Railways: , 1998-2005

Standard Note: SN/BT/1344 Last updated: 31 March 2010

Author: Louise Butcher Section Business and Transport

This Note describes the setting up of the Strategic Rail Authority (SRA), the background to it, its functions and powers as set out in the Transport Act 2000 and its abolition in 2005. The SRA provided overall strategic direction for Britain's railways; was responsible for consumer protection; the development of rail freight and administering freight grants; steering forward investment projects; and letting and managing the passenger rail franchises. Its responsibilities have since been taken over by the and .

Briefings on other rail issues can be found on the Railways topical page of the Parliament website.

Contents

1 Rail privatisation 2

2 ‘Shadow’ SRA, 1998-2001 2

3 Responsibilities and powers of the SRA, 2001-05 4 3.1 Purpose, strategy and duties 4 3.2 Ministerial directions 5 3.3 Strategic plans 6 3.4 Financial arrangements and funding of the rail industry 8 3.5 Fares regulation 10 3.6 Passenger franchising 11 3.7 Network Rail 13

4 End of the SRA, 2005 13

This information is provided to Members of Parliament in support of their parliamentary duties and is not intended to address the specific circumstances of any particular individual. It should not be relied upon as being up to date; the law or policies may have changed since it was last updated; and it should not be relied upon as legal or professional advice or as a substitute for it. A suitably qualified professional should be consulted if specific advice or information is required.

This information is provided subject to our general terms and conditions which are available online or may be provided on request in hard copy. Authors are available to discuss the content of this briefing with Members and their staff, but not with the general public. 1 Rail privatisation The provided the legal framework for the privatisation of (BR) and the introduction of a new structure for the rail industry.1 The legislation separated the responsibility for infrastructure and operations. BR was divided into on the one hand (responsible for the infrastructure, i.e. the track, stations and depots), and a residual operating company to run all the other services until they were sold or franchised.

The core of the Conservative Government's proposals was the greater involvement of the private sector in the running of the railways through the sale of BR's freight and parcels businesses and the progressive contracting out of the management of passenger services by a new franchising authority, the Office of Passenger Rail Franchising (OPRAF). Private sector operators would provide all passenger services either acting as franchisees or as independent train operators. Government subsidy would be payable via the Franchising Director to franchisees in respect of socially necessary services that might not otherwise be provided. The aim was to enable the huge investment needs of the railway industry to be met, as far as possible, by the private sector and to encourage the transformation of the rail system from an operations-led business to a customer-led one.

The responsibility for a large amount of decision taking in the industry was transferred from the Secretary of State to the two statutory officers, the and the Franchising Director. BR was split into approximately 100 companies, most of which were sold to the private sector. The passenger services were divided into 25 separate units and franchised to the private sector for periods of between seven and fifteen years. Other parts of the business including the freight operations and the rolling stock companies, were also sold to the private sector.

The principal changes were brought into effect on 1 April 1994 while Railtrack became a separate Government-owned company and was sold to the private sector in May 1996. The process of selling BR subsidiaries and awarding the first round of franchises to run the train operating companies (TOCs) that provide passenger services was completed by April 1997.

2 ‘Shadow’ SRA, 1998-2001 Following privatisation there was a great deal of criticism of the performance and reliability of the TOCs, of Railtrack and the amount it was investing in the infrastructure and in the safety regime. The Labour Government that took office in 1997 was particularly concerned about whether the Regulator had sufficient powers to deal with the private sector companies who ran the railways and about the supervision of public funds. In order to remedy that, Labour’s 1997 election manifesto stated its intention to “establish a new rail authority, combining functions currently carried out by the rail franchiser and the Department of Transport, to provide a clear, coherent and strategic programme for the development of the railways so that passenger expectations are met”. 2 In May 1997 the Government began a review of rail regulation. In July 1998 the then Deputy Prime Minister and Secretary of State for the Department for the Environment, Transport and the Regions (DETR), , published a transport White Paper. This stated that the rail industry needed an element of stability and certainty if it was to plan its activities effectively.3

1 further information on rail privatisation is provided in HC Library standard note SN/BT/1157, available on the Parliament website 2 Labour Party, New Labour because Britain deserves better, 1997, p29 3 DETR, A new deal for transport: better for everyone, Cm 3950, July 1998, para 4.22

2 In its response to an Environment, Transport and Regional Affairs Select Committee report in July 1998 the Government set out its concerns in more detail. Particularly, the Government was concerned that there was “no focus within the privatised industry for long term strategic planning”; that the Franchising Director's remit was “too narrowly focused on the passenger railway”; that too many key policy decisions on the future of the rail industry lay in the hands of a statutorily independent regulator; that the sanctions available to the regulatory authorities were ‘unwieldy’; and that investment was not sufficiently prioritised. In addition to these structural problems, the Government considered that the performance of some of the TOCs was unacceptable and that too many trains were being cancelled or running late. The Government's review of regulation concluded that the arrangements for network benefits needed to be changed, so that rail users' interests were protected and integrated transport was promoted. The last major area of concern was that too little was being done to promote rail freight.4

The Government proposed setting up a Strategic Rail Authority (SRA) to address these problems, asserting that this would provide the rail industry with the strategic leadership lacking since privatisation and the fragmentation of the sector. It would ensure the railways were run in the public interest, would promote their use and would ensure they were properly integrated with other forms of transport. The SRA would have a general duty to:

...formulate, and keep under review, a strategy for the operation and development of railways in Britain. That strategy will need to reflect the plans, objectives and needs of those who operate and use the railway; and just as importantly the needs of travellers and freight customers yet to be wooed from the car and the lorry. We will ask the SRA to develop targets for both the passenger and freight industry.5

The SRA would tell the TOCs what services and network benefits the Government wanted to buy. It would ensure that the railway was properly integrated with other forms of transport and that the railway system was run as a network, not merely a collection of different businesses, particularly when franchises were re-let or re-negotiated. It would also ensure that the plans of freight operators were taken into account in the planning of the network as a whole.

As Parliamentary time was not immediately available to introduce the necessary primary legislation Mr Prescott announced in September 1998 that he would set up a ‘shadow’ authority (sSRA).6 Legislation was initially introduced in the Railways Bill 1998-99, which had its Second Reading in the House of Commons on 19 July 1999.7 The Bill was consequently referred to the ETRA Committee for consideration8 but it ran out of time in the 1998-99 session of Parliament. Similar (though not identical) provisions were introduced in the following session, in the Transport Bill 1999-2000.

Part IV of the Transport Act 2000 gave statutory backing from 1 February 2001 to the sSRA set up in April 1999. It transferred the functions, rights and liabilities of the Franchising Director and the residual functions, rights and liabilities of the

4 The government's response to the environment, transport and regional affairs committee's report on the proposed strategic rail authority and rail regulation, Cm 4024, July 1998, paras 6-11; responding to: ETRA Committee, The proposed strategic rail authority and rail regulation (third report of session 1997-98), HC 286, 18 March 1998 5 op cit., The government's response to the environment, transport and regional affairs committee's report on the proposed strategic rail authority and rail regulation, para 25 6 DETR press notice, “Prescott announces sweeping measures on the railways”, 30 September 1998 7 HC Deb 19 July 1999, cc789-893 8 ETRA Committee, Railways Bill (twenty-first report of session 1998-99), HC 827, 4 November 1999

3 (including responsibility for the ) to the SRA. It set out its objectives and functions and established its structure and procedures and the terms and conditions of its members. The legislation also transferred the ORR’s responsibilities for consumer protection to the SRA and the responsibility for railway closures to the Secretary of State. It strengthened the ORR’s powers over investment and enforcement. Sir was the first Chairman of the SRA, succeeded by Richard Bowker in November 2001.

3 Responsibilities and powers of the SRA, 2001-05 The purpose of the SRA was to provide a “clear, coherent and strategic programme for the development of the railways”. It was to be responsible for setting more demanding performance standards and securing increased passenger benefits through the awarding of new franchises or the renegotiation of new contracts; it would ensure that the railway was operated as a “coherent network, not merely a collection of different franchises”; and it would assess the capacity of the network, assess investment needs and, in the event of conflicting aspirations, identify priorities.9

Sections 201-204 of the Transport Act 2000 established the structure and procedures of the SRA and the terms and conditions for its members. The SRA was a statutory body; it was a non-departmental public body and its staff were not civil servants – one effect of this was that money received by it did not automatically go to the consolidated fund. It had between eight and 15 Board members appointed by the Secretary of State (two after consultation with Scottish Ministers and the National Assembly for ). The Authority appointed its own Chief Executive. The SRA was funded by the Secretary of State and was also allowed to borrow from both the Secretary of State and others. The Authority's borrowing limit was initially £3 billion. The Secretary of State could, after consultation with the Treasury, direct the Authority to pay him monies received or any surplus that it may have.

3.1 Purpose, strategy and duties The Railways Act 1993 required the Franchising Director to exercise his statutory functions so as to fulfil objectives given to him by the Secretary of State and to ensure that his expenditure represented value for money in achieving these objectives. The SRA was also subject to instructions and guidance laid down by Ministers but, unlike the Franchising Director, it also had specific objectives in primary legislation.

Section 205 of the Transport Act 2000 set out the primary purposes of the Authority as follows:

(a) to promote the use of the railway network for the carriage of passengers and goods,

(b) to secure the development of the railway network, and

(c) to contribute to the development of an integrated system of transport of passengers and goods.

Section 207 of the 2000 Act set out various factors that the SRA should consider while exercising its functions. The SRA was allowed to use its judgement as to their relative importance in the circumstances. The factors were broadly aligned with the duties of the ORR as set out in section 4 of the1993 Act. They were as follows:

9 op cit., A new deal for transport, paras 3.26 and 4.14

4 (a) to protect the interests of users of railway services,

(b) to contribute to the achievement of sustainable development,

(c) to promote efficiency and economy on the part of persons providing railway services,

(d) to promote measures designed to facilitate the making by passengers of journeys which involve the use of the services of more than one passenger service operator (including, in particular, arrangements for the issue and use of through tickets),

(e) to impose on the operators of railway services the minimum restrictions which are consistent with the performance of the Authority’s functions, and

(f) to enable persons providing railway services to plan the future of their businesses with a reasonable degree of assurance.

The SRA also had to have regard to:

(a) the need to protect all persons from dangers arising from the operation of railways (including, in particular, by taking into account any advice given by the Health and Safety Executive),

(b) the interests of persons who are disabled, and

(c) the effect on the environment of activities connected with the provision of railway services.

The SRA had a duty to ensure that any payments made by it were such as it reasonably considered would further its purposes efficiently and economically. This duty referred to all payments made by the Authority, whether by way of grant, under a Franchise Agreement, or under any other agreements made to secure the provision, improvement etc. of services. This provision was based on the similar duty laid on the Franchising Director in section 5 of the 1993 Act and was often referred to as the ‘value for money’ duty; the Secretary of State was not able to override it.

3.2 Ministerial directions The Secretary of State was permitted to give directions and guidance as to how the SRA should carry out its functions, bearing in mind the need to balance the various considerations. The Secretary of State could also direct it not to exercise a function without first consulting him or obtaining his consent under section 207(5) of the 2000 Act. Examples given of the types of topics that might be covered were the next round of franchising or the requirement to pay freight grants in accordance with EU rules. Any directions and guidance from the Secretary of State had to be published. The original guidance was given by Mr Prescott in September 1999.10

Mr Prescott’s successor as Secretary of State for Transport, , published further directions and guidance in April 2002. These differed from their predecessor in various ways and included:

• the imposition of more direct ministerial (and therefore civil service) control of SRA activity than had hitherto existed;

10 DETR, Instructions and guidance for the Franchising Director, 29 September 1999

5 • a requirement for the SRA to ensure that its strategies, including its overall strategy, were consistent with the resources available to it;

• a requirement to obtain express permission of the Secretary of State before beginning franchise competitions;

• a requirement to take fully into account the needs of passengers with disabilities when awarding new franchises; and

• a requirement to inform future bidders for replacement franchises of the precise terms of the franchise for which they were bidding.11

Some commentators were concerned at the SRA's ability to raise the private sector finance investment assumed by the 10 year transport plan12 in view of the financial difficulties of Railtrack. Others were concerned at the emphasis on the key rail targets in the 10 year plan and the Government agreed to add "achieving substantial lasting improvements in performance" as a primary objective equal to that of delivering the key rail targets. The Government's Public Service Agreement (PSA) target for rail, set in the 2004 Transport White Paper was to "improve punctuality and reliability of rail services to at least 85 per cent by 2006, with further improvements by 2008".13

The final set of directions and guidance were issued in October 2004. These set out the SRA’s two primary objectives, until such a time as it was disbanded, as:

• to work within its statutory framework to continue to contribute to achieving the 10 Year Plan objectives and the PSA target for rail; and

• to co-operate with - and provide assistance to - the Secretary of State and other relevant stakeholders in managing the transition to the new rail industry structure envisaged by the [rail] White Paper, so as to help to secure the long-term development of the rail network.14

3.3 Strategic plans Section 206 of the 2000 Act stated that the Authority was to formulate ‘strategies’ in order to carry out its purposes. It had to consult with Scottish Ministers, the National Assembly for Wales and others before formulating its strategy, and the Secretary of State could give directions and guidance. No detail was given about these strategies in the legislation except that one must "relate to services in various parts of Great Britain for facilitating the carriage of passengers or goods by rail by way of the Channel Tunnel".

On 14 January 2002 the SRA published its first strategic plan, setting out the strategic priorities for Britain's railways over the following ten years, following Railtrack going into administration and the appointment of Richard Bowker as Chairman.15 The SRA's aims for the following ten years were to restore stability in the industry, allowing performance to improve; deliver growth to meet the 10 Year Plan core targets; and to “build a pipeline of

11 DfT, Directions and guidance to the Strategic Rail Authority, April 2002 12 DfT, Transport 2010: the ten year plan, July 2000 13 DfT, The future of transport, Cm6234, July 2004, annex B, p135; this PSA no longer exists, a different indicator for rail was introduced following the 2007 Comprehensive Spending Review, after the SRA had been abolished 14 DfT, Directions and guidance to the Strategic Rail Authority, October 2004, para 6.1 15 HC Deb 14 January 2002, cc30-53

6 projects” at different stages of development against which contractors and suppliers could plan. In the short term, the aim was to provide “a period of stability, allowing the railway companies and their workforces to get the basics right again, leading to improvement in safety, performance and customer satisfaction, before any major change is contemplated”. The medium term goal was to build the projects needed to deliver the core targets set out in the 10 Year Plan whilst the longer term was for schemes which were unlikely to find funding in the medium term.16

The Strategy acknowledged that costs had risen in, for example, train operations and maintenance of the infrastructure and that there were likely to be further cost increases that the SRA had not taken into account (particularly safety-related costs). It also indicated that of the original £29 billion in public expenditure allocated to rail in the 10 year plan, £26 billion (90 per cent) was already fully committed on annual subsidies (£14.3 billion over ten years) and capital projects already under way (£11.7 billion).17

The plan won some praise for, amongst other things, emphasising the importance of getting the management of the industry right; on a period of confidence and stability; and on making existing services work reliably before embarking on major enhancements of the network. The industry welcomed the plan as it wanted a list of projects, funding and timescales to plan against. Most criticism centred on the many schemes that had to be left out as they could not be started before 2010 without more Government money and there were complaints that too much was being spent on the south east.18

The second strategic plan was published in February 2003. This concluded that the industry was now focused on reducing costs and driving up performance in an environment where the levels of funding presumed in the 2002 plan would not be forthcoming. The SRA was of the view that forced efficiencies would make the rail industry more efficient and therefore “well placed” to put the case for more rail investment prior to the 2004 Comprehensive Spending Review. In the short term, the plan concluded that works were progressing:

In advance of that review, significant short-term increases in spending on renewal of the network mean that the volume and value of work being planned by Network Rail will continue at record levels. Work is continuing to go on throughout the country to renew track and signalling, and maintain stations and structures, delivering improving safety and quality right across Britain’s rail network.19

No plan was published for 2004, though there were press reports that a draft plan had been “suppressed”:

The government has suppressed a rail industry document that paints an alarming picture of a ramshackle network which will fail to show any major improvement unless the industry receives billions of pounds extra from taxpayers ... the annual report by the Strategic Rail Authority (SRA), leaked to The Independent, has been "binned". The strategy paper, due for publication this month, confirms that the Government's 10-year plan for the network is in tatters.

Senior sources in the industry and within Whitehall say the document has been scrapped after its fourth rewrite because it would have put considerable pressure on Gordon Brown to release more money for enhancements to the network.

16 SRA, The strategic plan 2002, February 2002, p56 17 ibid., pp24-25 18 “Business and the industry ponder scheme’s omissions”, Financial Times, 15 January 2002 19 SRA, The strategic plan 2003, January 2003, p17

7 The report shows the target for increasing the number of passengers using trains and the amount of freight on the network will be undershot by a massive margin unless Tony Blair authorises a huge increase in investment. Under current funding arrangements, the number of passengers will increase by 24 per cent in the decade to 2010 rather than the 50 per cent envisaged and the amount of freight carried will rise by 55 per cent not the 80 per cent planned.

All of the £64bn earmarked in the 10-year plan announced in 2000 to create a system "fit for the 21st century" will be soaked up simply in maintaining the present network, the document reveals. The gap between income - including state subsidy - and expenditure has risen by £500m to £2bn in 20003-2004, the report says.

The 130-page submission, which will make depressing reading for the millions of commuters who have to endure crowded trains every day, went through four drafts before it was decided that it was unfit for publication. The Independent has a copy of the fourth and final version, entitled "A railway that works for customers", dated 16 December.

[...]

A spokesman for the department said ministers had not seen the draft. He continued: "This document is in the bin. There will be a new document in July which will take into account the comprehensive spending review”.20

3.4 Financial arrangements and funding of the rail industry The SRA was funded by the Government. It was also allowed to borrow from both the Secretary of State and others. The Authority's borrowing limit was £3 billion, although this could be increased by order of the Secretary of State.

After privatisation the Government largely funded the railway industry via grants paid by the SRA to the TOCs who in turn purchased services from other industry parties, including Railtrack and the rolling stock leasing companies. The SRA had the power to give grants, loans, or guarantees for any purpose relating to any railway or railway services under section 211 of the 2000 Act; payments for franchised services were paid under section 215. The Explanatory Notes to the Act set out the scope of the power:

Section 211 would enable the Authority, for example, to:

• provide grants to local authorities (Passenger Transport Authorities (“PTAs”)) in support of railway services provided or funded by them (including such services provided under franchise agreements to which the relevant Passenger Transport Executive (“PTE”) is a party);

• fund the integration of light rapid transport systems with the heavy rail network and;

• make grants or enter into contracts in respect of the enhancement of railway infrastructure which is not commercially viable but in the public interest.

Grants to PTAs would provide a substitute for the special grant which the Secretary of State makes to them each year, under the general grant power in section 88B of the Local Government Act 1988. The power in section 211 is in addition to the Secretary of State’s power in section 157 to make such payments.

20 “Britain’s chaotic railways – the report the Government tried to suppress”, The Independent, 14 January 2004

8 The power in section 211 relates to anything connected with railways as a mode of transport. It relates, for example, to anything connected with the type of railway services which are provided (such as networks, carriages, stations), the types of railway assets involved (such as network and trains) and facilities connected with railway travel (such as parking outside stations).

After 2001 the SRA was able to make payments direct to Railtrack. In its response to a 1999 report of the Environment, Transport and Regional Affairs Committee the Government announced that it favoured a direct relationship between the SRA and Railtrack, which "would reflect the long-term, strategic significance of enhancements to railway infrastructure" and "give the SRA more direct control over the specification and delivery of publicly-funded enhancements".21 The powers to achieve this were included in the 2000 Act.

As Railtrack's inability to enhance the network became plain, Sir Alastair Morton envisaged involving organisations other than Railtrack in the development of the network, possibly through Special Purpose Vehicles (SPVs).22 The IPPR think tank, in a study partly funded by the SRA, had concluded that Railtrack lacked the project management skills and the ability to raise enough money to enhance the network and that some of the money would be better spent through SPVs.23 The SRA wanted Railtrack to be split into a day-to-day operation and maintenance company and a separate subsidiary to undertake the major enhancements. Sir Alastair was prepared for the two to continue within a single group but wanted major projects to be separately financed and managed to completion.24

By spring 2001 it was obvious that Railtrack had financial problems. On 2 April 2001 a ‘statement of principle’ agreement was signed between Railtrack and the Government, and a framework was agreed for a more clearly defined partnership with the SRA. At the same time it was announced that the Government had agreed to bring forward funding from beyond 2006.25 Under the agreement, Railtrack was to focus on its core business - operation, maintenance and renewal of the network - and responsibility of major enhancements would rest with third parties, including the SRA.26

Further information on Railtrack and its financial problems can be found in HC Library standard note SN/BT/1224, available on the Parliament website.

The SRA also provided support to local authorities, including the Passenger Transport Authorities (PTAs) in the big metropolitan areas, for railway services provided or funded by them. Rail services were provided under individual franchise agreements, signed by the Executive of the relevant PTA and the Franchising Director jointly with the TOCs. The amount of grant that each authority received was broadly equal to the sum of the payments

21 Government response to the report on integrated transport white paper (third special report of session 1998- 99) HC 708, 12 July 1999; original report: ETRA Committee, Integrated transport white paper (ninth report of session 1998-99), HC 32, 31 March 1999 22 SPVs are basically joint venture investment companies – they could include train operators, contractors and bankers, see: “Winsor weighs rail upgrade options”, New Civil Engineer, 16 March 2000 23 David Nissen and Tim James for IPPR, Expanding the rail network in Britain, July 2000 24 Sir Alastair Morton speech to the Rail Passengers Council Conference 2000, 6 December 2000 25 HC Deb 2 April 2001, c8W 26 Railtrack and the SRA set up a Joint Enhancement Committee under the chairmanship of the SRA and were discussing a procurement and funding framework for project development, that should feed into the SRA's strategic plan (then expected in November 2001) when the company went into administration

9 made by the PTA for rail passenger services plus the administrative costs incurred in connection with those services, less any estimated revenue from rail services.27

The SRA also set up two special funds for the industry:

• the Rail Passenger Partnership Fund was announced in 1998 and was made available through OPRAF from April 1999.28 It was designed to encourage and support innovative proposals at the regional and local level that developed rail use. Support was targeted at proposals that offered the greatest opportunities for modal shift and integration with other modes. New stations, new passenger lines, new train services, extended car parks, improved station facilities and cycle parking were all provided through the scheme.

• the Rail Performance Fund was first outlined in the 2002 Strategic Plan. £400 million was made available over ten years and details of the criteria for bidding for the grant were published in May 1999. The scheme provided funding for performance improvement projects that could not be commercially funded by the private sector and third parties alone.29

Information on freight grants can be found in HC Library standard note SN/BT/151, available on the Parliament website.

3.5 Fares regulation Until 2004 the Franchising Director and then the SRA regulated fares by imposing a ‘cap’ on increases over the price that was charged in June 1995. From 1 January 1996, increases in capped fares were not permitted to be more than the RPI from the 1995 base price. For the four years from 1 January 1999, the price cap was RPI minus one, extended to 1 January 2004.

Regulated fares included:

• all standard class weekly season tickets for journeys where a weekly season ticket existed in June 1995;

• all ‘saver’ tickets for journeys where a saver ticket existed in June 1995; and

• an unrestricted standard class return, for each journey where no saver fare existed in June 1995 (typically journeys under 50 miles, or journeys within the old Network South East area);

The rules were slightly different for commuter fares. For commuter services, and certain other large urban areas, a wider range of fares, including most tickets purchased by commuters, were regulated. Thus in London, Edinburgh and Cardiff, where there is significant commuting by rail, all the key commuter fares (standard season tickets, standard singles and unrestricted standard returns) were regulated. In these markets price control operated by reference to ‘tariff baskets’ containing all relevant fares and weighted broadly according to the income the TOC derived from each. The weighted average fare in each tariff

27 more information on PTAs and their successor bodies and local authority powers regarding transport generally can be found in HC Library standard note SN/BT/4315 28 DETR press notice, “£1.8 billion for roads, rail and local transport”, 20 July 1998 29 op cit., The strategic plan 2002, pp31-34; and: SRA press notice, “£400 Million for Local Rail Projects”, 7 December 2001

10 basket was be capped by the same RPI-related formula, although individual fares within a basket could be increased by up to two per cent above the increase in the RPI in any one year.

In the London there was also an adjustment to the fares cap providing additional increases and decreases according to the quality of service provided by the TOC. This was known as the Fares Incentive Adjustment Payment (FIAP) regime. Where performance was better than the target set down in the franchise agreement, fares could rise by up to two per cent above inflation. Where performance had been worse fares were capped at up to two per cent below inflation. The rationale was that passengers should both be compensated for poor performance and pay for improved services through fares.

In 2003 the SRA conducted a major fares review. The outcome of that review was that after 1 January 2004 fares would be regulated fares in two categories, known as ‘protected fares’ and ‘commuter fares’. Protected fares would include saver returns, standard returns and weekly season tickets, while commuter fares would include season tickets to, from and within the London Travelcard zones; standard singles and returns for journeys wholly within the London Travelcard zones; and standard singles and standard returns to any station in the Travelcard zones from a defined London suburban area, roughly 35-50 miles from London.30 The FIAP arrangement was also abolished.31

Further information on rail fares can be found in HC Library standard note SN/BT/1904, available on the Parliament website.

3.6 Passenger franchising Following privatisation the rail network was broken up into 25 train operating units, largely along lines set out by BR’s final reorganisation. These were taken over by 13 companies. The first franchises were awarded by OPRAF for periods between five and 15 years, the majority for seven years expiring in 2003-04.

Transfer of responsibility for franchising from OPRAF to the sSRA coincided with the appointment of Sir Alastair Morton as its Chairman. In 1999 Sir Alastair and Mike Grant started the re-franchising process. They set out the conditions that would influence their views on replacing or extending franchises and invited proposals on the first group of franchises to expire. Their aim was to secure long term franchises that provided high levels of performance for passengers. They wanted to see proposals that would provide additional capacity as soon as possible, and in exchange for this, were prepared to consider franchise terms which would last between 10 and 20 years.32 During 20-year franchises franchisees would invest in infrastructure upgrades through Special Purpose Vehicles (SPV). was the only train operator to put this into effect. It was granted a 20-year franchise and has upgraded the infrastructure on the Chiltern line.

Franchise replacement initially focused on the short term franchises (seven years or less) and was launched in a series of tranches. A new franchise map was published on 20 June 2000 and details were given in an sSRA briefing note.33 The sSRA was not convinced that the group of services put together by BR back in the early 1990s – which formed the basis of

30 SRA, Fares review conclusions, June 2003, appendix C 31 ibid., sections 5.3-5.4 32 sSRA press notice, “Building a better railway: franchising director invites replacement franchise proposals for Chiltern, Connex South Central and Great North Eastern Franchises”, 24 November 1999 33 sSRA press notice, “Sir Alastair Morton sets out Map for UK Rail”, 20 June 2000

11 the first franchises – were necessarily the right ones with which to go forward with the new replacement franchises. The re-franchising process came to a halt following problems with Railtrack and the safety issues that followed the Hatfield accident.

Decisions on the new franchises were very slow in coming and in July 2001 the then Secretary of State for Transport, Stephen Byers, published a draft policy statement on the passenger rail franchises at the same time as draft ministerial directions, in part as a response to the lack of progress in franchise replacement.34 It appeared that the Department took the view that the franchise replacement programme took little account of the public funds available, placed the order of replacement and the geography of new franchises entirely at the discretion of the SRA, and set such vague criteria for bids as to encourage expensive and fanciful proposals.35 The Secretary of State envisaged no further competitions for 20-year replacement franchises and ordered the SRA to seek passenger benefits from the renegotiations of existing franchises or by means of two year extensions.

A final version of the policy statement, Passenger Rail Franchising, was published in December 2001 and the SRA announced its revised programme the same day. The SRA wanted a simpler structure, with a reduced number of operators at the London termini, half the number of passenger train franchises overall and long term franchises shortened to 15 rather than 20 years.36 The final version of the ministerial directions was published in April 2002.37

A radical and more detailed document was published by the SRA in November 2002.38 It set out a new form of partnership, with the franchisees focused on delivering reliable performance, meeting passenger needs and containing short- and long-term costs. Generally, the SRA envisaged franchise lengths of between five and eight years, although their duration would be dependent on the characteristics of, and risks associated with, the individual franchises. If franchisees met key performance indicators (KPIs) and delivered on their plans, there was a provision for franchise extension.

The document described the experience of franchises to date, summarised the SRA’s analysis of the successes and failures and described the changes it wished to make and how they would be affected. It set out what it was that the SRA wanted from those providing passenger train services under franchise agreements and defined a new form of public private partnership (PPP) with the franchisees focused on delivering reliable performance through agreed standards covering such factors as punctuality, cleanliness and station quality. The SRA would set an acceptable level of profit for each operator with a proportion of the excess taken by the Government. These were more like service contracts than the original franchising idea which assumed the TOCs would take on revenue risk for the life of the franchise.39

During the period when the SRA was managing the franchising process, one of the main problems it faced was the fallout from Railtrack’s failure to deliver the improved infrastructure on which Virgin’s franchise contract depended. This meant that both Virgin franchises had to be rescued. The SRA decided to run these and other failed franchises as management

34 DTLR, Consultation on Passenger rail franchising - Draft policy statement, 16 July 2001 35 "All change at the DTLR", Transport Law & Policy, August 2001 36 SRA press notice, “New Franchising Plan To Bring Forward Benefits For Passengers”, 19 December 2001 37 DfT, Directions and Guidance to the Strategic Rail Authority, 11 April 2002 38 SRA, Franchising policy statement, November 2002; also: HC Deb 6 November 2002, cc319-320W 39 ibid., pp4-5 & p9

12 contracts.40 According to the Transport Select Committee, “nearly a third of the franchises were no longer expected to function in the entrepreneurial, risk-taking way that was one of the fundamental justifications for private sector involvement in running train services but simply to function as fee paid agents of the SRA”.41 During this period the SRA also had powers to enforce Franchise Agreements, pay bonuses and impose penalties in order to incentivise train operators.

Further information on passenger franchising can be found in HC Library standard note SN/BT/1343, available on the Parliament website.

3.7 Network Rail The SRA had a close relationship with Railtrack’s successor company Network Rail, sponsoring the latter’s bid for the former.42 Its role included agreeing the appointment of directors and legal and financial advisers to support the chairman, and the approval of the business plan and associated financing arrangements for the bid.

Before it was wound up and its responsibilities transferred to the Department for Transport, the SRA was responsible for setting the framework within which Network Rail operates. It had a non-executive director on the Board and its accounts included Network Rail’s assets and liabilities. The SRA guaranteed its loan agreement and provided standby support facilities. In for the period to 31 March 2003 the accounts of Network Rail Ltd were consolidated into those of the SRA. Compliance with UK Accounting Standards led to the inclusion of Network Rail as a quasi-subsidiary of the SRA. This was described more fully in note 1 to the accounts. 43

Further information on Network Rail can be found in HC Library standard note SN/BT/2129, available on the Parliament website.

4 End of the SRA, 2005 The SRA was set up in 2000 to provide leadership for the rail industry but it lacked the power to bring together the various elements of the industry. It did have some successes. For example, it helped to get a grip on major projects which were running out of control, such as the West Coast Main Line route modernisation project; it developed and implemented a strategy to upgrade the electricity supply for rail services south of the Thames; it began the process of reforming the franchising regime; and it promoted better use of the network through its Route Utilisation Strategies (RUS). The SRA also developed a stronger regional focus, working to promote community rail partnerships and to promote joint working between the different parts of the industry and to drive up performance.44

The problems in the rail industry, however, turned out to be greater than realised in 2000 – there was the aftermath of the Hatfield accident; increasing infrastructure costs; Railtrack’s entry into administration; and the subsequent transfer of its responsibilities to Network Rail. Consequently, the ORR played a more pivotal role during these years and the SRA found itself in an increasingly difficult position. A leadership model based on influence and persuasion was not strong enough.

40 this meant that the SRA assumed the revenue risk 41 Transport Committee, The future of the railway (seventh report of 2003-04), HC 145, March 2004, para 123 42 COI press notice, "SRA assumes sponsorship of CLG bid for Railtrack plc", 17 December 2001 43 NAO, Strategic Rail Authority Account 2002-03, HC 1009, 6 February 2004 44 SRA press notice, “Britain’s railway ‘rehabilitated’”, 15 July 2004

13 The Government’s rail White Paper, published in July 2004, proposed that the SRA’s strategic and financial responsibilities would pass to the Department for Transport, as would its responsibility for awarding the passenger franchises. The Secretary of State would take responsibility for setting the national-level strategic outputs for the railway industry, in terms of capacity and performance. Operational matters would remain the clear responsibility of the industry. The SRA’s role in monitoring the performance of the train companies and drawing up timetables would be taken over by Network Rail.45

The legislation to abolish the SRA and transfer its powers and responsibilities was included in the Railways Bill 2004-05. At Second Reading, the then Secretary of State said:

First, clause 1 provides for the winding-up of the Strategic Rail Authority and will enable the Secretary of State, accountable to Parliament, to take charge of setting the railway strategy. That means that the SRA's strategic responsibilities and financial obligations will pass to the Secretary of State, although, in some cases, strategic responsibilities will also pass to the devolved Administrations. It also means that the Secretary of State and the devolved Administrations will take over some of the SRA's role, particularly that of awarding train company franchises. In order to put those changes into effect, it will be necessary for some staff to transfer from the SRA to the Department for Transport, or in some cases to Network Rail or the Office of Rail Regulation … Let us make one thing clear. Ministers will not be involved in evaluation and discussions in relation to the award of contracts. Of course they have to sign them off, as we did anyway with the SRA. When the SRA went through the contract process, of course it had to come back to the Secretary of State to sign off because there are huge financial implications.46

The then Opposition Spokesman for Transport, Tim Yeo, was scathing about the SRA:

The Secretary of State would have been a great deal more convincing this afternoon if he had recognised publicly even for an instant that the Strategic Rail Authority was an utter and total failure. It turned out to have no strategy, no railway and no authority. Five years ago the Deputy Prime Minister said:

"The Strategic Rail Authority will put railways at the centre of an integrated transport system".

I wonder how that ties in with the decision of the Strategic Rail Authority to end the dedicated Gatwick express. I thought the Gatwick express was quite a good example of integrated transport, so that an international traveller, coming off an overnight flight, is at least guaranteed a seat. But the SRA, the body which the Deputy Prime Minister himself said would put

"railways at the centre of an integrated transport system"

is proposing to put an end to the Gatwick express, so that international air travellers will come off an overnight flight and have to stand all the way to London because some commuter has got their seat, having got on the train at Hayward's Heath.

The quotation from the Deputy Prime Minister continued:

"with proper public accountability and investment, putting the passenger's interest at the top of the agenda in a long-term strategic framework with the focus on a plan for growth."—[Official Report, 20 December 1999; Vol. 341, c. 539.]

45 DfT, The future of rail, Cm 6233, July 2004 46 HC Deb 6 December 2004, cc921-922

14 In 2001, Labour's election manifesto stated that the Strategic Rail Authority would provide a clear, coherent and strategic programme for the development of the railways so that passenger expectations are met. Just two years ago the Department for Transport's own review of the 10-year transport plan said that the SRA would provide

"the firm leadership envisaged for it, that of providing strategic direction and funding for the rail industry."

Today the Secretary of State is consigning the Strategic Rail Authority to the dustbin. Predictably, its failure has not led to a single ministerial resignation, even though £250 million of taxpayers' money has been wasted. 47

Section 1 and Schedule 1 of the abolished the SRA and transferred its powers to the relevant bodies. The SRA was abolished as of 8 June 2005.48

47 ibid., cc931-932 48 Railways Act 2005 (Commencement No. 1) Order 2005 (SI 2005/1444)

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