Rail 493: Review couples too much caution with too little clarity

So what was it all about? Tom Winsor didn’t want it, Richard Bowker has been bumped off by it and the government seems pretty lukewarm about it.

The rail review is far from being the longterm solution to the structure of the railways promised at the outset. Instead, it seems like work in progress, a few thoughts on how to make things vaguely better but with a total absence of strategy or coherence, and indeed a complete lack of consideration for the basic question of what are the railways for and why should they be funded by taxpayers.

There is an awful lot of detail missing from the White Paper which makes it difficult to assess its ultimate impact, and, indeed, rail industry leaders are being encouraged to contribute to the continued debate as the details are being developed. However, the reasoning behind the decisions made in the report gives an insight into the government’s motives in launching and implementing the review.

And it ain’t a pretty sight. The overall impression of the document is of a government vaguely thinking aloud without much clarity and with a lot of caution. Despite the ponderous nature of the strategy document, significant changes are afoot even if Alistair Darling isn’t entirely clear why he is making them or where he thinks they are going to lead the industry. Indeed, the industry must prepare itself, as mentioned before in this column, for a period of upheaval and change. But what is so singularly lacking is either a sense of direction or purpose for the industry.

The review identifies some of the failings of the privatised industry but the crucial question is whether the proposed solutions will remedy these problems.TheWhite Paper says that the “attempt to create a commercial market relationship between the train and track companies failed.” Moreover, the lack of a direct relationship between the industry and its primary funder, the government, “led to distorted and inefficient incentives between the different parts of the industry.”

Costs, it says, have increased because of “the complex commercial and bureaucratic relationships, the lack of clarity over responsibilities and the misaligned incentives between each part of the industry.”

The new structure – as revealed in this column in RAIL 490 – is an attempt to turn Network Rail into the main point of contact between government and the railways, given that the Strategic RailAuthority is to be cut off in its infancy. NR, we are told in an interesting phrase, is a private sector company working in the public interest. The train operators’ relationship with NR will be governed by a new Network Code, yet to be specified, and there will be a ‘binding arrangement’ [why is that not called a contract?] between government and NR which will enable the government to act as an informed client ‘on behalf of both passengers and taxpayers’.How this will actually work and how it will solve the problems inherent in the structure of the rail industry is unclear.

The agenda of the review was always to cut costs and improve the PPM (the public performance measure). Moreover, it was constrained by a number of parameters: the contracts with the private sector could not be interfered with; the Treasury would not take NR’s debt back on its books; and, of course, the railways were not to be renationalised. So, rather than simply summarising, the new structure, let’s look at the problems these boundaries havemade it impossible to address and the opportunities missed this time round.

Take the performance regime. The White Paper points out that some train operators have been making most of their profits out of the compensation fromNR under the regime than running trains. An earlier suggestion of doing away with the whole system has been dropped and instead the performance regime “which has not delivered improved performance, will be simplified to reduce bureaucracy whilst still ensuring train companies are compensated in the event of under-performance fromNR.”

But how can this be done? The two aims seem irreconcilable. Sure, you can do away, as the White Paper suggested, with counting short delays but the fundamental issue still remains that the scheme does not appear to work and that the bureaucrats will still have to be employed to do the administration.

A similar issue is the ORCATS system of allocating ticket revenue between train operators on the basis of the number of seats they offer rather than actual bums on those seats. There was some suggestion in the earlier draft that this would be simplified or changed but the White Paper does not mention it, presumably because it has now been placed in the ‘too difficult’ category.Again, it is by no means an ideal system, which was created in the days of BR when flows between operators were wooden dollars, but now train operators, notably Virgin CrossCountry, have played the system to maximise their revenue. However, any substantial reform would be very complicated and could probably only be done after the number of franchises has been reduced.

While on the question of fares, theWhite Paper dodges the issue entirely and does not even mention them in a seven-strong list of what passengers value about the railway, which includes ‘trains not being overcrowded’ and ‘personal security’.Well, chaps, here’s news for you: many people care far more about cheap fares than any of these issues.

As expected, the review places a lot of emphasis on giving more power to the Passenger Transport Executives to decide what rail services they should run and, indeed, to pay for them. This devolution is, of course, a double-edged sword. In briefings, ministers pointed to the table on page 84 of theWhite Paper which showed that every journey undertaken in a PTE area costs £2.36 in subsidy. The implication is clearly that these cost toomuch andPTEs, when given a set pot of money,may well withdraw support for some of them. The finances only look so bad, however, because of the changes made at privatisation where costs were arbitrarily allocated around the network and thePTEs made to pay rental charges for trains which had been written off by BR, and devolved decision-making will mean that consistent service across the country will be entirely by luck rather than judgement.

Moreover, branch lines – now called community railways – are to be protected and possibly given the right to opt out of the system through microfranchises. So, quite busy railway services by commuters may be cut while lines in rural areas, used often by very small numbers and which receive equally heavy but unquantified subsidies, are to be retained. Where is the logic?

The one unequivocal piece of good news in the review is to try to integrate rail and other transport in London, a long-overdue reform. Yet, the most fundamental change of the review is, of course, the abolition of the SRA and the assumption by the Department for Transport of most of its powers. In a way, this belies the government’s position on ruling out renationalisation. In many ways, the government will have far more direct control over the railways than in the days of BR. And remember, in the leaked document sent to me, it was made clear that the new structure had to be flexible enough to ensure NR could be taken back on the government’s books if that proved necessary for some reason.

The key issue of vertical integration is dodged because of the existing contracts, and the review says that whilemany people support it, there are insuperable difficulties. It trots out the canard about several types of users on the same tracks – yet the Victorians managed to sort that one out even without having a regulator. And it suggests that having different train companies bidding for public subsidy may reduce costs – true, but the process is expensive and whether its advantages outweigh the negatives is certainly unproven.My frequent refrain of ‘what is franchising for?’ has not really been answered.

Finally, against vertical integration, it suggests that breaking up NR would risk reducing economies of scale. Again, possibly true, but there is an obvious answer. Just give up and recreate a National Rail agency. The more that issues of structure are considered, the more that this emerges as the only viable solution, with, of course, more private sector involvement than under the days of BR. Indeed, the review takes us half the way there with the strengthening ofNR.

The continued fragmentation of the network will continue to damage rail.Let me give an example from left field, rather than trotting out all the old cases.One of the most irritating things about train journeys is the inability to get a continuous signal on the mobile (sure, some people don’t want to hear them at all, but there should be quiet carriages on all trains).Now, in a rational world, a strong and powerful rail body would negotiate withmobile phone companies to providemasts and feeders in tunnels throughout the network.The company would be able to boast of unrivalled coverage while the railways would be able to become genuine mobile offices.But in the current structure, it is impossible to bring about such a deal.

No-one would invent this model if they were starting with a blank sheet of paper, and now the upheaval and uncertainty – without any hope of the fundamental problems of the railway being sorted out – begin. Let the farce continue…

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