Rail 689: Can rail delivery group deliver?

The Rail Delivery Group was the key pan-industry organisations spun out of last year’s McNulty report. Its members are the bosses of the train operating owning groups, together with a couple of senior representatives from Network Rail including its chief executive, Sir David Higgins, along with several other key industry personnel. Sir Roy McNulty, to his credit, attends which suggests an ongoing interest in ensuring his study is taken seriously.

The group is chaired by Tim O’Toole, once the boss of London Underground who left to spend more time in his native America but was brought back to these shores to head FirstGroup. He is a personable and skilled manager who as an experienced railwayman – having worked on both sides of the Atlantic – commands widespread respect in the industry. However, despite such an excellent choice as chairman – his arm, I suspect, shows signs of having been twisted very hard to take on what is an unpaid role – it is easy to dismiss this initiative. We have, after all, been here before with countless injunctions for the industry to work better together, ensure incentives are aligned and so on. Yet, as the past 15 years have shown, the structure of the industry makes it very hard to coordinate such initiatives given that the contracts which govern the relationship between the different players in the railways were deliberately set up to be confrontational. One company’s compensation is another’s penalty.

So, like many others, I greeted the creation of the Rail Delivery Group with some scepticism and fundamental doubts about whether it could achieve anything. Certainly, reading through the minutes of the first half dozen meetings (available online at www.raildelivery.org) there is nothing to fire the imagination. They are minimalist and uncontroversial in the extreme although, interestingly, there was a spark of anger in response to the decision by the Office of Rail Regulation to make the provision of passenger information a condition of operators’ licence on the basis that it would increase costs.

On the whole, though, it’s almost as if the members of the group are deliberately trying to damp down expectations. Consequently, the minutes of the meeting are dull to the point of being a cure for insomnia. That may be the right response, given the aforementioned scepticism, but it masks the fact that the Rail Delivery Group is the main game in town and therefore is worthy of attention. Its terms of reference include the co-ordination of other pan-industry groups such as the National Task Force (created after Hatfield to restore performance) and others relating to planning and technical matters.

Therefore the Group is at the centre of the various initiatives that resulted from McNulty and the change in government in 2010. There is a lot to play for. While the rail industry is enjoying a fantastic level of investment, the decisions over the next Network Rail Control Period (CP5, the five year investment plan for 2014-9) are being made. The assumption is that large efficiency savings amounting to at least £1bn per year will need to be made. The difficulty of achieving this is well illustrated by the ORR’s very clear statement of the financial situation of the industry which has just been published (GB Rail Industry Financial Information 2010/11) which shows that subsidy remains historically high at £4bn. Getting that figure down is a priority for ministers and raising rail fares is no longer seen as the easy option, given that it has become a far more politically sensitive issue.

We are therefore at a very interesting, indeed crucial, moment in the rail industry. Senior people I have talked to since New Year’s Day are in no doubt about this. And the watchword is leadership. The abolition of the Strategic Rail Authority was a ridiculous piece of bureaucratic vandalism. There is no doubt that civil servants are not equipped to make long term decisions on the railway. You only have to look at the debacle of the IEP – the new Intercity trains – and numerous other fiascos to understand that. But the mistakes of the SRA must not be repeated. Under the leadership of Richard Bowker, it became a bloated organisation, employing more than 500 people and coachloads of consultants and spent far too much time battling with the Rail Regulator’s office, then run by Tom Winsor. It lost the support of the industry becoming alienated from the very people it was supposed to support and set off on an agendas of aggrandisement.

At the moment, the Rail Delivery Group is a rather fragile voluntary organisation with reliant on the goodwill of its members. Already, noticeably, Dean Finch of National Express is not turning up to the meetings suggesting a lack of commitment on the part of a company that once had more franchises than any other.  Behind the scenes, therefore the members of the Group know that they have to produce. Moreover, they have to behave themselves. Network Rail is going through a massive period of change with power being devolved to its routes (which are, too, its roots) and the operators preparing to bid for something like 70 per cent of the network over the next couple of years. The government is about to produce its long-awaited Command Paper on the structure of Network Rail and set out its proposals for franchising. If ever there was a time when heads could be banged together, this is it. Whether the Rail Deliver Group can deliver is another question. The ultimate aim must be a permanent body with teeth, that will eventually be able to take over the Department for Transport’s planning and strategic functions, as well as co-ordinating the industry.

Subsidy and fares – still a mystery

Over the years, the standard response from the industry to explain why fares are higher in the UK than in Europe is to say that their railways receive more subsidy than ours. They were at it again last month when the annual fares rise was imposed. When the Campaign for Better Transport publicised research on fares across Europe, showing Britain’s were the highest, the Association of Train Operating Companies issued its standard response: ‘In many other countries, the state chooses to subsidise the railways more heavily than in Britain. In this country, the long-standing government approach to sustain investment in the railways is to cut the contribution from taxpayers and increase the share paid by passengers.’

In fact, looking at subsidies across Europe suggests that the idea of British governments being more parsimonious about supporting their railways is no longer as axiomatic as it once was. Up to date figures are not available, but looking at data for 2007 suggests that while Holland and Italy subsidised their trains more than the UK, France and Germany were below us. Since then the situation has improved considerably in the UK as ridership figures have risen and subsidy been reduced, but nevertheless the key point is that the UK is not in what the Americans call ‘a completely different ball park’ especially as other European countries have also experienced growth.

In truth such cross border comparisons are extremely difficult to carry out accurately. The various railways collate their statistics in different ways and what one country’s subsidy is another’s operating expense. However, they do provide a broad guide and it is clear that using the standard excuse of Britain’s railways being less subsidised than those on the Continent no longer holds water.

Sir Robert Horton

I was saddened to learn of the death of Sir Robert Horton, the first chairman of Railtrack, the first chairman of Railtrack. He was in person a charming and engaging man, who, rare in the rail industry, actually liked journalists and talking to them. Personally, I got on with him very well, but nevertheless he was responsible for the biggest mistake of the privatisation process, the sale of Railtrack as a conventional plc with shares sold to ordinary people through the stock exchange. His reasons were honourable. He wanted Railtrack to be independent of government so it would not be at the whim of ministerial decisions and the annual funding round. He battled hard to achieve this, persuading ministers that Railtrack must be sold off, rather than, as originally envisaged in the initial plan for the privatised railway, kept in the public sector at least until the following election (that, of course, might have left us with the spectacle of John Prescott and Tony Blair at loggerheads over the potential sale of the company!)

However, it was a mistake to consider that a company which was effectively always dependent on government subsidy could ever be a genuinely free entity. Rather than ministerial whim, it was therefore at the mercy of market sentiment, which, as the recent crisis has shown is an even riskier fate. Much of the most damaging effects of privatisation and fragmentation sprung from that mistake. Sir Robert was, therefore, wrong, but in the nicest possible way.

  • interesting information.. I think that when government organizations keep subsidy decreased (or cut it off) there are great opportunities for increased income not neccessarilly from taxes. Cutting subsidy off implies a monopoly in railway delivery groups field. Opportunities of increasing the cost for consumers open up but not in tax form. When we come to subsidy, a part of the income is definatelly from taxes. The bigger the subsidy level the bigger the non-governmental organizations’ taxes. So balance is achieved. 

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