This leads to a number of undesirable outcomes. Senior civil servants tend to focus on short-term problems, especially crises that blow in almost weekly and which immediately rise to the top of the Ministerial agenda. Anything controversial is likely to be pored over in minute detail.
Good examples are which trains should call at which stations or how much performance buffer time should be allowed for in train schedules, but there are lots of other examples I could quote. Anything long-term or strategic tends to be pushed to the back burner.
Worst of all is the extreme dislike of taking difficult decisions - here the default position is always to delay, by asking for more information or referring matters up the hierarchy. No big decisions are ever made in a timely way, and the net result is that enormous intellectual time and effort is spent going round in circles, with opportunity lost in the process.
Railways at the crossroads
We sit today in a position where the ‘big ticket’ issues of today’s railway organisational structure - funding, open access, franchising, infrastructure management and operation, and the role of government - are all problematic. If you take all five together in the round, it seems to me that there is a once-in-a-generation opportunity to re-set our organisational model to give it a better chance to work more effectively.
Nicola Shaw’s review of Network Rail is looking at some big ticket issues, and she is making clear that she won’t restrict herself to consideration only of implications for Network Rail, where in her view structural change is also required elsewhere to solve the problem. So it’s possible that some of her ideas may overlap with some of my own. We also now have the DfT-led review of the role of ORR under way, and also due to report in March.
For me, it is plain to see that competition drives improvement and innovation, provided it isn’t stifled by the existing rules of the system it is plugged into. Equally, free market capitalism, red in tooth and claw, does not sit so well in an industry that has significant natural monopolies, severe capacity restrictions, consumes significant public funds, and requires extensive collaboration across its interfaces to make it work properly.
Today our railways are sitting at an important crossroads, and my question is: ‘Which way now?’ Here is my summary of the problems we are trying to fix:
- The Government is too closely involved in the minutiae of the day-to-day running of the railway. In doing so it has lost sight of its main purpose, which should be long-term vision, strategy and funding. It has also resulted in too many decisions being taken for nakedly political reasons, rather than for good economic ones.
- Network Rail is too big, and has too broad a set of responsibilities to cope with - system operator, network developer, infrastructure maintainer, major project manager, regulated utility, property company. Frankly, it does none of these well. And it can’t work out which out of the regulator, the DfT or the operators it should regard as its principal customer. All of them, plus the media and the end users, passengers and freight hauliers, want to be in the driving seat to tell it what to do. This is a recipe for chaos and loss of efficiency.
- Franchising as currently operated is unsustainable in the long term. Franchises are being tightly specified, but by a central government department that is not close enough to the market. Competition is between a small group of established players with little to differentiate them, and a race to the bottom on margins.
- The conflict between open access and franchising on long distance has become a festering boil that needs to be lanced.
- The approach to retailing, fares and ticketing is in need of overhaul.
- Stations need to find a new operational model, to enable them to be better developed.
- Finally, unit costs across the whole industry are just too high. Better incentives are needed to tackle these.
I think it is possible to develop a set of structural reforms that could, over a ten-year period, lead to a much more effective and better valued railway. The following set of changes would work best if taken as a package, as they tend to inter-relate.
Firstly, the role of government - in my view the Government should try hard to get out of the detail of managing the railway. This is always difficult as lots of government money is involved and railways are rarely out of the headlines. But central government ought to focus its energy on identifying what role it wants the railway to perform for society in the medium to long term, as part of an overall transport strategy, and should then seek to identify and then ring-fence the funding necessary to achieve it.
The actual year-to-year activity of network planning and access allocation should be handed to a separate arm’s length government agency, into which Network Rail’s current longer-term planning activities should be transferred.
Also transferred into this agency would be the specification, management and letting of inter-urban franchises, as well as access planning, both for timetabling and for disruptive engineering purposes. Matters requiring cross-industry consistency - for example, fares and ticketing systems - would also be overseen within this agency. It would need to be run by well-paid, competent people with the requisite railway, commercial and planning skills.
Taking these functions out of Network Rail means that it predominantly becomes a delivery organisation. There are issues about property and stations, but these are secondary considerations and unlikely to be mission-critical for the railway. Delivery in this context means major project execution, day-to-day renewals and maintenance, and management and operation of the network.
Given that all the cross-boundary issues would be taken care of by the government agency, it then becomes possible to carry out the delivery works in different ways in different parts of the country.
Firstly, the organisation could be broken up into geographically-based regional units, of quite different sizes as appropriate. Network operation could be handled separately or combined with any of maintenance, renewals and enhancements. The important thing is that it could be done differently in different parts of the country.
This would facilitate introducing competition in a controlled manner into a more mature railway structure. Elements of the network or activities on it could be sold off, concessioned or continue to run in the public sector. On some parts of the network vertical integration would become possible, if considered desirable. One example where this could be made to work well would be the suburban electrified network of Merseyrail.
The important thing about this concept is that it wouldn’t have to be a ‘one size fits all’ solution. Rather, it would be an enabler to do things differently in different parts of the network to best meet the specific local needs. So how things were done locally would become a second order decision within a national framework with interworking standards.
Through a combination of these changes it would become easier to track and encourage efficiency, because comparative benchmarking would become possible for the first time. Such an arrangement would encourage competition between different parts of the network to innovate and drive down unit costs. I think it would also make the regulator’s job in accurately determining the level of funding required more practicable, perhaps for the first time ever?
Turning now to train services, three broadly different types of market are reflected in passenger franchises in the British model as it is today: suburban, inter-city and inter-urban. Rural routes are represented today in all three different types of market-led franchises. Each of these markets possibly can be managed in a different way in future.
Where local or regional transport authorities already exist, or can be cohesively formed, then I would advocate the devolution of client responsibilities for relevant service groups to these authorities, provided they are prepared and willing to take these on. The obligations should be transferred, along with a financial dowry equivalent to the current net cost of the services transferred.
How services are then taken forward becomes a matter for the local authority concerned, to be considered in the wider objectives relating to public transport and other economic and social objectives. But I would expect to see more movement away from revenue risk franchises towards gross cost concessions. The West Midlands and parts of the current Northern franchise serving the Manchester, Leeds and Newcastle City Regions would all benefit from such an approach.
In Scotland, transport is already devolved. Transport Scotland has let a hybrid franchise with revenue risk allocated to the franchisee but with tight specification over services and service development sitting with the client. The arrangement also contains a heavily incentivised service quality regime, to ensure satisfactory delivery of the required quality of service. This arrangement seems to work well, and I see no reason why it should not be extended to Wales and possibly to other distinct service groups in other parts of Britain. Rural services in Devon and Cornwall, and suburban services in the Bristol and Avon area, might all fit this category.
In London I would see further expansion of the changes already made, whereby suburban services that are loosely within the Greater London area are operated as concessions managed by Transport for London. This would leave the rump of the existing commuter franchises serving the Home Counties, and elements of other franchises to be reshaped as premium paying franchises, but managed by my embryonic government rail agency.
This leaves the inter-city franchises. Given that open access is enshrined in primary legislation, given that it has demonstrably created fresh competitive impetus to improve the customer proposition, and given that it is clearly here to stay, it would be absurd to suggest a future without it. So the incompatibility between open access and franchising that I have discussed earlier should perhaps be resolved by a gradual replacement of long-distance franchises by open competition with a fresh financial model, but using open access provisions.
This could be trialled on the East Coast Main Line first, where open access competition is already well established, and could be planned to start from when the existing East Coast franchise expires naturally in 2023. This gives enough time for the necessary precursor activities to take place:
Firstly, for a revised regulatory and charging framework to be devised. Secondly, for unremunerative yet socially necessary elements of the route’s services to be identified and a protection mechanism devised. And thirdly, for the supply side market to develop, and for its potential players to refine their business propositions.
Genuine open competition among players on a level playing field will act to create innovative new services and new service concepts, and to reduce unit costs dramatically. We have seen this in the airline and coach sectors, and there is no reason at all why it shouldn’t be transferable to rail.
The biggest issue will always be designing a timetable that works and provides reasonable connectivity as well as resilience. But with network development and timetabling transferred to my proposed government rail agency, which will also receive receipts from the competing operators for a share of revenues over and above the genuine costs of day-to-day track access, there is the incentive to create longer-term capacity improvement plans, and enough time between now and then to develop workable timetables.
Conclusions
A need by government to reduce the amount it subsidises the railway, the requirement to do something to solve the Network Rail problem, and the obvious political demands for further devolution away from central government, coupled with the success of concessioning and open access models in Britain today, suggests that the time is ripe for a structural shift to enable a revised railway organisational model to emerge - one which has appropriate levels of competition within it to drive improved value for money for governments and consumers alike, and which enables the railways of Britain to provide greater value to the communities served.
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