on time and whether they can be completed within the available funding. But even if the upgrade work gets completed, there is insufficient capacity on the route to allow all of the desired services to run.
To make matters worse, for the busiest part of the route (the last 70 miles or so into central London) the Thameslink scheme will add further trains and complexity to the service pattern, including over one critical (and shared) two-track section. The Thameslink timetable is tightly constrained by the need to funnel high-capacity commuter trains into the core section through central London. Furthermore, the DfT has instructed that Thameslink’s timetable slots should be regarded as fixed and the long-distance high-speed services be flexed around the commuter trains.
Network Rail, as the system operator, has the impossible task of trying to plan the timetable to meet all of the operators’ requirements while also being on the hook for operational performance, which is not good on this route. However, the decision on whether or not to grant the access rights is to be taken by ORR.
Thus the stage is set for institutional conflict. Whichever way the decision goes on the access rights, there are going to be serious consequences. And just think about how complex all this transactional stuff has become around changing a timetable! All that time and energy has both a real cost in pounds and an opportunity cost that is built into both the industry cost base and its barriers to entry.
The dogfight for paths on the East Coast Main Line has been a recurring soap opera over the past 15 years, and has consumed enormous energy from many industry parties. It has made planning a timetable to make the most effective use of increasing scarce capacity much, much harder than it would otherwise have been, and made the necessary collaboration between operators and Network Rail (so necessary to run a modern railway cohesively) much more difficult to secure. I believe that it has also served to inhibit development of the route, which would have improved its capability and capacity.
So I conclude that the desire to have open access competition to franchisees, which was at the heart of the 1993 legislation, has become incompatible with the letting and managing of long-distance franchises on a mixed traffic multi-operator railway. I think it would be possible to create a future state where the access charging regime for long-distance passenger services was put on a level footing, and a phasing out of franchising in favour of open access operation. This would need provision for appropriate premia to be paid to the railway authority, and for the protection of socially necessary but unremunerative services.
Concessions versus franchises
There has been a gradual move in Britain towards concessioning for urban railways as opposed to franchising. The key difference is that in a franchise, the franchisee operates on a net cost basis - in other words, it carries the full revenue risk and acts as an informed commercial business operating within a loose franchise specification, which typically sets out minimum train service and customer service levels and has fares and ticketing controls in it. Whereas in a concession, the client takes the revenue risk, and becomes the informed specifier of service levels, fares and so on, with the concessionaire operating on a gross cost basis.
The concessioning model seems to work well when there is a local public transport authority that considers rail travel as a key driver of the economic and social fabric of its community, and is willing to make the necessary financial and engagement effort to improve it. I guess it also helps to make the local case for change if the franchising authority is seen as remote and out of touch with local needs.
Thus we have seen a number of these introduced in Britain. All tram and light rail systems are operated on this kind of model, as is Merseyrail. In London, two parts of the heavy rail commuter system have been converted in the past few years to a concession model, and branded as London Overground. The results have been most impressive, both from a passenger perspective and for regenerating previously less well-connected parts of the suburbs. Other local authorities are keen to follow suit, notably Rail North and in Birmingham.
I reckon that this model works extremely well for urban and suburban rail within a significant metropolitan entity, with all parties happy. Even the contracting companies like it, as it provides steady earnings, albeit at a lower margin than a ‘full fat’ franchise. Given the strong political movement towards further devolution in the UK, surely this is an idea whose time has come?
Infrastructure
2015 was a turbulent year in Network Rail’s chequered history. The fuss really started over Christmas 2014, with two very serious overruns of major engineering works on main lines out of London. What made matters worse was that there was little warning of the overruns, and even less in the way of measures to cope with them when they happened. The result was a public furore that drew government ministers into the mire and got them seriously offside with the industry. The resulting investigation castigated Network Rail’s planning and execution of major projects.
Worse followed in the early months of 2015, when it gradually became apparent that Network Rail’s major programme of electrification and route modernisation was in serious difficulty over both cost and timescale. Following the inevitable programme reviews and much soul-searching, the Government very publicly had to postpone two major enhancement projects, one of which was politically very significant.
The fallout from this is continuing. The Government acted to strengthen its control over Network Rail, removing the hapless Richard Parry-Jones (who had no rail experience) and appointing a replacement chairman with relevant sector experience. And three separate government-driven reviews were initiated, two of which have now reported.
Sir Peter Hendy’s review of the investment programme for the current Control Period concluded that the paused schemes could be ‘unpaused’, thus bringing a new word into the railway lexicon and showing clear signs of political intervention to produce an acceptable outcome.
Dame Colette Bowe’s review of how the investment programme came to be agreed and funded, when it has since been shown to be unachievable, concluded that a variety of causes contributed to this. The most significant problem identified was organisational uncertainty over the role between DfT, Network Rail and ORR. She recommended that the role of these three players should be reviewed with clearer governance and decision-making frameworks put in place. But potentially the most significant review is the one ordered by the Treasury and being led by Nicola Shaw, on the wider question of how Network Rail should best be funded and organised. She is due to report before the spring budget at Easter 2016.
Funding
At the end of this year’s Comprehensive Spending Review, the DfT had agreed to a reduction in resource spending of 37%. This level of cutback is possible in the current economic climate of continued demand growth, but should there be a downturn at any time in the next four years it seems inevitable that Network Rail’s package of renewals and enhancements will have to be reduced.
At the same time the Government has a stated political imperative to drive economic development across the north of England, and quite rightly sees major improvement to the transport infrastructure as critical to achieving this. The Government is also committed to progressing HS2 during the lifetime of the current Parliament.
So at the moment we have a government using windfall revenue gains to balance its current spending, while being more committed than ever to capital spend on infrastructure enhancement projects. Whatever happens next, we can be sure that there will be enormous pressure placed on the rail budget, and anything that helps drive efficiency or make better use of resources should be welcomed.
Government’s role
Finally, let’s consider the Government’s role and capability in our industry. There are a number of problems with the way our government apparatus works in practice, and I speak from personal involvement with it at senior levels these last few years (through Labour, Coalition and Conservative governments).
The most obvious problem is one of the electoral cycle. The five-year term of governments is important for democracy but tends, in practice, to produce a short-term outlook. This is very unfortunate when substantial infrastructure investment is needed that obviously has very long timescales.
The Government should perhaps be congratulated for driving HS2 hard, despite the short-term pain it is producing for what can only be a very long-term gain. But this is an unusual approach, as much of the government machine is concerned with what is happening now and over a much shorter time span than HS2.
Secondly, the departmental mindset is primarily administrative rather than entrepreneurial, and the civil service mentality is to service Ministerial requirements first and foremost, rather than leading policy development itself. Fragmentation of responsibility means that the DfT is not even joined up inter-modally, never mind working seamlessly across government departments.
