Written evidence from Mr David Cooper-Smith (RF 01)
1. Political Perspective
I am a non-partisan “floating voter”. Apart from wartime-type situations, free market capitalism seems preferable to centrally planned “command and control”. It seems the two main problems with free market are
a) when competition is not properly effective,
b) when markets are too narrowly based, with “hidden” costs and benefits (externalities) not represented in the marketplace.
Trying to mix together, as on the railway, “command and control” with “market forces”, which follow different, incompatible logics, does not work well. The recent practice of “regulated private monopolies” are an example of this. The political Right often sees the cure lying in shrinking the size of the State. I suggest a better alternative may be to alter the nature of governmental involvement, rather than its extent. That is, for government to “facilitate” and “incentivise”, rather than to “control” and “run things”. The role of government should, I think, be to inject into the market place those “hidden” costs and benefits (externalities), examples of which might be environmental, health and safety, land usage, long-termist, human/social considerations.
2. Application to the Railway
(a) Examples of competitive open access operation
Railfreight in Britain seems to be working well already, being an example of the “open-access” approach. There may be issues here re infrastructure charging policy.
Also, as in Para 1 above, it may be useful for suitable payments to be made (as subsidies and charges) to represent “externalities” in the market place for railfreight..
In Contiinental Europe, there are already competitive open access intercity passenger operations : in Germany ( Cologne - Hamburg ), Italy ( “NTV” and “Trenitalia”) and intended in the near future on the Spanish high speed lines.
(b) The British situation
The franchising system has governmental control preventing enterprise, innovation and investment by the TOCs whilst these private TOCs rake off shareholder profits for little more than day to day running.
I would prefer, wherever effective ongoing competition can give accountability to stakeholder interests, to have general open-access, with TOCs free to develop within a competitive environment. Some operations (e.g. many commuter) are natural monopolies with captive markets. For these, perhaps we could have consumer cooperatives/mutuals with local
electorates and season ticket holders directly electing management boards. Or possibly, al ternatively for these natural monopolies, localised franchising.
( c) Subsidies/Premiums
In a truly competitive environment, instead of these being decided by fixed-contract franchising, I suggest they should represent in the marketplace the “externalities” as per Para 1. These should be in the form of performance - related “incentive payments” offered to TOCs to maximise “hidden” benefits and minimise “hidden” costs, and offered to/levied on, all competing operations equally. Examples could be payments to TOCs proportionate to passenger-miles generated where rail services relieve parallel road and air congestion, and/or as a function of the number of train stops made at particular stations where there is high social benefit. Charges might be levied on the other hand to discourage environmental damage, for example. These are not an exhaustive list.
(d). Vertical Integration
I think this should be avoided. Lack of duplicatory lines between centres , arising from the Beeching era “ rationalisations“, means that it is largely impossible to have competition between vertically integrated companies. In order to compete, TOCs would have to use and share the same track; if this is owned and administered by one of these TOCs, the others are all at a disadvantage.
With no competition, governmental control would become necessary to protect stakeholders’ interests, negating enterprise, innovation and investment.
There would also be some operators, both freight and cross-country passenger, who would need to cross boundaries between geographically defined companies and would be adversely affected.
3, General conclusions
As intimated above, I feel franchising is a “worst of both worlds”, with a set of govt. controlled private monopolies in inflexible fixed - term contracts.
Open - access competition where feasible seems a better alternative. Either through competition or via directly elected managements for natural monopoly operations, we could have more direct and flexible accountability to stakeholdrs. Similarly, TOC’s and train leasing companies could make their own procurement decisions.
In general terms, competition would, on experience from other parts of the economy, be more likely to lead to different TOC’s offrring somewhat different products ( with a degree of “overlap”) to appeal to different market sectors rather than it being “head to head / like for like”.
4. The West Coast line franchising crisis.
As a footnote, perhaps there is an opportunity here for a first example of de - franchising, with Virgin , Firstgroup and possibly others allowed to compete on an ongoing basis. A body such as ORR could arbitrate pathing demands, perhaps on a basis of competitive bidding.
14 January 2013
Written evidence from Martin Blaiklock (RF 02)
Preface:
You may recall my appearance at your Committee as an Independent Witness to the Inquiry into the London Underground PPP on February 27, 2002.
I have been in the infrastructure project finance/PFI business for 30 or more years, and in recent years I have given more than 70 Courses to governments and banks around the world on this topic.
I was also a development banker (EBRD) for a number of years, so am quite familiar with the processes and standards which should prevail in the bidding and evaluation for long-term PPP concessions, etc.. Such deals are, in essence, financially the same as franchises for public services.
Comments on the West Coast Mainline Franchise Bid & Process:
1. I have reviewed the Department for Transport (“DfT”) Terms of Reference, the NAO (Dec 2012), the Laidlaw and Brown Reports for the WCML franchise bid, and I am impressed with what a mess it has been! The process seems to have suffered from both procedural and mechanistic failures (i.e. weaknesses or flaws in the tools employed). Further, as I will show below, fault does not lie solely at the door of DfT.
2. Firstly, notwithstanding the NAO/Laidlaw/Brown Reports, there remain a number of simple outstanding questions to be answered:
• who designed the bid evaluation Models (ref. DfT Terms of Reference, Section 5, p.88), including “the GDP Resilience Model”? • were consultants used? If so, whom? • when were these Models developed? • were the Models independently audited? If so, by whom? • were the Models tested on ‘ghost’ bid data before use? • have the Models been used on other franchise/purchase deals (e.g. Thameslink franchise and rolling stock contract)? If so, which deals and when?
3. The Bid Process: the Brown Report makes a number of useful recommendations with respect to the bid process for such franchises, many of which reflect common sense. However, the process adopted by DfT on WCML had a number of flaws:-
• the structure and detail of the bid suggests that the DfT wished to micro- manage the franchisee, - notwithstanding the recent reports that have shown that the DfT is short of managerial resources;
• a consequence of the above is that the impression is left that the DfT is taking an adversarial stance to bidders rather than as a partner. After all, the franchises are for 15 years, so it is highly desirable that the DfT and the franchisee get along with each other and share goals (and difficulties);
• the bid structure for WCML contains much that is subjective, e.g. assessment of risks, “deliverability”, etc., criteria which represent different
values to different people. Normal international bid procedures for public service contracts attempt to eliminate, to the extent possible, subjectivity, as it can lead to disputes with bidders and obfuscates fairness and transparency of the bidding process.
• to minimise subjectivity, it is normal practise for the franchise grantor to identify minimum service standards for the bidding franchisees to respond to, against which the bidders are evaluated and a winner chosen. Any service enhancement above the minimum is a bonus. If the standard is not achieved, then financial penalties should apply, with the ultimate sanction of franchise cancellation.
I perceive that for WCML too much emphasis was placed by DfT on subjective scenarios, e.g. possible future upturns or downturns in the economy, the impact on passenger growth, elasticities of demand, quality of service, etc., which blurred the underlying objectives. It has come as no surprise to me that bidders complained in such circumstances. Arguably, DfT tried to be “too clever”, ending up with a procedure which was too complex for them to handle.
• Furthermore, given that the franchises last for 15 years - and why not longer, if the incumbent franchisee is doing a good job? – it would be prudent to introduce a regular benchmarking procedure on tariffs, etc., so as to monitor and regulate the franchisee. With the right relationship between the parties at the outset, this should not be an insuperable hurdle to overcome.
• The Laidlaw/Brown Reports indicate that DfT had limited resources, for whatever reason, to undertake such a complex bidding process, and that the support and advice from consultants might have helped. I would argue that any system, which requires the support of consultants to operate and manage, is too complex in the first place. The process was doomed to fail from the outset.
4. The Model(s): the Laidlaw/Brown Reports have shown that the evaluation Model was flawed both in terms of the data which were input, e.g. “real” v. “nominal”, and, possibly, the underlying mechanical calculations.
• The Models used for evaluating the WCML bid (“the Bid”) are described in Section 5 (pp. 73 - 88) of the DfT Terms of Reference dated Jan 2012. Basically, the Financial Model, which represented the costs/revenues to DfT under the Bid, was largely derived from the results of 5 other Models: (a) a Revenue Model; (b) an Operating Cost Model; (c) a Crowding Model; (d) a CAPEX Model; and (e) a Performance Model.
• One can see from the text that some of these Models, even the Revenue Model, include subjective assumptions and data, e.g. competition impacts, service quality, etc.. Furthermore, it is assumed, - not least because the Financial Model will have to include costs of finance, tax, etc., - that these sub-Models, plus the Financial Model, were prepared by Bidders in “nominal” terms, i.e. including and after assumptions for inflation were made.
[NB. it is also conceivable that Bidders might wish to differentiate between the underlying activities in their operations when making assumptions as to future trends for inflation.].
• To evaluate competing bids, the DfT then:-
I. deflated the answers from the Financial Model to produce a cash- flow stream over 15 years in “real” terms, i.e. the DfT removed inflation from the Bidder’s offer of payments over the next 15 years at a DfT-assumed forecast inflation rate; and
II. discounted the resultant “real” cash-flow at the Government’s Test Discount Rate of 3.5% p.a..
• Most people live in an "nominal' world, i.e. we take into account the impact of inflation, so we use our "cost of money", or thereabouts, as the discount rate for assessing future investments. Currently, the Government's cost of money [i.e. yield for 15 year Gilts] is around 2%, so arguably that is close to their "nominal" discount rate.
• Unfortunately, - and uniquely, internationally, - H.M. Government (viz. Dept of Transport (DfT) & HM Treasury) live in a "real" world, ignoring the impact of inflation. If you assume that inflation is currently, say, 2%, taking that from the nominal discount rate leaves you with a notional "real" discount rate for Government of effectively 0% pa.
• The discount rate used by DfT in the WCML bid analysis is, however, 3.5% "real", (equivalent to around 5.5% nominal), a rate determined by the Green Book, published by HM Treasury in March 2003.
• One concludes, therefore, that not only has the underlying process and mechanics been flawed for WCML, but so has been the basic assumption of discount rate(s) to be used!
• However, one should not lay the blame for this at the door of DfT. It is HM Treasury who demand that the discount rate to be used should be 3.5% “real”, a rate that has remained unchanged since 2003, i.e. before the Financial Crisis and unchanged ever since!!
[NB. the same flaw can be applied to many of the PFI deals for hospitals, schools, etc., which have 10 years later been cited as financial disasters.]
• By way of example, consider an income stream [“Base”] to DfT from a rail franchise amounting to £100mn per year for 15 years.
Case A [Base]:
- if this stream is discounted at 3.5%, the Present Value (PV) = £1193mn - if this stream is discounted at 0%, the Present Value )PV) = £1500mn
Result: difference in PV = £307mn
Case B:
If payments are back-end weighted, i.e. yr 1 = £65mn & yr 15= £135mn,
then discounted at 3.5%, the Present Value = £1162mn and if discounted at 0%, the Present Value = £1500mn
Result: at 0% discount rate, no change; at 3.5%, there is a reduction in PV of the Base of £30mn
Case C:
If this stream is front-end weighted, i.e. yr 1 = £135mn & yr 15 = £65mn,
then discounted at 3.5%, the Present Value = £1227mn and if discounted at 0%, the Present Value = £1500mn
Result: at 0% discount rate, no change; at 3.5%, there is an increase in PV of the Base of £35mn
• From the above, it can be seen that:-
I. the discount rate chosen is quite key;
II. depending on the discount rate chosen, Bidders could manipulate their cash-flows so as to gain advantages in PV terms, or the DfT likewise could use changes in discount rate to justify choosing one Bidder against another. The range of PV at 3.5% by the changes in payment profile, as above, amounts to around £65mn, not insignificant.; and
III. in conclusion, such bid evaluations, as they entail actual (nominal) payments made by franchisees and underlying financial assumptions (which are dependant on inflation-inclusive values), should always be undertaken in “nominal” terms throughout and not “real”.
• Finally, when one considers that the same Model(s) were seemingly used to calculate the level of Subordinated Loan Facility (“SLF”) in the WCML bid, which is a “nominal” not “real” value, it is not surprising that the wrong answer was arrived at and confusion reigned.
• To avoid any confusion, the bidding documents for international concessions / franchises often include the assumptions which the franchise grantor will use for inflation and the discount rate that will be used in the evaluation, with the grantor reserving the right to undertake sensitivity tests on the discount rate, e.g. ±. 1%. This avoids usually any disputes on such issues.
• Finally and unfortunately, para 5.23 of the Brown Report states that “the NPV (Net Present Value) should continue to be calculated using the Government’s test discount rate applied in nominal terms to normal cash- flows [i.e. after allowing for inflation]”. I find this statement somewhat ambiguous, when clarity is sought! An erroneous discount rate could still be chosen!
Conclusion:
It has come as no surprise that this WCML franchise bid has ended in disaster. A simpler franchise format is desirable and franchisees must be chosen against objective criteria under a transparent process.
Hopefully, WCML is just one such case. Unfortunately, I suspect that other public service and procurement contracts have been awarded on a similar basis in recent times.
17 January 2013
Written evidence from the Mobility Issues Group for Goring and Streatley (RF 03)
MIGGS is a voluntary, not-for-profit group that exists to exchange information and represent the interests of people who have limited mobility and are residents of Goring (in South Oxfordshire), Streatley (in West Berkshire) and surrounding villages.
Summary 1 Our main concern in submitting this paper is to plead that railway companies be placed under the same obligations for equality purposes as other big businesses and, thus, be obliged to provide step-free access to all station platforms and cease to discriminate against disabled people. The current hiatus in the franchise process provides an unrivalled opportunity to make this happen.
Could railway companies be allowed to avoid equalities law until 2030? 2 We are concerned that, unless the Department for Transport (DfT) changes its policy, it is likely that many railway stations on the Great Western network, including our local station, Goring and Streatley, will continue to lack step-free access to platforms as far ahead as 2030, some 25 years after passage of the Disability Discrimination Act 1995 and some 20 years after parliament, in the form the Equality Act 2010, made it unlawful for one person to be treated worse than another person because of his or her disability1.
A role for rail franchises in eliminating discrimination 3 The certain way to overcome this passive but serious discrimination at no direct cost to the Exchequer would be for the DfT to impose on a train operating company a duty to provide step-free access progressively at all its stations during the period of its franchise.
4 The current hiatus in the process of franchise renewal provides an opportunity for such an obligation to be written in to the Great Western franchise specification (and other franchise specifications). We believe this opportunity should not be wasted.
1 EHRC – “What equality law means for your business” p10 - http://www.equalityhumanrights.com/uploaded_files/EqualityAct/service_providers_business.pdf 5 A prospective franchise holder should be required to include with its bid a plan for installing lifts or ramps (as appropriate), with completion dates based on assessments of local needs.
Government incentives to invest in passenger needs 6 The Coalition government’s stated aim is to:
Deliver better access to jobs and key services through an accessible and socially inclusive transport system, by removing the barriers to travel and ensuring that social impacts are addressed in policy development and service delivery.2
7 A requirement to instal step-free access would be consistent with the government’s stated policy of lengthening franchises to give train operating companies “more incentive to invest” in passenger needs3
8 On 17 September 2011 MIGGS wrote to the then Secretary of State for Transport asking him to “strengthen the equality requirements of the performance specification when tenders are invited for the new Great Western rail franchise from 2013” and made a special case for Goring and Streatley station based on demographic and logistical factors – see Appendix A.
9 Our general and specific requests were refused in a letter from the DfT dated 3 November 2011 – see Appendix B – on the rather complacent grounds that franchise bidders would be “welcome to include this in their proposals”. We were assured that Access for All4 funding was:
…prioritised on a national basis with the majority of funding targeted at the most heavily used stations. This was then weighted by the incidence of disability in the area of the stations, based on the 2001 Census, to target spending where it can benefit disabled people the most.
2 “Transport for Everyone: an action plan to improve accessibility for all” – https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/49089/accessibility- action-plan.pdf 3 Conservative transport policy - http://www.conservatives.com/Policy/Where_we_stand/Transport.aspx 4 A major programme improving accessibility at train stations nationwide by installing lifts and ramps – http://www.networkrail.co.uk/improvements/access-for-all/ 10 We found this statement hard to reconcile with the fact that Goring and Streatley station is one of the 50 busiest on the Great Western network and our own data, based on the same census, which showed that some 26 per cent of the population of Goring and Streatley were aged 65 and over; as a proportion this was 75 per cent higher than the national average. The villages also had a disproportionate number of people who rely on wheelchairs, mobility scooters and other mobility aids and this proportion was likely to increase as a result of recent planning decisions.
Great Western franchise consultation 11 MIGGS reiterated its request for step-free access to be made a condition of bidding when it responded to the DfT’s consultation on the Great Western franchise specification (see Appendix C).
Impact of ageing population 12 Although our interest and primary concern is the residents of our part of the Thames valley and, by extension, the facilities at Goring and Streatley station, we recognise that there are people with mobility limitations throughout the country. Their mobility impairments (and needs) are likely to be shared by an ever greater proportion of the travelling public as the population ages5. It is therefore desirable for an obligation to provide step-free access to be included in the specifications for all rail franchises as they are renewed.
Taxpayer subsidies for big businesses – balancing costs and benefits 13 A common response to requests for step-free access is to ignore or diminish the benefits and focus on the cost. We have two main points to make on this. a If the taxpayer’s existing subsidy is not to enable equal access for all taxpayers to the facilities they subsidise, how can that subsidy be justified? Some investments in benefits to passengers, especially step-free access to platforms and trains, should not be subject to the narrow and potentially fatal test of commercial viability envisaged in the Great Western franchise consultation.
b It should be recognised that Network Rail and the train operating companies are nearly all big businesses that should be perceived and treated like
5 “Why do we need an Accessibility Action Plan?” – see “Transport for Everyone: an action plan to improve accessibility for all” – Department for Transport, December 2012 – https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/49089/accessibility- action-plan.pdf similarly large public-facing companies, such as John Lewis and BAA. These companies have found the resources to comply with the spirit as well as the letter of equalities law and it is time for railway companies to do likewise. In our view, these businesses should not be allowed to hide behind the reasonableness exclusions that may be justified to enable small and poorly funded organisations to avoid the obligations they would otherwise face under equalities legislation. It is our view that reasonableness exclusions be applicable to small organisations only or that, if extended to big businesses, the extension should be time-limited.
14 The importance of this differentiation is clearly understood by the Equality and Human Rights Commission, whose advice to service providers includes the following (our emphasis):
Many of the adjustments you can make will not be particularly expensive, and you are not required to do more than it is reasonable for you to do. What is reasonable for you to do depends, among other factors, on the size and nature of your organisation and the nature of the goods, facilities or services you provide. If, however, a disabled person can show that there were barriers you should have identified and reasonable adjustments you could have made, they can bring a claim against you in court, and you may be ordered to pay them compensation as well as make the reasonable adjustments.6
15 Thus, the EHRC advice to other businesses should be applied equally and fairly to railway businesses (our emphasis):
Where a physical feature puts disabled people using a service at substantial disadvantage...it is better for you to look at removing or altering the physical feature or finding a way of avoiding it (such as replacing steps with a ramp or, if it is reasonable for you to do this, a lift) before you look at providing an alternative service. An alternative service may not give disabled people a similar level of service…If an adjustment costs a significant amount, it is more likely to be reasonable for you to make it if you have substantial financial resources. Your organisation’s resources must be looked at across your
6 The duty to make reasonable adjustments to remove barriers for disabled people – EHRC – http://www.equalityhumanrights.com/advice-and-guidance/service-providers-guidance/the-duty-to- make-reasonable-adjustments-to-remove-barriers-for-disabled-people/ whole organisation, not just for the branch or section that provides the particular service.7
What use are accessible trains without accessible platforms? 16 MIGGS notes that the government has made a commitment that all main line8 railway passenger vehicles will be fully accessible by 1 January 20209. This is commendable but it is of no value to a disabled passenger who is unable to board the train at his or her local station because the station lacks step-free access to platforms. This point cannot be over-emphasised. As the DfT points out:
Disabled people in particular rely on public transport to access jobs, services, facilities, family and friends. While many of the barriers identified by disabled people and non-disabled people in undertaking journeys are the same, the impact can be different.10
A bar to access 17 MIGGS appreciates that the railway must be operated economically and that, as already acknowledged, under equalities legislation, a service provider is obliged only to take action that is reasonable in all the circumstances. However, it seems to us that legislators and regulators have overlooked the fact that a lack of step free access is easily the most important form of discrimination that could be suffered by a rail users with mobility impairments because it can be an absolute bar to work and independent living; for these passengers it can represent an effective denial of access to the service.
Practical effects on disabled travellers – local illustration 18 The train operator for Goring and Streatley station is First Great Western (FGW). The FGW Disabled Persons Protection Policy (DPPP)11 states that the company “will
7 “The duty to make reasonable adjustments to remove barriers for disabled people” – http://www.equalityhumanrights.com/uploaded_files/EqualityAct/service_providers_business.pdf 8 There are some exclusions for “light”, leisure and heritage rail vehicles – https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/3566/exclusions- interoperability-list.pdf 9 Rail Vehicle Accessibility (Non Interoperable Rail System) Regulations 2010 (RVAR 2010) - http://www.legislation.gov.uk/uksi/2010/432/contents/made and Railways (Interoperability) Regulations 2011 – http://www.legislation.gov.uk/uksi/2011/3066/contents/made 10 “Why do we need an Accessibility Action Plan?” – see “Transport for Everyone: an action plan to improve accessibility for all”, p8 paragraph 1.6. – Department for Transport, December 2012 – https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/49089/accessibility- action-plan.pdf 11 http://www.firstgreatwestern.co.uk/Your-journey/Assisted-travel/DPPP continue to work with Network Rail and the DfT to provide step free access to stations where practical”. The policy is otherwise silent on step-free access. In the opinion of MIGGS its next best option for disabled passengers places an unfair and unreasonable burden on wheelchair users.
19 To illustrate this point, it is practically impossible for a wheelchair user to “turn up and travel” in a northerly direction from Goring and Streatley station. Even local journeys planned in advance involve considerable diversions; for instance, a wheelchair passenger wishing to travel by local services to Oxford (about 15 miles north of Goring) must do so by changing at Reading, some nine miles and three stations to the south. This can extend a 35 minute journey time to 90 minutes, allowing a reasonable amount of time for platform transfer at Reading. A passenger wishing to take the train from Reading to Goring must do so by remaining on the train when it calls at Goring and Streatley then changing at Didcot, seven miles and two stations to the north. This journey, which takes 15 minutes for the able bodied passenger, takes a minimum of 50 minutes for a wheelchair user – and all because there is step free access to only one platform at Goring and Streatley.
20 We refer to the FGW DPPP as a convenient example: we have no reason to believe that FGW is better or worse than Network Rail or other train operating companies. They all appear to be responding to the commercial nods and winks contained the DfT’s policies and franchise specifications.
If not now, when? 21 However, the implication of the FGW’s DPPP (and possibly others) is that obtaining step-free access is simply a matter of being patient while Network Rail, the train operators and the government work their way through higher priorities such as improved retail facilities at stations. This is unsatisfactory and unfair and a form of discrimination that would almost certainly be unlawful if practised in any other line of commercial business.
Our appeal. Your recommendation? 22 We therefore appeal to the Transport Select Committee to recommend that:
a Railway companies be placed under the same obligations as other big businesses for the purpose of equality laws
b All train operating franchises incorporate an obligation for step-free access to platforms to be installed at all stations during the period of the franchise and
c Each bid for a train operating franchise be accompanied by a plan, with deadlines, for delivering on the step-free access obligation.
21 January 2013
APPENIX A
17 September 2011
Rt Hon Philip Hammond MP Secretary of State for Transport Department for Transport
Dear Secretary of State
GREAT WESTERN RAIL FRANCHISE – TENDER SPECIFICATION
The purpose of this letter is to ask you to strengthen the equality requirements of the performance specification when tenders are invited for the new Great Western rail franchise from 2013. In particular, we ask you to make it a condition of acceptance of a tender that passenger lifts be installed by the train operator at Goring and Streatley station within two years of the start of the new franchise.
We have approached the existing operator, First Great Western, and it has intimated that the provision of lifts is not ruled out at some time in the future, possibly in connection with the mooted electrification of the line from London to Bristol, Cardiff and Oxford, which passes through our station. This line is also a part of the Trans-European Network (TEN) to which international accessibility standards apply.
MIGGS exists to represent the interests of people in this part of the Thames valley who have limited mobility. We estimate that 26 per cent of the population of Goring and Streatley are aged 65 and over; as a proportion this is 75 per cent higher than the national average. We are in touch with some 40 people in the two villages who depend on motorised scooters, wheelchairs or other wheeled mobility aids. These people are not being offered equal access to train services and the palliative facilities offered by the existing train operator place an unfair and unreasonable burden on wheelchair users.
We are convinced, therefore, that for these and other reasons, including location and topography, there is a special case to be made for giving priority to the provision of lifts at Goring and Streatley station. The surrender of its franchise by First Great Western Trains and appointment of a new train operator presents a perfect opportunity for this to be achieved at no practical cost to the public purse. We urge you to grasp this opportunity.
John Boler Chairman
APPENDIX B
Department for Transport Great Minster House
3 November 2011
Dear Mr Boler,
Great Western Railways - Tender Specification
Thank you for your letter of 17 September 2011, to the Secretary of State, asking for passenger lifts at Goring and Streatley station to be specified as part of the new Great Western franchise. I have been asked to respond.
The Coalition Government is committed to taking a less prescriptive approach to rail franchising, with more decisions made by train operators so that they can be more flexible to their customers' requirements as well as opportunities for investment. Our approach continues to adapt and will be tailored to the needs of different franchises, however it does unfortunately mean that I am unable to provide an undertaking that we will specify the provision of lifts at stations as part of the new franchise. Franchise bidders will, however, be welcome to include this in their proposals.
The Government recognises the importance of accessible transport and we do understand that parts of the railway network, which largely date from the nineteenth century, were designed at a time when mobility needs were considered differently and can present barriers to access for disabled people.
It is to address this that we have continued the Access for All Programme, started by the pervious government. To ensure that the Access for All funding is delivering the most benefit it has been necessary to carefully target the funding. It has been prioritised on a national basis with the majority of funding targeted at the most heavily used stations. This was then weighted by the incidence of disability in the area of the stations, based on the 2001 Census, to target spending where it can benefit disabled people the most. A proportion of the funding has also been allocated to ensure a fair geographical spread of stations across Great Britain.
Unfortunately, under this prioritisation process Goring & Streatley was not chosen as one of the stations to receive funding. However, we hope to be able to include some more stations in the future and if this is possible Goring & Streatley's eligibility may be considered again.
In addition, grant funding has been available since 2006 for train operators to make small scheme enhancements, reflecting local needs. Last year Goring & Streatley received CIS-enhanced Help Points under this programme. This Small Schemes funding will continue until 2015. You may wish to approach the new franchisee to request that they consider using future Small Schemes allocations to help fund your proposals.
Martin Holt
APPENDIX C
Page numbers refer to the PDF version of the consultation document Section The consultation document says MIGGS response 1 Executive summary (page 6) It is a sad reflection on the The proposed approach to this Government’s priorities that it has not franchise reflects the Government’s so far mandated equal access to the priorities, and therefore we will ask railway but intends to leave such an bidders to consider how they might important matter to the discretion of a improve stations and trains, building on bidder whose understandable priority the work already done and planned for will be to achieve narrowly defined Control Period 4 (CP4), as well as commercial success. The high improving service quality, while priorities of the Government should reducing the unit costs of operating the therefore include fulfilment of the spirit railway. The Government’s approach is as well as the letter of equalities likely to include elements aimed at: legislation by including express [bullet points list omitted] reference to catering for the needs of mobility impaired passengers by mandating step-free access to all stations and trains within a defined period, eg, the first half of the franchise period; or when stations are improved or developed, or trains replaced or refurbished for other reasons, if sooner. (pages 7-8) Equality of access to the taxpayer- This consultation document should be subsidised railways should mean considered within the context of the equality of access for all taxpayers, not broader transport policy environment, just to those taxpayers who are and stakeholders should be aware of a fortunate enough to be able-bodied. number of other relevant studies and The list of “other relevant studies and documents that are considering or have documents” should also include: recently considered this area of the rail network and that have affected the 1 – Accessible Train Station Design proposals set out within this for Disabled Passengers: A Code of consultation. These are: [list] Practice (ISBN 978 0 11 553210 8), which was first published by the SRA in 2002 and was last updated by the Department for Transport in November 2011. This document fulfils the Secretary of State’s responsibility to produce a code of practice “protecting the interests of users of railway passenger services or station services who are disabled”. The purpose of the Code is “to assist those operating passenger trains and stations in making railway travel easier for disabled passengers”. This Code applies to the entire rail network, but, where operators are subject to the requirements of the PRM TSI (see below), that document is the source of their responsibilities. The Code of Practice identifies standards relevant for all passenger train and station operators in Great Britain that licensed operators must follow as a condition of their licence whenever they install, renew or replace infrastructure or facilities. The document also provides advice and recommendations of good practice that all operators can implement to provide greater opportunity to travel for, and further enhance the experience of, disabled people using the railways. It points out that there are over 10 million people in Great Britain with a disability and adds that the Government is committed to transport for all. It accepts that improving the accessibility of railway stations and passenger trains will encourage more disabled people to use the railway network – and to do so more regularly. Moreover, the principles set out in the Code “will benefit all passengers”. The DfT requires all licensed passenger train operators and station operators, including Network Rail as operator of its managed stations, to follow this Code of Practice in line with the commitments in their Disabled People’s Protection Policies.
2 – Technical Specification of Interoperability: Persons with Reduced Mobility (2008) – Office for Official Publications of the European Communities Under the Railways (Interoperability) Regulations 2006, trains and major works at stations on the Trans- European Network (TEN) [which includes the railway line from Reading to Didcot, passing through Goring and Streatley station] are subject to the requirements of the above Technical Specifications for Interoperability. This means that, since the PRM TSI came into force on 1 July 2008, such works concerning accessibility have had to comply with its requirements.
3 – How to Write Your Disabled People’s Protection Policy: A Guide for Train and Station Operators (Department for Transport 2009 (ISBN 978 1 84864 038 2)
4 – Railways for All – The Accessibility Strategy for Great Britain’s Railways (Department for Transport 2006)
5 – Disability Discrimination Act 2005
6 – Equalities Act 2010
(page 8) We do not accept this reassurance, We have considered whether the which appears to indicate wilful or potential changes are likely to have any neglectful disregard of reality. The impact (adverse or differential) on race, statement implies that the Department disability or gender equality. It is not attaches the same level of importance anticipated that any such impacts will to all forms of inequality. Manifestly, occur. However, the Department takes mobility impairment is a far more its equalities duties very seriously and serious and practical impediment to would welcome respondents’ views on railway travel than most other forms of any issues that may affect equality of inequality. opportunity in these areas. 3 The Great Western franchise (page 11) It should be emphasised here that the The Great Western franchise is a large line from Paddington to Cardiff, which and complex transport system providing passes through Goring and Streatley, long distance, commuter, regional and is part of the high speed Trans- branch line train services from London European Network (TEN) and comes Paddington to the Midlands, Cotswolds, within scope of the Technical South Wales and West of England, the Specification of Interoperability: South Coast, Devon and Cornwall and Persons with Reduced Mobility (see Gatwick airport. above). The importance is that this specification imposes high minimum standards for platform access. (page 20) This shows that the Department has All trains are required to comply with grasped the importance of accessibility the Technical Standard for for passengers who are already on the Interoperability (TSI) for Persons of train. But the Department appears Reduced Mobility (PRM) by 1 January blind to the challenges that face 2020. On the current franchise, Class mobility impaired people before they 180 and 360 fleets comply with modern are able to get to the train. The access standards (as will IEP trains) provision of step-free access to but the older units will need further platforms and trains should therefore improvement works in order to achieve also be mandated by the franchise compliance. The Department has specification. indicated to train owners what work remains outstanding on older fleets, including trains that are not currently used on this franchise. Bidders will need to work with the ROSCOs to ensure that the rolling stock they plan to have in service at the end of 2019 complies with the PRM TSI and reflect in their rolling stock strategy the steps that they will take to achieve this. 4 Objectives for the franchise Question 1 – Respondents are encouraged to consider whether the proposed franchise objectives are an appropriate expression of the priorities that should apply to the new franchise. (page 22) The objective of improving disabled Six key objectives have been endorsed passenger access to stations and by the Secretary of State. They are (inter services falls well short of our alia) to: expectations and should explicitly Ensure the overall passenger experience include step-free access to all improves throughout the life of the platforms over the period of the franchise. This will include but not be franchise. Placing retailing above limited to improvements in: service platform accessibility in the priorities quality; retailing; provision of information for overall passenger experience to customers particularly during times of suggests that the Department has in planned and unplanned disruption; mind a very narrow definition of implementing ‘smart‘ technology and “passenger” and this portrays the integrated ticketing throughout the Department’s attitude to inequality in a franchise area on an interoperable basis; poor light. In our view, accessibility improving accessibility (including should be a higher priority than its disabled access) to stations and position in this list implies; certainly services; passenger security and higher than retailing. improving the transparency of information about the franchise; 5 Franchise length (page 24) “…the Government believes longer The Department has considered a franchises will encourage private number of options for the duration of the investment in areas such as station Great Western franchise. The improvements…” We regard this as Department’s current thinking in relation merely paying lip service to station to franchise length was set out in the improvements unless a commitment to response to Reforming Rail Franchising, step-free access is mandated or, at which was published in January 2011. As least, shown to be a higher priority set out in that document, the than the consultation indicates. Government believes longer franchises will encourage private investment in areas such as station improvements, better trains and the provision of a higher quality service. They will also support better planning as well as more effective working relationships between operators, Network Rail and local partners. (page 25) To us, this looks an important point but The Coalition believes that a stronger without further explanation we are not role for the Office of Rail Regulation able to discern whether such a move (ORR) could be beneficial for would enhance or diminish the passengers. It is therefore expected that importance of disabled access in the responsibility for some aspects of eye of a potential franchise holder. We performance and service quality, believe the implications should be set including those relating to Disabled out more clearly and in more detail. Peoples Protection Policies (which are required under operator licence Written evidence from the Local Government Association (RF 04)
Introduction
The Local Government Association (LGA) is the national voice of local government. We work with councils to support, promote and improve local government.
We are a politically-led, cross party organisation which works on behalf of councils to ensure local government has a strong, credible voice with national government. We aim to influence and set the political agenda on the issues that matter to councils so they are able to deliver local solutions to national problems.
The LGA covers every part of England and Wales, supporting local government as the most efficient and accountable part of the public sector.
Key Points
• The LGA supports the conclusions of Richard Brown’s review of franchising, in particular with regard to devolution.
• The LGA supports the Secretary of State for Transport’s desire to increase local government’s involvement in rail franchising and his willingness to consider a variety of means to that end. We do not think there should be a single model of rail devolution. Different approaches will suit different areas and it is for the councils involved to decide on the right approach for them.
• The LGA believes that social and economic factors, and passenger benefits, should be taken into account when awarding franchises.
• The Government needs to allow sufficient flexibility in the franchising process to ensure that councils do not carry the risk, should industry fail to deliver the savings called for in the McNulty report.
• Devolution of franchising to local authorities should not take place within the constraints of a centralised fares policy, which could hinder the delivery of potential benefits.
Devolution
The LGA supports Richard Brown’s recommendations1 (and those of the Select Committee in its report Rail 20202) which calls for local involvement in franchising. The reasons for this were set out in our submission to the Committee’s investigation last year3.
We also agree with Richard Brown that the franchising programme should be restarted as soon as possible, but at a pace that both the Department and the industry can sustain. We also support his recommendation that franchise terms should be determined by the circumstances and size of each individual franchise.
The purpose of subsidies and its relationship to franchising
1 https://www.gov.uk/government/publications/the-brown-review-of-the-rail-franchising-programme 2 http://www.parliament.uk/business/committees/committees-a-z/commons-select/transport- committee/news/rail-2020-report/ 3 http://www.publications.parliament.uk/pa/cm201213/cmselect/cmtran/329/329we10.htm
The Brown review has called for passenger benefits and wider policies to be a factor in awarding franchises. We support this view and share the Committee’s belief (expressed in the recommendations of the Rail 2020 report) that there are justifiable economic, social and environmental reasons for subsidising the railway. We also support the Committee’s recommendation that it would be helpful to articulate more clearly why the rail system is subsidised and what taxpayers get in return for their money.
Our one caveat on both these views is that if the government were to either publish its reasons for subsidising rail (as the Committee has recommended) or devise a franchising framework along the lines recommended by Richard Brown, this should retain the scope for flexible local approaches to subsiding rail in pursuit of specific local objectives.
Furthermore, we are keen to reiterate the points we made in our oral evidence to the Committee last year about the need to consider transport as a whole and in the context of other local policies, such as economic growth, which councils are best- placed to do.
Finance
As highlighted in our previous evidence to the Committee on franchising, councils may find themselves caught between the Department for Transport’s call for savings and the industry’s failure to deliver those savings. This concern has been strengthened by the recent West Coast franchise situation and the committee’s Rail 2020 report.
The annex to the Committee’s report Rail 2020 suggests that there are currently two key pressures on the railways costs: the cost of servicing debt resulting from investment and the fact that unit costs have risen in line with passenger kilometres, rather than falling as one might expect if growth resulted in economies of scale.
The second of these factors seems to reflect the fact that investment in passenger capacity has been targeted at meeting peak demand. If passenger growth had seen an evening-out of loadings between peak and non-peak we would expect unit costs to have fallen.
In the nationalised era the railways suffered from the fact that they were only used to capacity for relatively short periods. It appears that subsequent investment may have made that particular problem worse. There may well be economic and / or social benefits that make this a desirable position. For example, if the railways do not meet peak demand this may increase road congestion and subsequent pollution. Nevertheless, if the analysis above is correct, it leads us to question whether the savings foreseen in the McNulty report can be made and whether a fundamental rethink in the nation’s rail strategy is required.
In any event there is a clear risk that the McNulty savings will not emerge. The Committee’s report makes it clear that this risk is increased by the delay to the franchising process resulting from the problems over the West Coast franchise. This in turn increases the risk that councils which become involved in franchising may find themselves caught between the Government’s desire for savings and the industry’s inability to produce them.
This risk will be maximised if franchising arrangements mean the council receives a financial allocation from the government based on the McNulty assumptions and has to meet any shortfall itself if the operator requires a higher level of subsidy or produces a lower level of revenue. Councils will want to be sure of avoiding this position before they take on a franchising role.
It is in everyone’s interest that councils take on the role of franchising were appropriate, and therefore the government needs to allow sufficient flexibility to ensure that councils do not need to carry the risk of industry failing to deliver on McNulty.
Fares
As the committee recognises, commuters do not necessarily have a choice as to when they travel. Attempting to solve the problem of peak capacity through the pricing mechanism may do no more than impose an ever increasing burden on commuters. This in turn may have wider economic implications, particularly in areas (primarily the south east) where trends in long-distance commuting are linked to trends in property prices. For this reason devolution of franchising to local authorities should not take place within a centralised system of fares set by Whitehall.
24 January 2013
conditions) may transfer to the ORR during the life of the new franchise. (page 31) We fear that, presented with these Investment opportunities paragraphs, a potential franchisee may The Department is considering ways in read them as a nod and a wink and which bidders might take a longer infer that the Department is not really perspective and propose additional serious in its commitment to equal options to provide long term investment opportunities. So, how will the in the rail network, building on the long Department gauge the commercial term value of the franchise while also viability of improvements to disabled delivering the objectives set out in access? Section 4 of this document. Such Some investments in benefits enhancements will be expected to be to passengers, especially step-free commercially viable and to deliver access to platforms and trains, should benefits to passengers. Bidders will be not be subject to a narrow and expected to assure the Department that potentially fatal test of commercial such enhancements increase the value viability. of the franchise and that assets thus funded are maintained in a good condition for the next franchisee. Question 9 – Respondents are encouraged to bring to our attention research, evidence or publications which the Department should consider as part of this refranchising process. (pages 34-5) This should be re-emphasised in light Passenger Focus of the seemingly low priority given by Passenger Focus research will be the Department to passengers with provided to all bidders to assist the reduced mobility. Locally, we believe shaping of their proposals for the new high priority should be given to the franchise. Its initial work has identified installation of lifts or ramps at Goring some key recommendations for and Streatley station based on, among passengers’ likely priorities for the new other factors, the higher than average franchise, which are (inter alia): The ease proportion of residents of Goring and of access to services for passengers with Streatley who are elderly. Twenty-six reduced mobility. per cent of them are over 65, compared with the national average of 17 per cent (see more below). More generally, we are led to believe that the age profile of the population is rising nationally, which implies that an increasing proportion of the population (thus, the travelling public) can be expected to develop mobility limitations and feel excluded if their needs are not provided for. Even before the normal retirement age rises, the trend is for a growing number of people to be economically active beyond the age of 65. In view of this it would be short-sighted to assume that the number and importance of passengers with mobility issues will not grow. Does the Department envisage that, when this franchise expires in 2028, there will still be GW stations that do not have step-free access to platforms and trains? And, if so, do they regard this as acceptable and consistent with equal opportunities in a modern age? If not, why not bite the bullet now and mandate a programme of step-free access, to be completed at no direct cost to the public purse during the franchise period? 8 Delivering improvements for passengers Question 26 – Respondents are encouraged to consider the best method for funding major station enhancements and are encouraged to consider any local accessibility issues that they believe need addressing. (page 48) The station facilities survey (Appendix We would emphasise that, while we 2 of the consultation document) is welcome ideas and proposals on all the seriously deficient in failing to identify matters set out below from stakeholders the presence or absence of step-free and bidders, only some of these issues access to platform and trains. In are suitable for inclusion in the franchise answer to the proposition, we repeat specification and/or the legally binding that provision of step-free access Franchise agreement that will flow from should be a higher priority than it. services such as retailing and be Better railway stations mandated during the franchise period. We would be interested to understand If the taxpayer’s existing consultees’ views on priorities for subsidy is not to enable equal access investment in station facilities over the for all taxpayers to the facilities they life of the new franchise…Stations ought subsidise, how can that subsidy be to be attractive gateways to the railway justified? system, as well as being modern, user- friendly interchanges with other forms of transport. However, significant station investment is rarely commercially self- financing, although the longer franchises may help improve the financial case in some instances. Question 27. Respondents are encouraged to consider which locations merit consideration for future improvement under these schemes and how such schemes could be funded. (page 49) We note that at Westbury and St Access for All (A4A) and National Austell stations, which have broadly Stations Investment Programme (NSIP) similar passenger volumes to Goring The winning bidder will be expected to and Streatley, lifts have already been co-operate with and reasonably assist installed. Tilehurst station (near Goring the implementation of the Programme. and Streatley) has higher volumes of Further information can be found at the passengers than either Westbury or St Department’s website at Austell. Pangbourne station, also near www.dft.gov.uk/transportforyou/access/ra Goring and Streatley, has a higher il/railstations. passenger volume than Westbury but A number of stations have also been below that of St Austell. However, identified as candidates for funding from neither Pangbourne nor Tilehurst have the NSIP, the £150 million fund to lifts or accessible ramps. In view of this improve approximately 150 medium- we find it difficult to understand how sized stations, which was announced in choices are made between competing 2007. Bidders will be expected to co- priorities for accessibility operate in the implementation of works at improvements. stations designated for improvement under this fund. Details about the NSIP programme can be found on Network Rail Website at www.networkrail.co.uk. Question 33 – Respondents are encouraged to consider local accessibility and mobility issues and suggest how improvements could be made. (page 55) In our view this section is complacent. Equality Act 2010 and minor works fund No other commercial business would The Department will expect bidders to be treated so leniently regarding the ensure that their proposals comply with pace, extent and rigour with which it equalities and discrimination legislation, was required to comply with equal and include the production of a Disabled opportunities legislation and good People’s Protection Policy (DPPP), which practice. sets out accessibility and service levels Franchises are being that disabled people should expect. In lengthened on the pretext that longer particular, bidders will be requested to tenure incentivises the franchisee to describe in detail their compliance invest in the quality of service. The GW strategies applicable to services, stations franchise is long enough for the and trains. They will also need to detail Department to insist that all stations be how they will consult with relevant groups provided with step-free access during to ensure that the reasonable needs of the franchise period and that steady all passengers are identified and progress towards that objective be addressed, both within existing facilities achieved throughout the franchise and where enhancements are planned. period. This should be the main raison Bidders will also need to outline their d’être of taxpayer subsidy. plans for staff awareness training and It is not enough for trains to be detail their procedures for the sale of accessible if getting to and from them tickets, including the provision of a free is not possible without assistance. assisted persons’ helpline. Bidders will As stated above, we believe be aware of the date (1 January 2020) by high priority should be given to the which all trains must be accessible to installation of lifts or ramps at Goring persons with reduced mobility. As this and Streatley station for the following franchise extends beyond that date, it is reasons: required that bidders should work with 1 The age profile of the rolling stock leasing companies to population of the villages of Goring identify, in their bid, opportunities during and Streatley is well above the the franchise for any corrective works to national average. take place to enable applicable fleets to 2 The villages have a high operate past 2019. Previous franchises number of wheelchair (etc) users have contained a requirement for bidders (MIGGS members). to have a minor works fund to carry out 3 It is the most suitable of local minor works at stations, including stations for lifts – midway between accessibility and mobility improvements. Pangbourne and Cholsey/Wallingford. The Department will continue to expect 4 The station is on level ground such a fund to be provided. and therefore probably has lower construction cost than nearby stations. 5 Goring is the railhead for local bus services to Cholsey, Wallingford and other local villages. 6 The footbridge is due to be rebuilt in preparation for electrification before 2016 and it would be economical and cause minimum disruption to instal lifts during this reconstruction.
9 Consultation (page 57) Please see comment on page 8, Impact assessment above. The Department has conducted a screening level assessment of the impact this franchise consultation will have on the promotion of equality and is satisfied that, at this stage, a full Equality Impact Assessment is not required. Details of the screening level assessment can be obtained on request.
Written evidence from Passenger Focus (RF 05)
1 . Introduction
1.1 Passenger Focus is the statutory watchdog for Britain’s rail passengers.
1.2 Franchising is a core interest for Passenger Focus as this is the mechanism by which many benefits for passengers can be sought and delivered. We have been extensively involved with the Department for Transport and bidders, utilising our comprehensive body of research to provide evidence of the passenger priorities for improvement that new franchises should address.
1.3 Passenger Focus welcomes the opportunity to submit evidence on Richard Brown’s review of rail franchising. His proposals, if adopted, will start to take franchising back to its original purpose; underpinning the delivery of value-for-money, reliable train services that passengers want to use.
1.4 This submission draws on our input to his review1, as well as correspondence with the Department for Transport regarding the short-term problems for passengers as a result of the suspension of the rail franchising programme2.
2. Key points
2.1 We agree with Richard Brown’s recommendation that the franchising programme should be swiftly resumed, albeit at a manageable pace.
2.2 We fully endorse Brown’s view that there should be an increased emphasis on service quality outcomes for passengers, both during bidding and in operation, and we welcome the proposals for an enhanced role for the National Passenger Survey.
3. Analysis
3.1 Objectives and principles for franchising We recognise the validity of the four current challenges and six key objectives for franchising set out by Brown3. With reference to the principles for franchising detailed in Chapter three we wish to note specifically:
3.1.1 Our strong endorsement for the need for each franchise to have a specific set of objectives which reflect the route specific needs and challenges of that franchise (3.8, page 22).
3.1.2 Whilst we are supportive of the principle that franchise agreements should accommodate significant change (3.11, page 22), this may bring potential risks for passengers as well as benefits. We therefore wish to see requirements for suitable consultation embedded within the mechanisms for proposing change.
3.1.3 We support the view that ongoing oversight and management of franchises, once let, is as at least as important as procurement in ensuring the desired results (3.16, page 22).
1 brown‐review‐of‐franchising‐passenger‐focus‐response 2 Attached as Appendix One 3 Pages 19/20
3.1.4 We very much welcome the recognition that the needs and expectations of passengers and franchise staff should be given greater weight and consideration in the whole approach to franchising.
3.2 Structuring franchises (Chapter four)
3.2.1 Term: We agree there is a need to balance incentives to investment, the realistic appraisal and pricing of risk, and continuity for passengers and staff. Initial terms of 7-10 years with pre- contracted continuation terms of around 3-5 years seem realistic, and we support this proposal provided that the criteria to trigger or assess continuations are suitably passenger-centric. We believe that this should include review of National Passenger Survey scores.
3.2.1.2 The inclusion of an optional 26 reporting period extension will provide a useful flexibility for scheduling an appropriate franchise end-date. It also makes sense to ensure that the continuation/extension decisions by the DfT are mandatory on the franchisee.
3.2.2 Profit share: Passenger Focus is supportive of a regime which aligns the interests of both the franchisee and the Government, and creates incentives for ongoing development of the business.
3.2.3 Cost risk: We are supportive of mechanisms which drive greater efficiency and recognise there is merit in allowing franchisees to negotiate with Network Rail and other partners/suppliers to drive down costs and generate savings. However, we stress that it should be efficiencies that drive cost reductions rather than a framework that simply permits cost-cutting and/or cut-backs in core elements of service such as staffing levels, which we know play an important role in enhancing passenger perceptions of security and the provision of information.
3.2.4 Residual value: We agree that it is important that operators have the right incentives to invest across the life of the franchise. Extending and clarifying the role of residual value mechanisms may go a long way towards rectifying the ‘fossilisation’ that unfortunately occurs in the latter stages of many franchises. Especially if combined with incremental NPS targets, this may provide a useful incentive to deliver improvements and increased passenger satisfaction throughout the franchise term.
3.3 Procurement (Chapter five)
3.3.1 Devolution: Passenger Focus does not oppose devolution and, indeed, can see many advantages in an enhanced role for local authorities, whether working individually or in geographic groupings. However, in any move towards more devolved services it is essential that the views of all passengers are taken into account and it is not made harder to co-ordinate services.
3.3.2 Specification: Passenger Focus strongly believes that specification is at the heart of the franchising process and that there should be a balance between input and output requirements. The outcomes for passengers should be the key measures on which bids and franchises are assessed: both hard targets (including criteria for performance and crowding) and softer ‘quality’ measures are needed.
3.3.2.1 We urge that any flexibility for bidders to adapt service patterns should be framed around adjusting services in relation to passenger demand, rather than pure resource-efficiency (5.9, page 38). Effective and meaningful consultation with passengers about train service proposals must be a fundamental requirement, alongside clear and passenger-centric rationale for any changes.
3.3.3 Process: We agree that an indicative 24 month timescale for most franchise competitions is appropriate and entirely support the recommendation that this should include significantly more emphasis on initial consultation. The proposals for streamlining the PQQ and ITT appear sound.
3.3.4 Bid evaluation: We fully endorse the recommendation that there should be an overt and direct weighting given to quality and deliverability in bid evaluation, replacing the current funnel mechanism. Creating a link between the key elements that impact on passenger experience and the assessment of the bid is long overdue and very welcome.
3.3.5 Passenger satisfaction: The ultimate arbiter of the quality of service must be the passenger who uses and pays for it. Therefore, we warmly welcome the endorsement of NPS and the recommendation that it is used more widely both to set quality standards and objectives for bidders and to measure outcomes once franchises are let.
3.3.5.1 We agree that increasing NPS sample sizes would improve its usefulness and, in enabling greater disaggregation and assessments at service group level, would chime with the general drive for increased transparency.
3.4 Franchise Management
3.4.1 We welcome recognition of the importance of ongoing management of the franchise once the contract has been let and throughout the period of operation. Again, we see NPS as playing a very useful role in helping to identify areas of strength and weakness and tracking the progress in service delivery during the franchise.
3.4.2 It is inevitable that there may need to be changes to the contract during the life of a franchise and it is impossible to predict or determine at the outset just what these may need to be. The fast- changing pace of technology is just one example of where flexibility may allow improvements that deliver more for passengers and, in reality, there will doubtless be other aspects of the franchise contract which will need to be changed to better reflect new circumstances, or opportunities, as they arise.
3.4.3 No Net Loss/No Net Gain appears to be an appropriate mechanism for Government initiated change. Similarly, the proposed profit share regime should also incentivise franchisees to propose change that can bring benefits to passengers and the business.
3.4.4 Passenger Focus strongly supports steps that will improve partnership working between the franchisee and Government (or any other potential commissioning or delivery partners). Passenger interests should be placed at the heart of partnership objectives.
3.5 Delivering franchising and restarting the programme (Chapters seven and eight)
3.5.1 Laidlaw and Brown both recognise the challenges that faced the Department for Transport as it sought to deliver multiple complex franchise replacements whilst implementing resource reductions and restructuring. It is clear that there must be changes to facilitate the restart and effective management of a new, more realistically paced and better resourced franchise programme.
3.5.2 Passenger Focus supports restarting the franchise programme as swiftly as possible, subject to ensuring that the Department has in place sufficient resource to manage this and that any restarted competitions can incorporate, either at the outset or at an early stage in the new franchise, the key recommendations arising from the Brown review that will protect and enhance passenger interests.
It will not be acceptable for some passengers to have service parameters set on a less advantageous basis than others, simply because of the timing of a specific franchise renewal.
3.5.3 We recognise it is likely that there will need to be extensions to some existing contracts following the interruption to the initially scheduled franchise replacement process. It is also important that these interim arrangements do not disadvantage passengers by ‘locking-in’ inertia during the time before a new competition is completed.
3.5.4 Passenger Focus has already written to the Department with suggestions about practical proposals that should be included within extension negotiations. Our letter, attached as Appendix One, focused particularly on issues in relation to the West Coast extension but many are applicable to arrangements for other stalled or delayed franchises. We urge that these proposals are considered in all cases where extensions are to be negotiated, and that we are given further opportunities to make specific recommendations relevant to each franchise to be extended.
3.5.5 We note Brown’s recommendation that the programme should be staggered, so that no more than 3 to 4 franchises are awarded in any one calendar year. We believe that this should be seen as a maximum, given the complexity of each process and the cumulative effect of the outputs of a year-on-year rolling programme.
4. Conclusion
4.1. Passenger Focus believes that Richard Brown’s review maps out a good way forward for franchising and many of his proposals will benefit passengers.
24 January 2013
Appendix
Text of letter to Steve Gooding, Director General Domestic Transport, Department for Transport dated 19 November 2012
Dear Steve
Passengers and rail franchise replacement
We read the interim ‘Laidlaw’ report with great interest and have fed some initial thoughts into the wider policy review led by Richard Brown and will follow up with a wider submission setting out what we see as the key issues from a passenger perspective.
However, what I wanted to raise directly with you was the immediate future, specifically the granting of an extension for the current West Coast franchise (but which may potentially apply to other franchises as well). Passengers were promised a great many improvements with the advent of the new West Coast new franchise, with many of these coming on-stream immediately. Clearly circumstances have prevented the longer-term benefits accruing but we think it important that short-term extensions still seek out some enhancements for passengers. It is important that passengers do not suffer as a result of the pause in the franchising programme – at present all they see are the promises made being put on hold.
We understand that extensions to franchises will be commercial negotiations and that the short duration of these leaves little time for implementation but we believe there are still things that can be delivered cheaply and quickly that will have benefits for passengers. For example, in the context of the West Coast extension, there are a number of proposals that we think could/should be included:
Transparency
Punctuality (PPM) figures are only produced for the train company as a whole and are not broken down by line of route. This means that performance on a problematic route may be masked by better performance elsewhere.
Giving rail passengers access to performance figures relevant to their services will help them to hold the train company to account and to ask what is being done to improve services in return for the fares they pay. Good management should not feel threatened by this. Indeed the availability of accurate data may actually help them – a particularly bad journey can linger in the memory and distort passengers’ perceptions. Accurate, relevant data can help challenge these negative perceptions and focus management attention on areas that need improving.
Hence, at the very least, we believe there is a case for providing performance data at a disaggregated route level in the extended franchise.
There is also scope for greater transparency surrounding capacity/crowding. ORR has conducted research looking at the impact of publishing more information on train seat availability which found that passengers not only wanted more information but also acted upon it when planning their journeys. While the demand management profile for Advance fares does this to some extent on West Coast there is merit in exploring how the lessons from the research can be applied.
Performance monitoring
On a similar vein we think it important that train companies/the industry publishes right-time performance data (i.e. actual number of trains arriving at the scheduled time rather than within the current five or 10 minute allowances).
Our research shows that punctuality is the main driver of overall passenger satisfaction. In order to better understand the relationship we took a more in depth look at the correlation between satisfaction with punctuality and actual performance. The detailed results can be found in our individual franchise submissions but we found a clear picture of:
• Average lateness experienced by passengers being worse than that recorded for train services. This is because of the effect of cancellations and because many trains that are on time at their destination are late at intermediate stations. As PPM measures performance at the final station it is possible for passengers en-route to be late arriving at their station only for the ‘empty’ train to arrive on time – in other words the train is on time despite most of the passengers being late. • Passenger satisfaction with punctuality reduces by between two and three percentage points with every minute of delay. • Passengers’ notice delay well before the technical threshold of delay. Commuters notice lateness after one minute rather than the five minutes allowed; while business and leisure users tend to change their level of satisfaction with punctuality after a delay of four to six minutes.
This shows that passengers do not view a train arriving up to 10 minutes after its scheduled time as being on-time. As punctuality is the main driver of overall passenger satisfaction it follows that greater adherence to a right-time’ railway could help drive up overall satisfaction.
As a result we would like to see within the renegotiation:
• A requirement to report the percentage of trains arriving at key intermediate stations. • A commitment to move towards a ‘right-time’ railway - possibly involving the reduction of the current 10 minutes allowance and/or publication of right-time performance.
Capacity
The early introduction of the full set of the 106 additional Pendolino carriages previously announced.
Making buying a ticket easier
Passenger Focus’s research has identified a number of issues with both ticket vending machines (TVMs) and websites – much of which was reflected in Government’s own Fares and Ticketing Review consultation earlier this year. While the one-year extension clearly does not provide a long enough period to fix all these problems it is important that momentum is not lost on such issues as:
• Printing any restrictions on passengers’ tickets to remove confusion over validity • Displaying outward and return ticket restrictions on TVMs prior to a passenger committing to purchase • Making it impossible to buy an Advance ticket on the internet at a higher price than the ‘walk up’ fare available on the same train
Ticketless travel
Passenger Focus believes ticketless travel is an important issue and one that needs addressing. Passengers who avoid paying for their ticket are in effect being subsidised by the vast majority of fare-paying passengers. However, the revenue protection strategy must provide safeguards for those who make an innocent mistake and whose intention was never to defraud the system. We believe this requires:
• Clear consistent guidelines explaining when staff should show discretion in the enforcement of penalties. For example when passengers do not have their railcard with them • Commitment not to go straight to any form of criminal prosecution unless they suspect (or have proof) that there was intent to defraud. • Penalties that are proportionate to the actual loss suffered by the operator.
The industry is currently developing a code of practice for passengers who board without a valid ticket, it will be essential that any renegotiation allows for – indeed, encourages – the early adoption of this.
Passenger Satisfaction
One of the features of recent franchise discussions surrounded the greater use of passenger satisfaction targets within the franchise – something we supported. The ultimate measure of whether a train company is performing well is whether passengers are happy with the quality of service provided. This is good from a commercial perspective as well as a customer service one – as evidenced by DfT’s own work on passenger demand forecasting which shows that service quality does have an impact on levels of demand.
We would urge that extensions to franchises do not lose sight of the need to maintain (if not improve) levels of passenger satisfaction.
We would reiterate that these improvements need not carry a big price tag – and several are already ‘in development’. Our main aim is to ensure that passenger benefits are not lost in any pause in the franchise programme.
We would, of course, be happy to discuss these issues in more detail.
Yours sincerely
Anthony Smith Chief Executive
Written evidence from Transport for London (RF 06)
1. Introduction
1.1 Transport for London (TfL) welcomes the opportunity to contribute evidence regarding the recently published findings of the Brown Review of the Rail Franchising Programme.
1.2 TfL strongly welcomes the findings of the Brown Review, which sets out a positive way forward for the Franchising Programme. In particular, the recommendations regarding how effective franchises should be designed, and devolving franchising authority to appropriate regional bodies (paragraphs 1.18; 5.5), align closely with TfL’s position on these matters.
1.3 The National Rail network, both within London and linking it to other parts of the country, is crucial to the Capital’s success as the driver of the UK economy. Over 60 per cent of rail journeys start or end in London. Consequently TfL has a strong interest in ensuring the Government’s franchising programme is fit for purpose. Additionally, TfL operates rail services itself and London Overground, Docklands Light Railway and Crossrail contracts are due to be let in the next three years. This evidence is therefore informed by TfL’s own extensive experience.
1.4 Given the specific and notable success already achieved through rail devolution in the Capital, and the advanced state of our planning for potential further devolution, TfL would welcome the chance to give additional oral evidence to the Committee and to discuss these issues further.
2. Franchise design
2.1 The Review makes a number of recommendations for how the design of franchises, their letting process and their ongoing management should be improved. Many of these principles have been incorporated in TfL’s own processes for some time.
2.2 TfL believes that there should be a ‘horses for courses’ approach to franchise design, as different arrangements will suit different types of route. This was accepted by the Government’s 2011 paper ‘Reforming Rail Franchising’ and is also reflected throughout the findings of the Brown Review. In particular, TfL believes that franchises operating in dense urban areas, such as London – where many journeys are short, with very low margins and where the car is rarely a realistic alternative – have fundamentally different requirements from longer distance services.
Franchise size and length
2.3 Smaller franchises have generally performed better than larger franchises, being more attuned to local needs and allowing for greater management attention. The Brown Review found that more, smaller franchises are also more attractive to the market (paragraph 2.14). Smaller franchises fit well with the partnership approach to franchise management that is recommended by the Review (paragraph 6.14), and which is preferred by TfL, rather than the Department’s existing purely contractual approach.
2.4 Franchise lengths, particularly for urban services, should not exceed 7-10 years, the lower limit suggested by the Review (paragraphs 1.13; 4.5), given the increased risks imposed by longer franchises which were evident in the West Coast franchise competition.
Managing revenue risk
2.5 The Review agrees with TfL’s position that asking operators to accept full revenue risk leads to higher risk premia being included in bids and eventual contracts, imposing higher than necessary costs on taxpayers (paragraphs 1.14; 3.9).
2.6 Nonetheless, the Review finds that some form of revenue risk sharing encourages operators to continue to pursue revenue growth (paragraph 4.13; 4.41). TfL believes that while this may well be the case for longer distance services, for urban services the fare levels, and the importance of exogenous economic factors as well as fare regulation itself in determining revenue, mean that there are insufficient incentives for operators to drive up service quality.
2.7 TfL’s preferred alternative model, gross-cost (‘management’) contracts, was accepted by the Review as potentially beneficial and better value for money where a devolved franchising authority – as is the case with TfL – has the capability to brand and market services, sell tickets and collect revenue (paragraphs 3.9; 4.41; 4.43).
2.8 TfL agrees that management contracts also may be appropriate where there are major infrastructure projects that will affect revenues, such as on the currently paused Thameslink/Southern/Great Northern franchise renewal (paragraph 4.42).
The importance of service quality
2.9 TfL agrees that franchise bids should be explicitly scored on proposals for improving service quality, with a higher weighting being given to this where operators have little farebox incentive to deliver quality (paragraphs 5.24; 5.25). This is particularly likely to be the case on inner suburban services in London (see previous section). It is important that effective monitoring and management is in place to ensure operators are meeting their service quality obligations.
2.10 TfL includes a number of measures of service quality in its own bids, for example, customer satisfaction, mystery shopping surveys and reliability. TfL also specifies minimum standards for each station/service rather than average levels across a whole service, which prevents cherry-picking and ensures fair treatment for all passengers.
2.11 The Review notes that more flexible specifications are better suited to long distance franchises (paragraph 2.11), which is very much in line with TfL’s position.
3. Devolution
3.1 Recognising that the experience of devolved railways in various parts of the UK has been ‘very positive’, the Review stated that:
‘...the specification and oversight of franchises should be managed by authorities that are closest to their communities and local economies... and that the further devolution of services within London [should be] actively considered.’ (paragraph 1.18)
3.2 This statement is strongly welcomed and supported by TfL. Responsibility for some, limited, National Rail services in London was devolved to TfL in 2007, and they are now known as London Overground. The transformation of these services has come about through the application of many of the principles of good franchise design now promoted by the Brown Review, but also because of the close management attention that TfL has been able to pay and its deep understanding of the needs of communities served by what are the most local of rail services.
3.3 Since 2007, National Passenger Survey satisfaction scores for the Overground have risen from 71 per cent to 93 per cent. Public Performance Measure has improved from 91 per cent to 97 per cent. Ticketless travel has fallen from 13 per cent to 2 per cent. And perhaps most tellingly, annual ridership has risen from 25 million to 67 million (excluding the impact of the newly opened Highbury & Islington – West Croydon/Clapham Junction line). This success has been achieved alongside a reduction in net operating costs per passenger kilometre and the improvement trends were clearly discernable even before the impact of capital investment in stations, rolling stock and signalling came to be felt.
3.4 To build on this success, the Mayor of London called, in his February 2012 Rail Vision document, for responsibility for more routes in the Capital to be devolved to TfL. TfL has been cooperating closely with the Department and other stakeholders to build a comprehensive understanding of the practicalities of such a step, and this work has found no reason that would prevent further devolution from going ahead.
3.5 TfL welcomes the Committee’s own support for devolution, as stated in paragraph 65 of the recent Rail 2020 report, which said:
‘We agree that there is scope to devolve control over some rail franchises to local or regional bodies and we support the Government in looking at how to achieve this.’
4. Industry capability and capacity
4.1 Devolution also reduces the burden on the Department of developing, tendering and managing numerous franchises. The Brown Review found that departmental capability had been lacking (paragraphs 1.9; 1.12; 1.20), and TfL in particular is a competent, proven and ready organisation able to manage the whole of the franchising process for routes in London. While the Review notes that devolved franchising authorities will need some time for experience and capability to be acquired (paragraph 5.6), requiring ongoing intervention by the Department, this would not be the case for TfL.
4.2 The Review also notes that the Department should seek to smooth the profile of franchise competitions, to ensure that both the Department and the wider industry can effectively resource these competitions (paragraph 8.9). TfL supports this as a long term objective, but is mindful that a number of important franchise competitions are now imminent, and it is important that these are conducted without delay. In particular, TfL’s proposed metro area concessions currently within the Greater Anglia and Southeastern franchises should in place by the end of 2015 at the latest. It is in the interests of both passengers and the Department (in terms of reducing the burden of ongoing franchise management) for devolution to be implemented as soon as possible.
4.3 As an organisation which operates significant rail services, TfL is sharing its expertise with DfT colleagues to aid the planning of the forward franchising programme.
5. Conclusions
5.1 The Brown Review makes sensible recommendations about how the UK’s Rail Franchising Programme can be re-started and improved. TfL is keen to work with the Department expediently to develop proposals for devolving responsibility for rail services within London, as recommended by the Review. TfL notes that various elements of its own approach to franchising have been validated and recommended for wider adoption and it is keen to continue to contribute to consideration and development of the future Franchising Programme.
25 January 2013
Written evidence from TravelWatch NorthWest (RF 07)
TravelWatch NorthWest is an independent Community Interest Company representing all public transport users in NW England. We are pleased to give our views as follows to this inquiry.
Our key view is that there is a need for a truly independent review of the whole franchising philosophy. Such a review should take a properly researched and considered view of whether the benefits of private enterprise within the tightly controlled franchising regime outweigh all of the costs of the fragmented rail industry that was set up by the 1993 Railways Act. Is there sufficient scope for private initiative to counter the economies of scale that a more homogeneous organisation would bring? Indeed could such initiatives have been equally achieved under a unified national company whether public or privately or publicly run?
The Committee is aware (HOCTC Rail 2020 report) of an increase in government support for the passenger railway compared with pre privatisation, despite passenger growth of 92% since privatisation. Cited reasons are increases in passenger train operating costs, extra cost associated with servicing Network Rail’s debt for new capital projects and additional rolling stock charges.
However it can be postulated that a tangled and expensive web of contractual and legal agreements is necessary to run such a fragmented system. One of the witnesses to the Committee’s Rail 2020 Inquiry put the view that the fragmented structure of the industry, as it was privatised, was not effective and the escalation of costs that has occurred in the industry since then has been a direct result of that structure. Accordingly we believe that it would be useful to look at the costs associated per se with the fragmented structure of the railway and its privately operated franchises.
For example the costs of franchising and the fragmented structuring has brought costs that might otherwise have been avoided and monies utilised for passenger benefits. Some examples are given below –
• Profits for each constituent railway organisation/ company • Delay attribution costs • Legal/ contractual costs • Rolling stock leasing costs – do we need ROSCOs? • Costs of regulation • Branding & rebranding of rolling stock • Rebranding of stations, staff uniforms, timetables • Cost of the franchise bidding procedure • Franchises create barriers of various kinds between TOCs for the passenger - not least in the attitude of TOCs to other TOCs connecting services, covering for cancelled services, ticketing, etc.
Against this background we give comments identified with headings and selected paragraph numbers from the Brown report.
1. Executive Summary
Key Recommendations
We comment on these under the following chapter headings.
2. The Evolution and Objectives of Franchising
We agree with the need to mitigate against external risk and overoptimistic revenue forecasting.
Referring to paragraph 2.16 the growth in passenger numbers could well have happened without franchising. It is difficult to draw a direct correlation. From a regional point of view there has been very little investment in rolling stock for Northern’s services which is a major supplier of passenger services in the North West. Indeed passenger growth has been in spite of the Northern franchise being let on a “no growth” contract. It is probably fair to say that local rail passengers in the NW have seen little positive change since privatisation, with no new trains and higher than inflation fares increases.
3. The Principles of Franchising
We have general agreement with this section especially giving greater weight to the needs and expectations of passengers. On a specific point (paragraph 3.5) we agree with the implied criticism of the potential for state owned overseas railways to dominate the scene. It seems fallacious that our private railway could be monopolised in this way.
4. Structuring Franchises
West Coast and Chiltern have been successful long franchises. So perhaps 15 year franchises with review clauses every 5 years would be a solution.
On management contracts (paragraphs 4.40 – 4.43) we are not convinced by the arguments against them. For example we do not accept that a concessioning authority should necessarily have the capability to market services, sell tickets and collect revenue. Concessions could help to eradicate some of the factors giving rise to increased costs (e.g. rebranding, etc). An advantage would also be standard/similar levels of service provision across the same type of operator – e.g. - catering by InterCity operators.
We are disappointed that there seems to be very little consideration in the report of the concession alternative to franchising.
5. Franchise Procurement
We are in broad agreement with the recommendation to devolve further English franchises (or concessions) to local authorities. This would enable more local input and facilitate a closer response to local needs. However there must be safeguards for smaller Transport Authorities within larger franchise areas, for example if the Metropolitan ITAs become the major players in procuring the Northern franchise/ concession.
We particularly agree also that the awarding of bids should not be purely on price but should take account of passenger needs and deliverability. The use of NPS scores is a pertinent means of achieving this and we agree that sample sizes should be more disaggregated to include measures of performance at service group level at least.
6. Franchise Management
Clearly there has to be proper franchise management to deal with any unanticipated changes to the contract. Such change mechanisms, where passenger services and facilities are affected, should include proper consultation procedures with independent passenger representative bodies to ensure passenger interests are protected as far as possible. If devolution of franchising to local/regional authorities becomes a reality passenger bodies should be strengthened to deal with passenger issues more effectively at regional level.
7. Delivering Franchising
Recent events have shown that the organisation for delivering franchises has to be redefined and strengthened. Where it should be located is a debatable point. In many respects there are close ties between franchising and the regulation of the industry. Perhaps this is the time to simplify the whole regulatory process with the industry having one regulator (ORR) to award franchises and regulate the performance of the whole industry across the board. We are not convinced with the argument that the skill sets required for franchising are very different to those of ORR. Managing franchises and ensuring franchisees carry out their obligations seems very much in line with the licensing enforcement and passenger protection role that ORR has. A lot of blurring of roles and duplication (& thereby cost!) could be avoided if franchising (or concessioning) was under the ORRs organisation.
This would not preclude the need for a strategic body to plan rail’s future and this body must be closely related to government for obvious funding reasons. There has to be an element of control over passenger services to give maximum network and passenger benefits and a system of granting concessions rather than franchises may be more appropriate in this context.
25 January 2013
Written evidence from the Chartered Institute of Logistics and Transport in the UK (RF 08)
1. The Chartered Institute of Logistics and Transport in the UK (“the Institute”) is a professional institution embracing all transport modes whose members are engaged in the provision of transport services for both passengers and freight, the management of logistics and the supply chain, transport planning, government and administration. We have no political affiliations and do not support any particular vested interests. Our principal concerns are that transport policies and procedures should be effective and efficient and based, as far as possible, on objective analysis of the issues and practical experience and that good practice should be widely disseminated and adopted.
2. The Institute has a specialist Strategic Rail Policy Group, a nationwide structure of locally based groups and a Public Policies Committee which considers the broad canvass of transport policy. This submission draws on contributions from all these sources.
Introduction
3. CILT welcomes the Brown Review and supports its key conclusions. In particular, the Institute is pleased to see that the report has taken an holistic view of franchising, including an appreciation of the relationship between the rail industry and its supply chain, which has suffered from the uncertainty following the collapse of the West Coast refranchising process.
4. The Institute recognises the value of the recommendation that bids should be scored on their proposals for improving the quality of the service passengers receive, including investment in staff training and workforce development.
5. It is reassuring that the report gives a vote of confidence to the fundamentals of the franchising regime and points mainly to better management by the Department for Transport (DfT) as the way to secure the necessary improvements in programme delivery. The report's recommendations on franchise structure, risk allocation, incentive arrangements and change mechanisms should produce more robust and sustainable franchises that sit better within the overall rail industry business structure.
Fundamentals
6. The Institute supports the conclusion that the franchising process is fundamentally sound, and that quickly restoring confidence to the market and re-launching the franchise letting programme on a firm footing with improved stewardship is essential. Building on the conclusions of the Laidlaw Inquiry, the Brown Review strongly criticised the DfT’s organisation, capability and resource commitment to deliver the franchise letting programme and called for immediate restructuring and the appointment of a ‘Franchising Director’.
7. The Institute supports the emphasis placed on the need to ensure sound franchise management capability to facilitate continued development of the franchise offering. While a review of DfT resource and structure is welcome, a thorough evaluation should be undertaken to assess the potential value of creating a separate body beyond the scope of the DfT solely tasked with the management of the franchise process. However, given the important requirement to re-launch the franchise process swiftly an agency approach is preferable in the short term, with possible independence at a later date.
Structuring Franchises
8. The Institute supports the conclusion that 15 year fixed-term franchises are not suitable for the majority of franchises. Franchises should be split into two parts with a pre-contracted continuation after 7-10 years. The proposal retains the benefits of longer franchises where this will give demonstrable benefit - continuity for staff and passengers and longer periods for operators to benefit from, and thus be incentivised for, investment and cost cutting – while reducing risk. Increased risk and the uncertainties of forecasting can lead to excessive complexity and a distorted bidding process.
9. However, when developing the criteria for pre-contracted continuation, it is crucial to emphasise the importance of continual investment within the continuation period - purely financial targets are not sufficient. Similarly, the Institute strongly supports the increased utilisation of residual value mechanisms as a means to encourage franchisee investment in projects which have a return beyond the franchise term.
10. The Institute supports the recommendation that franchisees should not be held accountable for risks outside their control. Protecting franchisees from exogenous revenue risk and with parent company support and bonding proportionate to endogenous revenue risk will produce efficient bids with better value to Government. While supporting the requirement for franchisees to take responsibility for delivering the management initiatives promised and accepting costs, some concern remains over potential implications for rail freight and other operators of including an element of infrastructure costs and we believe greater examination of this proposal is required. The ORR has signalled potential changes in the complex area of track access charges and track capacity allocation, but the outcome of this is as yet uncertain. So while supported, some of the alterations to risk allocation can only be accommodated with adjustments in regulation to align with these proposals.
11. The Institute strongly supports the requirement that bid evaluation should assess the quality of the customer offering alongside an evaluation of the financial robustness and deliverability of bids. Valuation of strands to a bid should be required, with a value placed on deliverability with more explicit measurement of non-financial aspects of bids. Improving service quality for passenger and better management including an investment in staff training is essential.
Devolution
12. The Institute gives qualified support to the proposal to devolve franchise specification and management, as experience of devolution so far is encouraging.
13. Whilst it is noted that the DfT must improve its capability to let franchises, it should also be acknowledged that there is limited experience within most devolved authorities. Each interested authority will need not only to build confidence in its capability but also to address governance issues including the consideration of cross-boundary services. Furthermore, identifying the true cost of devolved services will need to be supported by disaggregation of costs which may well require further support from the ORR. Given time constraints in the short term these aspects are probably best addressed through some form of joint governance with the DfT.
14. The Institute is aware that most local rail services operate across the boundary between authorities. Due consideration will need to be given to ensuring that the needs of each PTE/ITA, county and unitary authority are met where franchise decision-making is devolved.
Programme
15. The Institute agrees wholly with the importance of restarting the franchising programme as soon as possible, since it is acutely aware of the size of workload to be addressed. Around 14 franchises have to be retendered (or in some cases might be extended) by the end of 2014. That is a logistical problem for DfT and bidders alike; it is of no benefit to either party if the number of bidders is constrained by their inability to undertake the work involved in the time available.
16. The Institute also endorses the Brown conclusion that franchise letting and terms (in the sense of length of franchise) should not result in a bunching in the years at which they come to maturity, or the same problems will recur.
25 January 2013
Written evidence from Alstom (RF 09)
Summary
• There is now a credibility issue around UK rail franchising which risks affecting investment decisions by multinational companies throughout the rail supply chain.
• We therefore need a clear statement from the Government by the end of April 2013 about how it plans to take forward the franchising programme.
• The proposed reforms in the Brown Review are welcome and should be implemented over a period of time, but should not be an obstacle to restarting the franchising programme as soon as possible.
• There is a misunderstanding that this re-start will immediately drive a procurement process for manufacturers. This is not the case: the reality is that lay-offs and downsizing have regrettably already commenced.
• We believe that more flexibility needs to be introduced to the franchising model in order to allow franchisees more freedom to direct investment and services to best effect. But we also see the need for direct procurement in certain cases for large programmes or new technologies.
Detail
1. Our overall views on rail franchising are:
• Rail franchising has helped to deliver significant investment and improvement to the performance of the UK’s railways, as well as introducing valuable private enterprise skills to the system.
• As the Brown Review makes clear, UK passenger growth since privatisation has been faster than in all other major European rail systems, whilst the UK compares favourably with other EU countries on a number of passenger satisfaction measures. A fundamentally flawed franchise system could not have achieved this success. However, it has introduced serious short-termism to the supply chain, most notably in regard to new technology.
• It is clear that, though the franchising model is not broken, improvements can be made. To restore confidence in the UK market, it is very important that reforms stemming from the Brown, Laidlaw, NAO and Select Committee reports are implemented as quickly and effectively as possible.
• The current uncertainty over the future design and management of the franchising programme is having a negative impact on the rail supply chain and the multinational investors involved in that chain. We need to avoid a repeat of the infrastructure investment hiatus that occurred during the transition between Control Periods 4 & 5. A priority for the Government should be to remove the uncertainty by April 2013.
• We believe that much more flexibility needs to be introduced to the franchising model in order to allow franchisees more freedom to direct investment and services to best effect. But we see a case for direct procurement in certain cases for large programmes or new technologies.
• Getting the risk/reward profile right in franchises is just as important as franchise duration, where an optimum length could be 7-10 years, depending on the nature of each investment and its implementation period.
• There is scope for greater partnership working between the Government and the industry. That must extend beyond the franchisees to the franchise supply chain, which is gravely under-utilised today and where significant investments are made.
• There is room for Open Access to work alongside some franchise operations provided it is adding value by bringing in new revenue streams and/or investment.
2. Our view on Richard Brown’s main recommendations and analysis are:
• We strongly agree with the Review’s conclusion on the effect of the current franchising ‘freeze’ on the supply chain:
Quote from Brown: ‘The temporary suspension of franchising has also had a very negative impact on the industry’s supply chain, with many companies having to reassure their investors in its aftermath. Many downstream decisions hinge on new franchise awards, for instance investments in rolling stock upgrades and refurbishments, and these decisions are currently on hold. Many suppliers in this market are international companies, and there is a risk funds and resources previously earmarked for UK projects, could be diverted to other countries. The uncertainty for both the travelling public and for staff has been highly unsatisfactory.’
We have seen this direct effect on the West Coast Main Line, where we currently have seventy jobs now at risk as a result of delays with key decisions. A summary of our views on the impacts of the West Coast Main Line decisions is at annex A.
There are many other areas where continuing uncertainty will have negative consequences, including for the European Train Control System (ETCS) and European Rail Traffic Management System (ERTMS) roll out. Without future certainty, Train Operating Companies are unlikely to commit to engaging with Network Rail, or the supply chain, on this subject, to the detriment of efficiency of the network as a whole.
• The most important recommendation is that ‘the franchising programme should be restarted’. As Richard Brown makes clear, the Review’s recommendations are ‘an evolutionary package of change’ and not ‘an obstacle to restarting the franchising programme’. The overall programme should be re-started by April 2013, with plans for the three ‘on-hold’ franchises to be announced by February 2013. We agree that any re- start needs to be accompanied by strengthened resources in the Department to manage the franchise programme. There is a misunderstanding that this re-start will immediately drive a procurement process for manufacturers. This is not the case: the reality is that lay-offs and downsizing have regrettably already commenced.
• We agree that the ‘franchise bidding process is not fundamentally flawed, but there is significant scope to improve it further’. It is important that the Government should be clear about what it is seeking to ‘buy’ in a franchise and state its specific objectives for each competition. Simplification of the competitions should help to reduce bidding costs. However, the proposal to run 3 or 4 franchise competitions each year appears unrealistic given the limited resources available to the Department for Transport and the industry. Too many competitions in a single year could lead to an overheating of costs and greater inefficiencies.
• We agree with the six objectives for franchising that the Review proposes for Government to consider: (i) ensure value for money…by requiring potential franchisees to compete; (ii) harness private sector skills and innovation; (iii) ensure stability of services for passengers; (iv) secure franchisees who will work in partnership with Government and other rail industry parties; (v) facilitate further devolution of decision-making; & (vi) ensure passenger rail services are delivered and managed by organisations which are more closely attuned to local market needs. But we would urge Government also to consider a direct dialogue with manufacturers concerning efficiency and performance, as this is a missing component today.
• We agree that the ‘franchise term should be determined by the circumstances and size of each individual franchise’. A 7-10 year initial term with pre-contracted continuation, subject to agreed franchise criteria being met, appears to be reasonable, though we believe that it will be just as important to get the risk/reward balance right in each franchise.
• We agree that ‘improved flexibility and change mechanisms should be built into each Invitation to Tender (ITT) and Franchise Agreement’. We also agree that there should ‘be a greater focus on outcomes in franchise specification to give bidders more flexibility to bid more resource efficient timetables and to facilitate Government-initiated changes’. We do see the need for closer attention to the scoring mechanisms, which will allow for versatility with each franchise.
• We agree that ‘franchisees should be responsible for risks they can manage and should not be expected to take external macroeconomic, or exogenous, revenue risk’. This should enable franchisees to bid lower profit margins and therefore give better value to the taxpayer. We also agree with the Review that at the same time franchisees should ‘take clear responsibility for delivering the management initiatives that they promise and bear greater responsibility for costs, particularly infrastructure costs.’ We believe the supply chain could be allowed to take some of these risks directly where it has significant know-how.
• We agree that ‘capital requirements should be set at a level to create financial robustness, deter default and protect Government up to a reasonable limit for loss of premium or increase in support in the event of any default’. We believe that long-term maintenance of rolling stock with third parties could help to manage costs and ensure continuity in the event of a franchise change. That would help to reduce the disruption caused by the change process or defaults, and therefore reduce capital requirements to manageable levels.
• We agree that ‘evaluation should assess the financial robustness and deliverability of bids’. The evaluation criteria should be clear and transparent. Scoring systems in bids are notoriously influential and must be more carefully considered. Supply chain and rolling stock suppliers often operate blind to the details of the franchise bidding criteria and how they are interpreted.
• We agree that ‘bids should also be explicitly scored on their proposals for improving service quality for passengers and their approach to management’. We believe that passenger comfort, safety and service are paramount to a successful industry. Growth on the West Coast Main Line was kick-started by investing in state of the art solutions to improve passenger comfort and service levels. These investments need to be adequately supported in franchise bids.
• We are yet to be completely convinced that ‘further franchises should be devolved to local control’ through a ‘staged process, to allow the relevant authorities to gain experience….whilst avoiding adding unnecessary costs’. Local authorities are best placed to make timely decisions on some issues (e.g ridership and community growth). However, all rail services (in particular inter-city and cross-country) need to have a guiding support from a centralised body to maintain levels and standards for efficiency reasons. Without that central guidance and involvement, there is a risk of fragmentation and risk of funds not reaching the local level.
• We agree that ‘the Department’s organisation and franchising capability urgently needs to be strengthened’. The evidence and analysis provided in the Brown, Laidlaw and NAO reports is compelling, particularly the need for improved clarity of scrutiny procedures and accountability at the most senior levels. We agree with the proposal to establish a Franchising Advisory Board. On the three options (team within DfT; a new executive agency; a stand alone organisation) for the location of a newly strengthened franchising team, we would like to see more detail on the strengths and weaknesses of each option before drawing a conclusion. Whatever option is chosen, there should be some consultation with the industry over the final decision.
3. Following the Brown, Laidlaw and NAO reports, we urge the Government to:
• take the initiative to have a constructive dialogue with all stakeholders, including the supply chain which delivers important value.
• take forward the main recommendations from the three reports immediately – and any subsequent, appropriate recommendations from the Transport Select Committee;
• be transparent about the problems and the solutions. There is now a credibility issue around UK rail franchising which risks affecting investment decisions by multinational companies throughout the rail supply chain;
• re-start the franchise programme as soon as possible, including announcing plans for the three ‘on-hold’ franchises by the end of February 2013; and
• publish a clear, long-term plan for the franchise programme no later than the end of April 2013.
Background on Alstom
4. Alstom is a rail transport, energy and grid infrastructure company employing over 90,000 people worldwide and 6,500 in the UK. For rail transport, we are primarily a designer, manufacturer and supplier of high-speed trains and turnkey systems. Examples include the West Coast Main Line Pendolino fleet (UK); Cisalpino fleet (Italy-Switzerland); and the construction of the HS1 line into London (including the signaling, electrification and catenary systems). We are now constructing extensions to Spain’s high-speed rail network through a PFI.
5. Alstom is also a maintainer and provider of full service provision (e.g West Coast Mainline for Virgin Trains and the Northern Line for Tube Lines). Alstom’s high speed, and very high-speed, fleet is the largest in service of any manufacturer in the world. In the UK, this also includes the current Eurostar fleet, which has been in successful cross-border operation since 1995.
25 January 2013
Annex A
West Coast Main Line
1. The Pendolino has proved to be highly successful here and around the world. It is now the biggest tilting fleet in service anywhere and the UK has taken a significant lead in the use of this technology. It is also a reference case for best practice in terms of delivery and partnerships. We have delivered the current fleet's expansion and upgrades ahead of time and on budget, in a great partnership with Government. The Pendolino is a proven, efficient and deliverable product with well over 30% UK content (and growing) on new build and 90% UK content throughout its life. A significant UK supply chain has been developed.
2. We had expected substantial orders for new Pendolino trains, as well as refurbishment orders for existing trains, in addition to extensions to our service provision contracts in this refranchise programme. This would have enabled us to not only retain and develop over 820 current staff, and further develop the product, but to extend recruitment with over 150 new jobs for highly skilled engineers and technicians, as well as maintain the significant UK supply base.
3. The key details of the impact of the refranchise delay are:
a) No contract for interior refits. In some cases, the refits are past the due date, which will impact the passenger experience of the railway. All bidders had included around £50m of work required within the first two year period. Putting this work on hold will mean that the existing fleet will deteriorate further and skilled people will now be laid off. The likely impact is the loss of around 100 existing jobs. In addition, because we were planning to localise more of the refit work in the UK, there are probably another 50 jobs that will not now be needed. The impact in the UK supply chain above this is estimated at around 150 jobs. A large part of the refresh we believe could be progressed separately from the refranchise process by the Department for Transport.
b) Possible delay of up to two years on procurement of additional trains. If this work doesn't proceed, the current upgrade, integration and engineering teams, who have just completed the overhaul programme, will be disbanded, as there is no work to bridge the gap to the next procurement. Apart from supply chain, this includes 40 top class engineers as well as planners, logisticians, commissioning experts and so on.
c) So, with no refresh and the delay of new procurement, we estimate a loss of around 500 jobs for the UK as a whole, including the UK supply chain. Our current know-how on tilting will be partially lost, whilst further costs will be incurred in both hardware and possible re-mobilisation at a later date. The estimated cost of re- starting teams and developing and revalidating new product further down the line is around £20-30m. Our engineering and design pre-work investment for Baby Pendolinos already stood at £3m.
d) Preston. Our localisation plans for a traction centre of excellence at Preston will now be frozen. The proposed £4m investment and business plan to localise traction in the UK, which would have materialised upon new Pendolino procurement will now be mothballed, with regrettably no guarantee that a corporate review in 3 years will produce the same decision.
e) Suspension of investment in depot enhancement at Wembley & Glasgow. All the WCML depots are Victorian and have received significant upgrading in structures, heating, lighting and systems. The scale of improvement will now be geared to only the current fleet requirements. We had planned for £3.5m of spend up and down the country in the depots.
f) Other Recruitment. Review of recruitment of 10 engineer graduates and 12 apprentices for WCML.
g) Current interoperability derogation work may now become obsolete. New derogation work will be required from the Department for Transport and the European Commission. The cost estimate for Alstom to produce a new technical file is a further 6 months and 1.5 man years' effort. Though this could be higher if there are new design elements in any future procurement. The DfT had similarly invested in supporting us, and we are extremely grateful for that, but it will ultimately be sunk without forward progress now.
h) Tender costs. We are - regrettably - in the process of claiming back part of the £1m cost of the work we have carried on these massive tenders. Worth noting that this cost could be waived if the procurement of new trains proceeds within 6 months.
4. We regret that the scale of impact in jobs, skills and investment are so large, but that reflects the very nature of these very large scale projects.
Written evidence from London TravelWatch (RF 10)
1 Introduction:
London TravelWatch is the official body set up by Parliament to provide a voice for London’s travelling public, including the users of all forms of public transport. Our role is to: • Speak up for transport users in discussions with policy-makers and the media; • Consult with the transport industry, its regulators and funders on matters affecting users; • Investigate complaints users have been unable to resolve with service providers, and; • Monitor trends in service quality.
Our aim is to press in all that we do for a better travel experience all those living, working or visiting London and its surrounding region.
In preparing this response we have liaised with Passenger Focus on issues of common interest.
2 The Inquiry
London TravelWatch welcomes the House of Commons Transport Committee’s inquiry, looking at the Richard Brown review of rail franchising.
London TravelWatch submitted a response to the Richard Brown review which can be found at:- http://www.londontravelwatch.org.uk/document/14252/get
London TravelWatch was pleased with the recommendations of the review and sent out the following press release on the publication of the review. http://www.londontravelwatch.org.uk/news/2013/1/passenger_watchdog_welcomes_many_of_th e_findings_of_richard_brown_s_report_on_the_government_s_rail_
3 Principal concerns
In general terms London TravelWatch is pleased that many of its concerns on behalf of passengers have been taken up by the Brown review and incorporated into its recommendations. However, it is now crucial that these are now acted upon by government in the interests of both passengers and taxpayers.
For us as a body representing the interests of passengers, the most important recommendations of the Brown review are as follows:-
• Paragraph 1.17. Bids should be explicitly scored on their proposals for improving service quality for passengers and their approach to management. • Paragraph 1.18. The specification and oversight of franchises should be managed by authorities that are closest to their communities and local economies. • Paragraph 1.13. The franchise term should be determined by the circumstances and size of each individual franchise. • Paragraph 1.19. Improved flexibility and change mechanisms should be built into each Invitation to Tender (ITT) and Franchise Agreement.
4 Putting the passenger at the heart of decision making in the rail industry
London TravelWatch believes that the passenger should be at the heart of the decision making process in relation to rail franchises. Too often in the past franchises have sought to reflect the interests of a market in which passengers only play a very indirect part. The result is that the passenger interest becomes subsumed by the interests of the industry or government, which are assumed to be coterminous with that of the passenger. We therefore welcome the proposed weighting (of between 20 and 40%) in the evaluation of franchise bids of proposals that improve the service quality for passengers.
We would welcome the expansion of the National Passenger Survey (NPS) sample sizes, particularly in the London area where around 25% of National Rail stations have never been surveyed, and where local users of train services have been underrepresented in the survey. However, we with Passenger Focus believe that greater emphasis on NPS could potentially, if not balanced by other initiatives, lead to operators concentrating resources at the busiest stations. The NPS is also a survey based on perception rather than an objective set of criteria that can be measured and monitored.
We suggest that a quality standards regime is introduced to ensure that users of smaller stations do not lose out and to introduce greater objectivity. TfL’s concession agreement on the London Overground includes their own comprehensive performance regime which is based on measures that are important to passengers. The Service Quality Incentive Regime (SQUIRE) used on the Scotrail franchise is another good example of applying such a mechanism alongside the NPS. SQUIRE is based on inspections against a quantifiable set of agreed standards and outputs (all detailed on the Transport Scotland website). SQUIRE inspectors audit 342 stations and approximately 200 trains every four weeks. Service areas inspected range from graffiti, toilets and timetables to train cleanliness, staff service and the public address system. There are 36 service quality dimensions inspected under this regime.
5 Devolving decision making to authorities that are closest to their communities and local economies
London TravelWatch believes that the most significant improvement for passengers in the London area would be the devolution of further franchises operating wholly or substantially within the Greater London area to the Mayor of London through Transport for London (TfL). TfL has through its London Overground concession for the operation of the former Silverlink Metro franchise and the East London Line, transformed the passenger experience on these lines. Previously Silverlink Metro was a very poor performer in terms of reliability, punctuality and the quality of the trains and stations. Now, the London Overground concession is the market leader in the London and South East and has experienced considerable growth in passenger numbers from 73 million per year in 2007/08 to 104 million in 2011/12, with further growth expected, and in satisfaction in customer surveys such as the NPS. We want to see these improvements realised also for passengers on London’s other rail services.
TfL has many years experience of letting and managing franchises and concessions not only for London Overground, but also for Docklands Light Railway, Tramlink, the bus network and the Emirates Air Line. We therefore believe that it is competent and has the capacity to, take on the letting of further rail franchises. We would urge therefore that Ministers make an early decision to devolve responsibility for further parts of the National Rail network within the London area to TfL for the benefit of both passengers and taxpayers. We understand that this could be done without the need for additional legislation.
We were disappointed, however, that the review did not recommend that even where longer distance commuter franchises continue to be specified by the Department for Transport (DfT) there should not be more involvement of local bodies such as TfL in specifying and monitoring such franchises given their importance to localities such as London. In particular the combined Thameslink, Southern and Great Northern franchise which would provide a substantial proportion
of local services within the Greater London area, and which has a large number of interfaces with TfL operated services.
6 Franchise terms should be determined by the circumstances and size of each individual franchise.
The demand for passenger rail services is constantly evolving, and the varied nature and transport geography of the rail network means that there is likely to be no one franchise model that fits each and every local circumstance. It is therefore welcome that recognition is now given to the need for franchise specifications to take more account of the local circumstances of the franchise that is being tendered.
7 Improved flexibility and change mechanisms
London TravelWatch welcomes the recommendation to improve franchise flexibility and that, in the case of government initiated change, this to be introduced where it can be shown that the net cost / benefit impact on franchises is neutral. However, we are concerned that such flexibility could leave passengers worse off if there is no protection on items such as timetables and ticket office hours. There should also be a requirement to consult with statutory passenger bodies such as ourselves before such changes are finally decided upon.
8 Conclusions
The Brown review recommendations represent a significant opportunity for the government to make franchising work better for the benefit of passengers.
It is important that the recommendations of the report are acted upon, with the enhancements suggested above. There are crucial interests at stake for the travelling public in London as well as across the UK generally. In particular, failure to devolve further responsibility for rail services in London would represent a lost opportunity to improve the passenger experience and improve the local accountability of transport providers.
26 January 2013
.
Written evidence from First/Keolis TransPennine Limited (RF 11)
1. Introduction
1.1 First Keolis TransPennine Ltd (FKTPE) is pleased to submit this response to the Transport Select Committee call for evidence on the Brown Review of the Rail Franchising Programme. FKTPE runs inter-city train services connecting major towns and cities across the North of England and into Scotland. It is a joint venture partnership between FirstGroup (the UK’s biggest public transport provider) and Keolis (the largest French private sector transport group).
The Franchise provides 294 daily weekday services, directly employing around 1,050 staff, with responsibility for the management of 30 stations.
Over the next few years the Northern and TransPennine Express franchises fall due for replacement. There are currently discussions around the future franchising model for the North, including the potential devolution of certain rail decision-making to PTE’s and Local Authorities and the possibility of remapping or merger of these Franchises.
We remain committed to working with our local and national stakeholders to help deliver the best long term outcomes for customers and taxpayers irrespective of the outcomes of these debates. This submission is intended to provide a perspective from one of the current franchisees on some of the important issues currently under review.
2. Decentralisation
2.1 The government has recently consulted on options for devolving more accountability and decision-making related to local rail services to sub-national bodies, such as local authorities and PTEs. FKTPE broadly agrees with this approach, providing appropriate governance arrangements can be put in place and the necessary resources/capability are built into a new devolved letting and management authority. Decentralised decision-making on certain franchises to sub-national authorities has potential merit and could allow better understanding and greater alignment between local priorities and resource allocation.
2.2 We note that the Department for Transport’s (DfT)i consultation on decentralisation showed support for some form of further devolution, but highlighted a broad agreement across consultees for different treatment of inter-regional services (that we interpret to include the services currently provided by FKTPE) to local services and agree with the implicit principle that they should be let on a different basis to each other.
2.3 If further decentralisation of rail decision-making does take place we would support the Transport Select Committee’s position that inter-regional and long distance services which serve areas beyond controlling local authority boundaries would require some appropriate safeguards.ii In this context, 85% of the current FKTPE revenue from passenger journeys arises from journeys that are wholly outside of or cross one or more PTE boundaries.
3. Background to two franchises
3.1 FKTPE has been running the TransPennine Express Franchise since 2004, taking over the inter-regional and long distance routes from First North Western and Arriva Trains Northern, both of which previously served a mixture of short distance, inter-regional and long distance routes. The local routes of these two former Franchises were taken over by Northern Rail in December 2004. This change was instigated to address a number of issues in the performance of the previous combined market franchise proposition including an inconsistent customer proposition, low passenger satisfaction, low passenger growth and poor train service performance. The subsequent performance of both Franchises demonstrates that this split from
geographic to market led scoping of franchise content in the North has been highly successful. The table below helps to show from our own perspective some of the key outcomes that the current franchise proposition has been able to deliver. We submit that the underlying drivers for a continuation of a market led approach to deliver such outcomes remain valid.
% Change in measure 2013 2003-4 2012-13 % % v 2004 Improvement Improvement FKTPE UK Rail Passenger Journeys 13.5m 25.2m 87% 40%
National Passenger Survey 74% 88% 14% 8% Overall Satisfaction Measure Direct franchise subsidy per 10.1 pence 3.3 pence 67% Comparison passenger kilometre not available
4. The case for two franchises
4.1 There are number of reasons that have been put forward both in support of and against a merger of the Northern and TransPennine Express franchises. The principle reasons cited against merger are as follows:
- The optimal commercial framework for each franchise differs; - Separation allows strong focus and priorities to be addressed within both local and the inter-regional / long distance markets; - Two franchises increases competition and drives better outcomes for passengers; and - Maintaining two franchises is consistent with the Brown Review recommendation not to reduce the number of rail franchises to avoid market and government risk and increasing barriers to market entry.
The main reasons cited in favour of merging the Franchises are as follows:
- To allow the optimisation of outputs from the Northern Hub and electrification projects; and - To deliver economies of scale.
Each of these points is discussed further in the following paragraphs.
4.2 The split in 2004 into the TransPennine Express and Northern franchises was intended to address the differing commercial drivers between local and inter-regional / long distance services and it has been very successful in this aim. By allocating revenue risk to the franchisee together with a profit sharing mechanism with the DfT, FKTPE has been provided with a strong continued incentive to invest in improving the customer offer.
In addition to working in a continued partnership with DfT and local stakeholders over the franchise term to develop and deliver a series of contracted specification changes, around 15% of current services (measured in vehicle miles) operated by FKTPE have been incrementally added during the franchise term by the franchisee taking full commercial risk. This has been done without any specification requirement or other contractual commitment to do so. It has directly benefitted customers without making any further call on the taxpayer and has returned more revenue to the treasury than initially anticipated.
Furthermore, the current high passenger perception scores are being delivered without the franchise agreement requiring a contracted service quality regime, but by an inherent commercial incentive through the fare-box. This position contrasts with many of the shorter
distance local services in the North which are much more heavily dependent on taxpayer support with many outputs needing to be underpinned through specification or other contractual mechanisms. Tighter specification helps to guarantee minimum outputs, but can add inefficiency by inhibiting innovation and the flexibility to respond to emerging market needs. It is important than any future franchise model and specification acknowledges these differences in the incentives required between service type so that future operators can work efficiently with the relevant letting authority to drive the best outcome for customers and the taxpayer.
4.3 The separation by market type has also allowed additional operator management focus and investment to be applied on developing markets for rail travel in the North outside of the traditional commuter peak periods, improving the efficiency of the operation as a whole. As a result the leisure customer growth rate has outstripped commuter and business customer growth rate (which in any case have shown good growth) on average over the past 8 years by more than 20% per annum. Leisure customers now account for 73% of FKTPE passenger revenues. The development and growth in these markets has been a key factor in driving down direct franchise subsidy per passenger km by 67% over the past 8 years. A franchise merger could risk a dilution of this focus.
4.4 The conclusions of the Brown Review noted that whilst there may be a case for some franchises to be reconfigured in the context of devolution, it highlights any further moves towards larger franchises should cease as this substantially increases the level of market risk both to the bidders and to the Department.iii In addition the Brown Review highlights that there is clearly a strong case for maintaining a good number and range of franchises with varying sizes and geographical types and market sector focus.
4.5 Recent research by Passenger Focus showed that passengers value the mix of local and longer distance services provided by FKTPE and Northern. The same research also recorded some concern about change for change’s sake and the potential costs of reorganisation or, in a merged franchise, from any loss of competition. Passengers felt that the lack of competition could lead to increased prices and a poorer standard of service.iv
4.6 One of the main reasons cited for a potential merger of services currently provided by Northern and FKTPE is to realise economies of scale. According to statistics recently published by the ORRv , despite being one of the smallest UK rail franchises, FKTPE’s operating costs per passenger kilometre are amongst the lowest in the UK rail industry and around a third lower than the average amongst the regional sector as a whole. It is worth noting that the current Franchise already successfully shares Driver, Conductor and Station Staff resources and costs variously with eight TOC’s (including Northern Rail), Network Rail and Freight operators to avoid un-necessary cost duplication. Framework Alliance agreements are also in place to explore opportunities for further joint working including improving industry efficiency.
4.7 The other main reason put forward in support of merger is to support the delivery and optimisation of outputs from forthcoming investment in the Northern Hub including simplifying the letting of the successor franchises prior to the future service structure and resource plan having being fully established. Whilst we fully understand this important objective, it is worth noting that effective structures within the industry already exist to achieve this without requiring franchise mergers.
Two major changes to rail services in the North have been successfully delivered in partnership with stakeholders and operators using these mechanisms in 2004 and 2008. In addition FKTPE is currently working to deliver a 35% increase in capacity across its network over the next 18 months in support of the Northern Hub investment. This is being successfully co-ordinated with the co-operation of other passenger and freight operators including Northern Rail using the existing industry structures. The potential merger of the two Franchises would not remove the
need for this type of interface and co-ordination as the rail network in the North is currently served by seven rail franchises, as well as several freight operators, operating over three devolved Network Rail routes. The allocation of access rights to the network will continue to be regulated by the ORR.
Service re-mapping between operators has also been successfully achieved outside of full re- letting with the transfer to FKTPE of Blackpool – Manchester Airport services in 2006 and Edinburgh / Glasgow – Manchester Airport services in 2007. Rolling stock cascades between operators have also taken place successfully with both the Northern and TransPennine Express franchises cascading several fleets in and out of their franchise operations.
Both incumbent operators have already been working in strong partnership with Network Rail for over a year to plan for and optimise the delivery programme for the Northern Hub representing the longer term interests of their customers.
Many of the changes in timetables, rolling stock and service group re-mapping set out above were not foreseen or finalised at the time of letting the current TransPennine Express and Northern franchises in 2003/4. The fact these very significant changes have been delivered by the industry and continue to be delivered shows that similar variations or uncertainty in final outputs could be managed by the letting authority and two separate successor franchisees in the future.
A major restructuring of the franchise proposition at the same time as an intense period of very significant project delivery in the North could introduce new risks to the timely delivery of important service improvements for customers.
4.8 In summary whilst there are good arguments for devolving further control of rail decision- making to PTE’s and local authorities in the North, the merger of services currently operated by the TransPennine Express and Northern franchises is not a pre-requisite for this to occur. Over the past nine years the separation of services by market type has allowed many significant benefits to be realised for customers and taxpayers. It is important that any future franchising model for the North of England is capable of retaining and building upon these improvements.
25 January 2013
REFERENCES i Rail decentralisation: devolving decision‐making on passenger rail services in England p.12; Department for Transport https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/15328/consultation‐responses.pdfInter‐regional ii Seventh Report of Session 2012‐13: Rail 2020, p.22 Transport Select Committee http://www.publications.parliament.uk/pa/cm201213/cmselect/cmtran/329/329.pdf iii The Brown Review of the Rail Franchising Programme https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/49453/cm‐8526.pdf iv Passenger views of Northern and TransPennine rail franchises; p.37 ‐ Passenger Focus http://www.passengerfocus.org.uk/research/publications/passenger‐views‐of‐northern‐and‐transpennine‐rail‐franchises v "Costs and revenues of franchised passenger train operators in the UK" www.rail‐reg.gov.uk/server/show/ConWebDoc.11053
Written Evidence from Gatwick Airport Ltd (RF 12)
1. About Gatwick
1.1 Gatwick Airport Limited (Gatwick) is the UK’s second largest airport and the busiest single-runway airport in the world. It serves more than 200 destinations in 90 countries for around 34 million passengers a year on short- and long-haul services. It is also a major economic driver for the South-East region, generating around 21,000 on-airport jobs and a further 20,000 jobs through related activities. Gatwick is owned by a group of international investment funds, of which Global Infrastructure Partners is the largest shareholder. We are home to the busiest airport rail station in the UK, and proportionally more passengers travel to and from the airport by rail than any other major UK airport.
2. Summary
2.1 Rail travel to and from Gatwick is an important part of the passenger experience. We want Gatwick to offer a wide range of high-quality services. In order to maintain and continue to attract new, direct, high-value routes to and from the UK, improved rail links to Gatwick are crucial.
2.2 Airlines operating scheduled flights mention surface access, and onward connections to their passengers’ final destination, as a priority consideration when choosing the airport at which to locate. However, passengers’ impressions of Gatwick’s rail links lag behind those that serve other airports.
2.3 Improvements could be made to Gatwick’s rail access through a set of clear specifications for the quality and nature of service in the new Thameslink Franchise competition, which was paused until the completion of the Laidlaw and Brown inquiries into the Government’s handling of rail franchise tenders. The new Thameslink franchise holder will operate nearly all of the rail links in and out of the airport from 2015 onwards.
2.4 We support the Brown Review’s recommendations that it is important that the franchising programme should recommence as soon as possible. When this happens, we strongly urge the Government to make the Thameslink ‘super franchise’ a top priority to avoid any further delay. The Government must, as Richard Brown recommends, be very precise with what it expects the franchise holder to provide for the benefits of passengers, yet still allow some flexibility to adapt to changing passenger needs and market conditions.
2.5 To enable this to happen, we support the recommendations that the Department for Transport be sufficiently resourced with appropriate expertise to handle the tender process. This will help avert any subsequent disputes that could cause further delays and help deliver good value for money for passengers and the taxpayer. We support any efforts by the Department to help provide a seamless, reliable and robust tender process.
2.6 We also agree with the Brown Recommendations that the Government must support the continuing major programme of investment in the industry through both the franchise system, the Network Rail capital investment programme and through prioritisation in the National Infrastructure Plan. The on-going Thameslink upgrade programme and timetable changes, and capital developments to the rail infrastructure in the Gatwick area and on the Brighton Mainline will help us achieve our targets to increase our public transport mode share for passengers travelling to and from the airport.
3. Rail Services to and from Gatwick
3.1 Rail travel to and from Gatwick is an essential component of the passenger experience. We want Gatwick to offer a wide range of the highest-quality services. In order to maintain and continue to attract new, high-value routes to and from the UK, improved rail links to Gatwick are vital.
3.2 Our research shows that airlines operating scheduled flights cite surface access, and onward connections to their passengers’ final destination, as one of the major criteria that shape their decision to locate at a given airport.1 In addition, 54% of business passengers place the cost and convenience of reaching their departure airport as the important factor in their decision on where to fly from. 2
3.3 Passengers’ impressions of Gatwick’s rail links, however, lag behind other airports. We are concerned that of 75 rail services recently surveyed nationwide, the Gatwick Express was one of only five that saw a distinct drop in passenger satisfaction. It was one of only four to see a reduction in space available to sit or stand. Only 31% of passengers believe they are receiving a value for money service, which places what should be a premium service in the bottom quartile nationwide3. International comparisons also show that the Gatwick Express is at the bottom of the league table of express rail links – behind Heathrow, Hong Kong, Kuala Lumpur and Stockholm.4
3.4 Dedicated airport services typically have trains designed for air passengers with luggage (step-free access, wide vestibules and aisles and visible baggage racks), and have wide doors and simple passenger communications. Gatwick Express’ Class 442 rolling stock, however, are 25 years-old and not designed for air passengers. They do not cater for air passengers in terms of access and luggage capacity. This is particularly important for passengers with reduced mobility.
3.5 The current franchise holder is responsible for managing the railway station at Gatwick Airport, and the current holder introduced ticket barriers on the concourse in early 2012 (as part of the revenue protection element of the franchise and encouraged to do so by Government) which passengers are required to go through before they access the platforms. Gates also exist at passenger terminating stations such as London Victoria and on the exit route for passengers arriving at Gatwick. These gates create pinch-points where queues can build up. Long queues can also build up at peak times at the ticket machines and ticket desks. We would like to see the new franchise holder undertake to remove the gates and allow on-board ticketing purchasing on the Gatwick Express, and for Government to allow them do so. In the longer-term, we envisage the use of smart technology/ticketing as way of further enhancing the passenger experience.
3.6 The Thameslink franchise is currently on hold following the cancellation of the West Coast Mainline bid. This provides a unique opportunity to improve our rail connections. It must be restarted as soon as possible. The specification for the new franchise must, at the very least, require a non-stop, Express service that is dedicated to running solely between Gatwick and London Victoria. High- quality, easily accessible rolling stock that is suitable for air passengers and their luggage should be used. As a consequence, an improved and guaranteed Express service would enable Gatwick to maximise our value to the local and national economies and ensure that the UK remains open for business in the short term.
3.7 The on-going Thameslink upgrade programme will improve connections to the north of London, with new services to Cambridge and Peterborough. The number of services from Gatwick Airport to central London will also double. These are very welcome improvements.
1 CAA Passenger Survey January-July 2011 2 Research for the CAA (2011) 3 Passenger Focus Annual Rail Passenger Survey (2012) 4 Cushman & Wakefield, European Cities Monitor (December 2010)
3.8 The line that serves Gatwick’s direct rail links into London is important for both air passengers and local commuters. Direct, fast rail links on an already congested Brighton Mainline is vital to improving the rail facilities offered to our air passengers, especially as rail journey numbers are likely to increase. Independently of air passengers, the Office of Rail Regulation has projected that passenger numbers on the already busy mainline that passes through and serves Gatwick could grow by 29% by 2026.
3.9 We are not suggesting that the needs of the airport outweigh those of commuters and other everyday users, or that our needs should be at their expense. Indeed, Gatwick Airport railway station also caters for airport employees and the local community. Also, growth in commuter and air passengers markets on the Brighton Mainline is equally important to the South East economy. We believe both passenger groups can be served through appropriate rolling stock and smart timetabling. We commission leading rail and engineering experts, Arup, to set out in a report how this could be achieved – Annex 1.5
3.10 We welcome Networks Rail plans6 for Control Period 5 (CP5) and Control Period 6 (CP6) which are designed to enable Gatwick Airport to support our target growth of 40% public transport mode share by the time the airport reaches 40 million passengers per annum (mppa) – 45% mode share once the 40% target at 40 mppa has been achieved – and to support the continued growth in peak and off peak travel on the Brighton Mainline. Improvements include:
• An additional platform at Gatwick Airport Station on the fast line of the station which will add extra capacity and improve flows through the station. • The completion of a new platform at Redhill Station to allow a second train each hour to operate between Gatwick and Reading. • New Thameslink timetabling will almost double high-peak capacity between Gatwick and London Bridge station. • Re-signalling in the Three Bridges area
3.11 If Gatwick were to grow to 40 mppa, the airport would add at least £2.05 billion of Gross Value Added (GVA) to London and the South East, and increase from £1.97 billion GVA today. This excludes indirect benefits to businesses or inbound leisure travellers, as well as the substantial direct contribution that local business associated with Gatwick make to the Exchequer.
3.12 For us to grow and effectively use the capacity we currently have available, we must be able to demonstrate to airlines from emerging economies in particular that we can meet the needs of their customers. Our investment in the airport itself has gone a long way towards achieving this. That investment must be complemented by a clear understanding from the Government of the types of rail connections that airports need in order to grow. Appropriately designed and well-managed rail franchises and rail infrastructure upgrades, which the Brown Review recommends, are essential to deliver the connectivity London, the South East and the UK needs.
4. Franchises for Passengers
4.1 Gatwick is committed to delivering the best passenger experience on their journey and for passengers their journey is all about the travel to their final destination. The airline, airport and surface transport access that are offered is a consequence of this desire to travel and they treat each leg (e.g. air, rail) as part of the whole journey, requiring integration and a consistent level of quality. Our aim, therefore,
5 Arup, Supporting UK growth and global market access: that case for high quality services to Gatwick Airport (2012) 6 Network Rail, Industry Strategic Business Plan: England & Wales – Industry’s response to the High Level Output Specification for CP5 (2013)
is that rail services deliver the best possible outcomes for passengers, which would in turn help us achieve all of our passenger commitments.
4.2 We support the Brown Report recommendation that when producing the tender documents for new rail franchise competitions, the Government must be outcomes-focused and place the improvement of the passenger experience at the heart of all future franchise bids. Future bids should be evaluated on a clear set of criteria that will improve the passenger experience over the life of the franchise. Bids should not simply be assessed on the overall premium that the franchise holder proposes to contribute to the Exchequer, but may not be able to deliver. There is a perception that decisions are predominantly taken on this basis and we question whether this is in the national interest, or in the interests of the passengers who will use this service.
4.3 A clear franchise specification would help avoid risky, excessive bids. Indeed, in our conversations with all of the major bidders for the Thameslink franchise, they would like the Government to set specific franchise criteria that all bidders would need to meet to be at least considered for the franchise.
4.4 We support closer monitoring and management of the service provided during the life of the franchise, in particular the Brown Review recommendation that passenger feedback on their experience of using the services should be more closely reflected in an assessment of franchise performance, and remedial action. We think that using National Passenger Survey (NPS) scores would be a positive step of delivering an outcomes-focused rail franchise system. Indeed, the results of the NPA 2012 of 75 rail services nationwide recently surveyed revealed a distinct drop in passenger satisfaction of the Gatwick Express service – one of only five to do so.7
4.5 The Government or an arms-length-body charged with the responsibility must be adequately resourced with sufficient expertise to effectively monitor and manage the franchises. This need not be done in an adversarial way, and we support the Government adopting a partnership approach with each franchise holder to ensure the Government’s objectives for rail and passengers’ expectations are met.
4.6 Gatwick Airport is keen to be an active partner, working with the Government and the new Thameslink Franchise holder, to help ensure our passengers’ needs are met during the life of the franchise. Through our relationships with our stakeholders, we believe we can help the franchise holder to keep up-to-date with passenger needs so they can respond accordingly. We currently operate a Gatwick Airport Transport Forum to enable this partnership approach to the way surface access to and from the airport, including rail, could be improved. Representatives from the local authorities, local business groups, and transport infrastructure and service providers such Transport for London and Network Rail are involved. Working together and in consultation with our partners is central to our operations and to the way we ensure we meet the needs of our passengers.
5. Longer Franchises
5.1 We support the Brown Review’s recommendations to proceed with longer franchises. Due to the size of the new ‘super’ Thameslink franchise, we think this should be a longer franchise of the full 15 years. A longer-franchise will mean that the new franchise holder will have more of an incentive to invest in stations, rolling stock and services, and see a return on their investment.
5.2 We also agree with Richard Brown that having regular review points during a longer term franchise would be useful to ensure franchise specifications are being met and passengers are receiving a quality service. These review periods would enable the Government to utilise information gathered by the National Passenger Survey of
7 Passenger Focus Annual Rail Passenger Survey (2012)
the passenger experience. However, these review periods must not create any unnecessary uncertainty that could deter the vital investment needed over the longer term.
6. Financial Robustness
6.1 Bids for rail franchises, especially longer term franchises, must be based on sound finances to avoid an unhelpful change during the term of the franchise which would be poor value for the taxpayer and potentially disruptive of a high-quality passenger experience.
6.2 To help deliver a financially sound Thameslink Franchise, a dedicated Gatwick Express service would help and should be at the heart of the new franchise specification. Gatwick Express passengers contribute around 40% more revenue (via premium fares) than commuters. This equates to extra revenue of over £27 million each this. This is also has the effect of reducing the subsidy payments to the railways by Government and directly contributes to the Government’s aim of reducing the costs of the railways to the taxpayer.
6.3 However, the quality of the Gatwick Express service has over the years been degraded. On-board ticketing has been discontinued and 25-year old carriages – not designed for air passengers – have replaced new ones. Furthermore, Network Rail have even recommended that the ‘express’ nature of the service be discontinued.
6.4 Air passengers are willing to pay extra for a premium product, with a high value of time, are less sensitive to price changes. Not only would not only result in a loss of rail share, undermining the Government’s strategy for sustainable onward travel, but if the Gatwick Express disappears whereby the premium fares cannot be charged, revenue will be lost requiring more taxpayer subsidy to the rail industry.
29 January 2013 Written evidence from the RMT (RF 13)
Introduction
RMT is the largest of the UK rail unions, representing over 80,000 members, the majority of whom work in the rail industry. We organise members in every grade in every train operating company in England, Wales and Scotland, including open access operators.
Executive summary
• The government’s franchising policy and timetable is in chaos and the Brown Review is concerned only with short term proposals to re-start the stalled tendering process. The Brown review is not only a missed opportunity it is also a whitewash. • The government should provide clear and transparent figures for the cost of the franchising process. • The franchising system, combined with the McNulty proposals and potential dilution of TUPE protections, will further destabilise recruitment and retention of rail staff, as well as industrial relations. • Devolution of rail powers to passenger transport executives would only protect the interests of passenger on the context of a national publicly owned and integrated rail system, otherwise the failures of the de-regulated bus industry risk being repeated on a bigger scale on the railway. • Brown repeats the myths of privatisation and ignores key facts such as the 50% fall in private investment in the railways since 2006 and the fact that private investment makes up a fraction of total investment in rail. Moreover economic growth is responsible for rail passenger increases, not the franchising system introduced by privatisation.
1. Franchising policy and timetable
1.1 If adopted the Brown Review’s support for shorter franchises would be a major u –turn and a departure from the position to date taken on franchise reform by the government and the private TOCs in favour of longer, 15 year franchises. It appears that Brown in not convinced by the major argument for longer franchises namely that they would encourage greater investment from the private TOCs into the rail industry, during the life of the contract, thus requiring a lower subsidy level and achieving better value for money.
1.2 In addition to the three stalled franchises (ICWC, Great Western and Essex Thameside) there are two others (Thameslink and East Coast) due for tendering in 2013 and a further 4 franchises (Transpennine, Greater Anglia, Northern and South Eastern) due in 2014. First’s existing Scotrail franchise, originally due for re-tender in 2014 has been extended to 2015, in light of the ICWC fiasco and the transfer of Southern into the Thameslink franchise to create the TSGN franchise is intended to take place in 2014.
1.3 If we include ICWC the government’s original franchising programme envisaged awarding five franchises in 2013, five in 2014 and four in 2015.The Brown Review recommends staggering franchise competitions so that the DfT is not awarding “any more than 3 to 4 franchises in any one calendar year.”1 The Government have to acknowledge that adopting Browns recommendation will therefore significantly delay their original franchising timetable and there will be a subsequent impact on investment and the supply side of the industry.
1.4 Conversely in the report on the West Coast Main Line debacle, we note that the National Audit Office recommended that the government “…be cautious in shortening existing timetables.”2 Yet the Brown Review calls on the franchising programme to restart ‘as soon as possible.’ This is indicative of the incoherence surrounding rail franchising as the government rushes to restart a flawed and failed policy.
1.5 Brown also recommends that the government’s plans for the three suspended franchise tenders should be published by February. We note that the government has already accepted this recommendation and will announce their broader franchising policy in the spring3.
1.6 RMT believe that since privatisation, the reality of franchising has always been a ‘make and mend’ approach, whereby short term contract extensions and other last minute contractual changes are common, in order to mask the short comings of the franchising system itself. The Brown Review entrenches this chaotic approach to delivering rail passenger as it seeks at all costs to seriously consider alternative to franchising. The Brown review is not only a missed opportunity it is also a whitewash.
2. Cost of franchising 2.1 Significant costs have accrued to the taxpayer as a result of franchising. The Re-building Rail report estimated that each franchise costs a TOC £3-£5m and the DfT around £2.5m for managing the individual franchise process. The overall average cost of a franchise process featuring just three bidders is estimated to be between £11.5m and £17.5m. Start up costs for a franchise was estimated by Transport for London, in evidence to TRANSCOM in 2006, as between £2m-£5m.4 This figure is likely to be considerably higher, given that RPI inflation between January 2006 and December 2012 was 24.5%.
2.2 The government, however, is unwilling to reveal the total cost of the franchising policy, as illustrated in a recent Written Answer.5 This is particularly frustrating given that the
1 Pg. 62 The Brown Review of the Rail Franchising Programme January 2013 2 Pg. 10, Lessons from cancelling the ICWC franchise competition NAO Report HC796, 7th December 2012 3 Hansard 10th January 2013 col. 24WS 4 Pg 20, Rebuilding Rail Transport for Quality of Life, June 2012 5 Hansard 22 Nov 2012, Col. 540W government previously provided information on the cost to the Strategic Rail Authority of the rail franchising process.6
2.3 The Brown Review makes some general comments about the desire to reduce bidding costs for rail companies7 but does not provide any analysis of what those costs are, not only to the bidders but to the Department for Transport. This is a serious weakness in the review and brings into question its findings.
2.4 High levels of public expenditure on franchise contract design and tender save the bidding companies a great deal of time and money. Once again, this highlights the dire need for a comprehensive estimate of the costs of the franchising process.
3. Staff 3.1 Brown’s proposal to shorten the initial term of the franchise with the option of a further extension of up to five years leaves the workforce in a vulnerable and unacceptably insecure position. The government’s current consultation8 on proposed changes to the TUPE process increases this insecurity. If passed, they will weaken statutory protections for terms and conditions of the workforce in the event of a staff transfer which are of course very likely under a rail franchising system that is being reformed to encourage greater competition amongst bidding companies.
3.2 Key amongst the government’s proposals for reforming TUPE is the restriction of protections for employees’ existing terms and conditions. If this is not successfully blocked, this will clearly encourage and enable bidders for rail franchises to put forward projected cuts to terms and conditions, not to mention jobs and pensions, as part of their bids. Indeed, as mentioned previously, the cutting of ‘costs’ will be more important under the reformed franchising system envisaged by Brown and this inevitably means job losses, reduced pay rates, undermining of terms and conditions and the increased use of temporary staff.
3.3 This approach to franchise reform would clearly undermine the industry’s skills base and lead to the sort of recruitment and retention problems we have seen in some parts of the industry, for example on the London Midland franchise.
3.4 We would urge the committee to press the Secretary of State for Transport on his view of the impact of the proposed TUPE reforms on rail franchising policy and recruitment and retention in the industry.
6 Hansard 07 June 2004 col. 4W and Hansard 22 Nov 2005 col. 1859W 7 Pg 21, para 3.4; pg 23, para 3.13 The Brown Review of the Rail Franchising Programme January 2013 8 Proposed changes to TUPE Dept for Business, Innovation & Skills, 17 Jan 2013. Closes 11 Apr 2013 3.5 The Brown Review’s complete failure to address the impact on industrial relations and the taxpayer of indemnification clauses in franchise agreements is a politically significant oversight. These clauses allow TOCs to claim back from the DfT financial losses incurred from industrial action. These clauses have cost the tax payer millions of pounds9 and incentivise employers not to resolve disputes. The practice is unprecedented and does not exist in any other industry where a public body procures private contracts. Brown’s failure to address the affect of this corporate welfare on franchising demonstrates the bias in the report toward rail companies and the policy itself.
3.6 Like other industries, rail needs a stable and unified workforce. The RMT’s submission to the McNulty Review identified that the fragmentation of the industry through privatisation has resulted in a far less effective use of its most important asset – the workforce.
3.7 Perhaps the most significant loss of productivity from fragmenting the workforce has also been well by defined by Professor Jean Shoal:
“…one of the most devastating consequences of the privatisation process was the fragmentation and loss of industry knowledge. Running a railway – making decisions about investment, timetabling, safety, workforce deployment – requires an intimate acquaintance with changing infrastructure conditions, technological possibilities and service requirements throughout the network, that in the case of British Rail was held collectively by its workforce and managers and brought to bear upon decision-making through systems of cooperation and communication at all levels of the industry.
“This organisational knowledge base, never wholly centralised and much of it effectively tacit, was dissipated with the breakup of the industry. Many highly skilled engineers who knew things about the railway network that no one else did lost their jobs; some hired that knowledge back to the industry as private consultants. Habits of information sharing and freely given advice were interrupted by the requirements of commercial confidentiality. Hard-won accumulations of local and specialised knowledge were lost in the shift to an increasingly casualised and individualized workforce.”10
3.8 A direct consequence of this fragmentation has been a worsening of industrial relations. According to a study by Aberdeen and Glasgow Universities, railway industrial relations prior to privatisation were relatively harmonious with only eight strikes taking place between 1979 and 1996. By contrast there are now a number of serious pay disputes every year. Over a longer timeline we know that in the fifty years of national bargaining before privatisation there were only six national railway disputes.
9 Hansard 14 Mar 2005 col. 4W 10 Jean Shoal 2004, Renaissance delayed: New Labour and the Railways 3.9 A root cause of the deterioration in industrial relations has been the development of pay and conditions differentials between employees of the same grade working for different TOCs and between different grades of employee; directly leading to a series of avoidable disputes. The franchising process institutionalises this problem and the Brown Review makes no mention of the impact of franchising on industrial relations. In our view this also compromises the validity of the review’s findings
4. Devolution of franchises
4.1 In the context of a nationally publicly owned and integrated national rail network, we support Passenger Transport Executives (PTEs) having a greater say over passenger rail services in their communities but it must be recognised (and is not by the Brown Review) that this power for PTEs was introduced by British Rail and exercised effectively by those local authorities.
4.2 Beyond procuring and ‘overseeing’ these new local rail franchises, it is difficult to decipher what the Brown Review actually means by devolution. We believe that this lack of clarity risks repeating the disastrous de-regulation of bus services across the UK, outside of London and Northern Ireland. This absence of national control and direction has allowed bus companies to hike fares and cut services for nearly three decades and has led to a long term decline in bus passenger numbers. Only the introduction of publicly subsidised schemes such as the concessionary scheme for pensioners has slowed this decline.11 Devolving franchising to local authority level must not repeat this mistake and RMT opposes this move if it is carried within the context of a privatised rail system which could lead services cut off from national funding and vulnerable to cuts.
4.3 The Brown Review also dodges the issue of powers to Transport Scotland and the Welsh Assembly who are currently required to franchise their passenger rail services event though both authorities have publicly stated they wish to look at alternatives to franchising.
5. Myths of privatisation
5.1 The Brown Review and other advocates of the rail franchising system consistently argue that privatisation has led to the huge growth in passenger numbers since mid-1990s. The Rebuilding Rail report exposes this myth, as well as highlighting the chronic lack of private investment into the rail network since privatization. Genuine at-risk private investment in the railway in 2010-11 is estimated between £100 million – £380 million. In the same year, other sources of income for the railway, public money and passenger revenue, contributed £10.6 billion. Rebuilding Rail concludes that private investment represents 1% of the money that is going into the rail network.12
11 DfT Annual Bus statistics 2011‐12 12 Pg 33 Rebuilding Rail Transport for Quality of Life, June 2012
5.2 In terms of the 80% growth in rail passenger figures over the past 20 years that the Brown Review, ATOC and others with vested interests are keen to attribute to franchising , it is critical to note that economic growth, as expressed by GDP, since the 1990s was consistent, up until the financial crash of 2007-08.13 In our view, this punctures the privateers’ case for grabbing all the credit for the growth in rail passenger numbers. The DFT confirmed in their 2011 future of franchising consultation document that passenger growth was largely due to macro-economic factors. Moreover as Rebuilding Rail points out passenger growth was always inevitable if there was going to be a level of investment two to three times higher than under BR. Neither the government or Brown or the industry had demonstrated that there would not be the same rate of passenger growth under public ownership if BR has enjoyed the same level of investment and as favourable economic conditions.
5.3 The vast majority of private investment in the railways is in new rolling stock. For example, over 70% (£274m) of the £377m invested by the private sector in the rail industry in 2010-11 was spent by rolling stock companies (ROSCOs). This expenditure is technically classified as private but is intrinsically linked to the terms of franchise agreements and underwritten by the government subsidy that makes these franchise contracts attractive to the private sector in the first place.
5.4 An example of the chicanery deployed by TOCs in order to exaggerate and mislead the public over the levels of private sector investment in the rail industry is provided by Virgin’s tenure on the West Coast Main Line. In 2011 Virgin Trains’ media office issued a ‘fact’ sheet saying: ‘Investment in trains by Virgin Trains was £1.2bn for Pendolinos and £1.06bn for Voyager 60s.’ But none of these trains were purchased with money invested by Virgin and none of them are owned by Virgin (indeed the Voyager trains are now operated by Arriva). The Pendolino trains used by Virgin on West Coast Main Line are owned by the ROSCO Angel Trains and the full cost of their purchase was underwritten by public money.
5.5 East Coast v West Coast - The performance of the East Coast Main Line franchise since being taken back into the public sector following the disastrous and short lived tenure of National Express is worthy of comparison with the fiasco on the West Coast Main Line. By any yardstick, the performance of the East Coast Main Line in the public sector has out performed private sector franchisees. Directly Operated Railways which runs the East Coast Mainline on behalf of the Government recently published its report and accounts which clearly demonstrate that public ownership works.
5.6 Turnover amounted to £665.8 million, an increase of £20 million, leaving a profit before tax and service payments to the Department for Transport of £195.7 million, an increase of £13 million. Passenger journeys at East Coast increased by 2.1% and
13 http://www.guardian.co.uk/news/datablog/2009/nov/25/gdp‐uk‐1948‐growth‐economy passenger revenue in the latest year, 2011-12 was 63% higher than in the last year under National Express. Customer satisfaction at East Coast rose by 2% in 2011-12 and the latest punctuality figures were its best since records began in 1999.
5.7 Public vs Private – Although Brown talks of the ‘needs and expectations of passengers’ in the context of franchise reform, rail privatisation has cost passengers more. Since 1995 the average ticket price has increased by 22% in real terms.14 Britain has Europe’s highest commuter fares for both day returns and season tickets (see Table 1). Brown makes no proposals to reform the franchise system in favour of lower fares for passengers.
5.8 Post-privatisation, the railway has become more difficult to use. 35% of train users and 64% of non-users don’t understand the rail ticketing system.15 Again, nothing here from the Brown Review other than the positives of smart ticketing.
5.9 Franchising has put UK rail passengers in the slow lane. Britain has one of the lowest coverage of electrification and high speed rail compared to similar countries in Europe (see table 2 and 3).
5.10 The taxpayer has paid significantly more for rail services since privatisation. The cost of running the railway has more than doubled from £2.4bn during the five year period 1990/91 – 1994/95 to around 5.4bn per year during 2005 – 2010.16 It is estimated that privatisation costs the equivalent of £1.2bn a year compared to public ownership.17
5.11 Punctuality has also gone down since privatisation. Comparing the last 19 years of British Rail with the last 19 years of private train operating companies, British Rail services were nearly 3% more punctual than privately run passenger rail services.18
14 ORR National Rail Trends 1995 – 2010 and associated RMT calculation. 15 DfT statistics 2012 16 McNulty Report 2011 17 Rebuilding Rail Transport for Quality of Life, June 2012 18 GB Transport statistics 1974‐1987 and 1992‐1998; British Rail Board annual report 1988‐89; Booz Allan Hamilton: Report for the Rail Regulator, Railtrack’s Performance in Control Period 1995‐2001; National Year Trends 2001‐02 to 2011‐12. Calculating the punctuality figures quoted in these sources gave the following averages: between 1974 and 1992, 89.7% of British Rail services were recorded as punctual, compared to 87% for privatised TOCs from 1993 to 2012. Table: 1. Average fare costs in the UK compared with other European countries (source Just economics 2011) analysis of data from passenger focus 2009)
(£/km)19
Day return Restricted Season Long LD advance LD advance (DR) DR ticket distance (1st City) (2nd city)
UK 0.26 0.170.14 0.49 0.15 0.19
Germany 0.17 0.17 0.08 0.28 0.13 0.10
Switzerland 0.15 0.14 0.04 0.39 0.18 0.14
Netherlands 0.13 0.12 0.08 0.34 0.20 0.18
Sweden 0.13 0.13 0.06 0.21 0.10 0.08
Italy 0.12 0.110.04 0.22 0.10 0.07
Spain 0.09 0.090.07 0.24 0.16 0.09
France 0.08 0.080.08 0.15 0.06 0.05
Table 2: Electrif ied Railway Lines in Europe (source: Eurostat. Road, rail and navigable inland waterways network).
Country Total length % of total railway Total length of line railway line in kms of electrified line in kms
Belgium 2,955 84.1% 3,513
Netherlands 2,154 74.6% 2,889
Sweden 7,866 71.4% 11,022
Italy 11,714 71.1% 16,469
Bulgaria 2,827 68.2% 4,144
Austria 3,847 61.5% 6,256
Poland 11,924 59% 20,196
Germany (including 19,857 52% 38,206 ex-DDR from 1991)
Finland 3,067 51.8% 5,929
Portugal 1,436 50.6% 2,838
France 15,312 49% 31,233
Slovakia 1,577 43.5% 3,623
Slovenia 503 40.9% 1,228
Romania 3,974 36.8% 10,785
Croatia 985 36.2% 2,722
United Kingdom 5,250 33.2% 15,814
Table 3: High Speed Rail in Europe, Kilometres. (source: Eurostat. Road, rail and navigable inland waterways network).
Country In Operation Under Construction
Belgium 209 0
France 1, 872 234
Germany 1, 285 378
Italy 923 0
The Netherlands 120 0
Spain 1, 604 2,219
Switzerland 35 72
United Kingdom 113 0
29 January 2013
Supplementary written evidence from RMT (RF 13A)
We note that in response to a question during the evidence session on Wednesday 24th April, the Rail Minister Simon Burns told the Transport Select Committee that:
“The West Coast Main Line pays more money in premium to the Government than does the East Coast Main Line.” - Q179, Pg 4 Uncorrected Transcript
According to a parliamentary answer and official figures recorded by the Office of Rail Regulation (see table below), publicly owned ECML under Directly Operated Railways paid the Treasury £411 million between 2009-10 and 2011-12. During the same period, Virgin paid £282 million to the Treasury under its WCML contract. That is a difference of £129m between the respective total premium payments in that period.
Financial year WCML* ECML** 2009-2010 minus £50 million £46 million 2010-2011 £167 million £177 million 2011-2012 £165 million £188 million 2012-2013 Not yet available £191 million Total £282 million £602 million
*WCML figures from ORR National Rail Trends 2009-10 to 2011-12. **ECML figures only include payments made to DfT by Directly Operated Railways, according to the Written Answer 25th April 2013 Col 1067W:
Ian Mearns: To ask the Secretary of State for Transport how much in premium payments has been paid to the Government by National Express and Directly Operated Rail as a result of operating East Coast Main Line rail services since 2007.
Mr McLoughlin: The premium payments are as follows National Express East Coast £ million 2007-08 32 2008-09 185 2009-10 145 2010-11 8
Directly Operated Railways £ million 2009-10 46 2010-11 177 2011-12 188 2012-13 191
As such, we are concerned that the Minister may have misled the Committee in his evidence.
We should also point out to the Committee that we stand by our position, despite the Minister’s response in press coverage of the union’s concerns over the accuracy of his assertion.
“During the last three years the Treasury has received £411million and £450million from the East Coast and West Coast rail franchises.
"This is separate from money the DfT paid to Virgin as part of their franchise agreement. The statement I made is accurate.” Daily Mirror Wednesday 15th May 2013 http://www.mirror.co.uk/news/uk-news/tory-rail-minister-simon-burns-1889811
We recognise the £411m figure in the Minister’s quote for DOR’s ECML premium payments. But the £450m figure cited by the Minister from Virgin for the West Coast franchise does not relate to the ORR figures used in the table above which totals £282m. The Minister’s explanation of this difference, that ‘this is separate from money the DfT paid to Virgin as part of their franchise agreement’ carefully avoids describing the £450m figure as a premium payment.
Therefore, we can only conclude that the Minister misled the committee, as his assertion related specifically to the comparative levels of premium payments: “The West Coast Main Line pays more money in premium to the Government than does the East Coast Main Line.”
This is a fundamental point in the debate over and scrutiny of the Government’s rail franchising policy. It is incumbent upon the Rail Minister to be much clearer when making assertions on this issue and not to use evidence sessions with the Transport Select Committee to blithely assert the superiority of financial returns to the taxpayer from private train operators over public sector operators, particularly when such assertions are false.
In addition, we also remind the Committee that the McNulty Report made proposals for greater transparency over rail industry finances, partly to engender:
“properly informed public debate about the rationale for subsidy levels.” – Section 23.2 pg 355, Rail Value for Money Study May 2011
This proposal was fully endorsed in recommendation 4 of Transcom’s Rail 2020 report of 4th January 2013:
“We fully endorse the call in the McNulty report for more transparency in the finances of the rail industry. Comparisons between routes and franchisees of how and where money is spent will help drive efficiency savings by shining a light on complacent management, waste and profiteering.” Pg 28.
May 2013
Written evidence from the Office of Rail Regulation (RF 14)
TRAIN OPERATING COMPANY (TOC) FRANCHISHING
When we met on 5 March, I explained why we believe that the future of train franchising is critically important to the performance and efficiency of the railway as a whole, and the importance that ORR places on DfT implementing the recommendations of Richard Brown's review in a manner that supports our pursuit of efficiency. I promised to send you a note summarising the issues that we discussed, and which we think outlines a constructive way forward.
The granting of future franchises creates an opportunity to drive significant efficiencies across the whole railway sector, but this depends on franchises being structured and let in a way that allows and incentivises them to work for greater efficiency in partnership with Network Rail. This is in the interest of passengers and taxpayers and is consistent with Government policy as set out in the March Command paper, which called for whole industry working to reduce costs and improve service for customers.
We are bearing down on Network Rail's efficiency, recognising the challenge set by the McNulty Rail Value for Money (RVfM) Study, and will be setting NR a challenging efficiency target for CP5. However the RVfM Study asserted that Network Rail cannot achieve these savings alone and that TOCs have a significant role to play. The RVfM Study stated that, compared to 2008/09, GB rail should aim for a 30% reduction in unit costs by 2018/19. Approximately 30% of these costs (around £1 billion) need to come from TOCs, or from TOCs and Network Rail working together. However, the incentives that TOCs currently have to work together with Network Rail to achieve efficiency savings are weak. For example, the TOCs are held neutral to any changes in track access charges at a Network Rail price control. The network grant of £4bn a year of taxpayer's money is paid to Network Rail. This covers a large part of the costs of the infrastructure that TOCs use. Both of these arrangements mean that TOCs are currently insulated from the true costs of using the network.
We need to incentivise TOCs to behave differently and to work with Network Rail to find efficiencies and manage down the costs that they currently impose on the network. This involves putting the industry on a more commercial footing through a move towards more cost reflective charging, and exposing franchised train operators to more of Network Rail's costs through its charges.
We can, and will ensure the price control arrangements incentivise more commercial behaviour. However, to be successful, change is also needed in the new TOC franchise agreements particularly if these are to be longer. The DfT's re-letting of franchises, is crucial for this. If TOCs are to work with Network Rail to achieve the efficiencies which will reduce the size of the subsidy to Network Rail, this will require: • franchise specifications that are sufficiently flexible, to allow and encourage TOCs to make innovations that result in efficiency savings during the lifetime of a franchise, not only when the franchise is let. This is particularly important if franchises are to be longer.
• To achieve this flexibility a franchise change mechanism is needed to allow for changes to franchises to deal with beneficial changes to specifications during the franchise term. This should be transparent and predictable. There may be a role for independent regulation.
• TOCs to retain the benefits of savings achieved through route-level efficiency benefit sharing (RBES) and alliance arrangements in CP5. This will encourage Network Rail and TOCs to work together to identify further savings by allowing TOCs to keep some of these savings. We believe it is collaboration at the route level that is likely to achieve such savings. The current franchises do not allow such benefit sharing.
• TOCs to have an interest in the cost of the infrastructure that they use so that they are incentivised to help improve its efficiency. This means they should not be held neutral to changes in the access charges they pay (as they are under the current franchises). TOCs should increasingly expect to meet the true costs of the infrastructure that they use (rather than funding in respect of those costs being channelled directly from government to NR, bypassing the commercial relationship between NR and TOCs). Our experience is that where TOCs are exposed to costs, e.g. their use of traction electricity on the network, they act to reduce such costs. To optimise the use of the network, we also need to move towards capacity charging — charging more for the use of the railway where there is greater demand for it. We recognise that moving towards more cost reflective charges for TOCs would need to be implemented in stages so as not to create additional risk for taxpayers through reduction in franchise premiums.
Our preferred method of funding Network Rail is for its income to come for the use of infrastructure from TOCs and other customers. If subsidies for the use of the network continue to be required, these could be — in due course - given directly to TOCs. This would have the advantage of making the government's financial support for rail more transparent and more clearly related to the specific services it is buying.
More cost reflective charges will also send better signals to TOCs on the efficient use of the network and this is crucial in driving further industry cost reductions. Again, we recognise that this change of approach would need to be phased in by DfT. While these are not new issues, the franchising review is a rare opportunity to make changes which could help to drive further efficiencies across the whole industry, and offer real value for money gains across the totality of the rail budget, rather than looking only for improvements from franchising in isolation and ignoring the need for reductions in the size of the Network Grant.
These are the same points that we have been making to DfT ministers and officials, and we hope that they will be able to seize the opportunity for change in franchising decisions in the coming months. We are of course at your disposal if you wish to discuss these matters further with us.
March 2013