Rail 885: Leaked memo to Grant Shapps

The new transport secretary, Grant Shapps, has asked officials to ensure their briefings to him are no longer than two sides of A4. His permanent secretary has duly followed his instructions and produced a short summary of the state of the railways which been sent to Rail magazine in error. We thought it was our duty to share it with our readers.

From: Bernadette Kelly, CB, permanent secretary, Department for Transport

 

To: The Right Honourable Grant Shapps MP, Secretary of State for Transport

 

Subject: The state of the railways

I would like to welcome you to your new post and look forward to working with you. I thought it appropriate that in this first briefing I should cover the railways because you will find that although their modal share of around 10 per cent of passenger mileage is relatively small, they will form a large part of what used to be known as your ‘postbag’.  In this memo, which I hope you will not find too long, I will set out a number of issues that are facing the industry and will make recommendations as to what action, if any, you should be taking.

Please note that we are in the midst of the ‘Williams review’ which was commissioned by your predecessor following the widespread delays caused by the major timetable change in May 2018. While Keith Williams, who is undertaking the review, is independent, it will be published as a government document forming the basis of a White Paper.

Recommendation 1: Call in Mr Williams to ensure you are up to date with his thinking.

 

Network Rail

It might be surprising for you to discover that Network Rail is a state-owned company and that therefore the Labour party’s desire to renationalise the railways had already occurred. Network Rail was forced to be included in the government books more than two years ago after the Office of National Statistics decided that it was, in effect, controlled by ministers. That may tempt you, secretary of state, to be involved in its operations and strategy. At the moment, there is a process by which the government produced a High Level Output Specification, which in English means the broad plans for railway investment in the five year plans called Control Periods. Do not be deterred by the fact that sounds a bit like the way Soviet Russia ran its economy as it is an effective way of government having a say in the early stages of railway planning. The current five year Control Period (CP6 as it is known in the business) has only just started and therefore you are unlikely to be much concerned with the preparation of CP7 which does not begin until March 2024.

My advice would be not to go anywhere near the day to day running of Network Rail and to keep strategic thinking to broad brush ideas. The people who work for Network Rail may at times come across as irritating trainspotter types but by and large they know their stuff and are best left to get on with it.

There is, though, one proviso. Network Rail has become a by-word for overspending. The company quotes very high prices for any work to be done on the network and seems to run up huge costs for routine jobs. Part of this is down to the difficulty of working on a very busy railway with limited access which is mostly at night, but also as a result of Network Rail not having the right skillset to manage projects well. That is changing under the leadership of Andrew Haines, who is also devolving the structure of the organisation, but this will take time before real improvements are made.

Recommendation 2: Keep off the Network Rail grass and make sure that Andrew Haines is given a free hand to bring about change

 Franchising

I’m afraid to report that the franchising process is in a bit of a mess. Indeed, Keith Williams has already decided that it cannot continue in its present form. There are two basic problems. First, the franchising process has become inordinately complicated due to attempts to separate out exogenous factors, such as London employment and GDP growth, and endogenous ones, such as good marketing and improved service by the train operators in calculating premiums or subsidies. Secondly, there is a paucity of bidders and most of the franchises are now in the hands of foreign state-owned railways. There was declining interest because of the complexity and cost of the process anyway with National Express which once controlled seven franchises pulling out but this has been exacerbated by the recent concerns about provision for pension payments. A few services have been created outside of the franchising process and these are known as open access. There are suggestions that these should be expanded but there has long been a fundamental reluctance to allow too many of these because they cannot be allowed to cherrypick the best times and there is a shortage of available paths on most routes.

Recommendation 3: Wait for what Williams comes up with but perhaps nudge him in the direction of management contracts. Do not be tempted to go down the open access route as few routes have any extra capacity and, in any case, this leads to an inefficient allocation of resources. Resolve the pensions issue as a matter of urgency.

 Fares

 The high cost of fares on some services is the biggest source of complaint from passengers. The fares system is incredibly complicated  – I’m afraid, secretary of state, that it would be difficult for me to explain fully the system if I had to remain within your two page limit. Essentially, there are numerous systems overlaid on each other, such as the original fares system devised by British Rail which has the rather odd feature of charging people only an extra £1 for a return fare compared with a single even for very long journeys, various advanced ticket offers from the train operators and regulation on season tickets and off peak returns. Fares for specific routes are set by a particular train operator which can result in the curious system that buying two tickets which split up the route can be much cheaper than a single through fare.

 Recommendation 4: This is another area being examined by Williams and he will struggle to put out anything coherent that is acceptable to the operators. It is probably best for you to leave this process to unravel without your interference. However, unfortunately the fares issue will be raised when the July Retail Price Index figures, on which next January’s increases will be based, are published in August, when there is scant other news and therefore you are likely to be called upon to comment. Note that any promises made to reduce the rate of increase will result in department funds making up the train operators losses if the rises are below the formula on which their contracts are based..

HS2

 The new Prime Minister has give rather mixed messages on this and I would suggest this is another area which you should leave to Number 10. Just say you are supportive and you look forward to the review he has commissioned. It is worth noting that this Department receives a lot of requests from Conservative MPs sceptical about the project.

Recommendation 5: Examine the project in detail and ask for a briefing, warts and all. While there are undoubtedly positive aspects, there are issues, too, notably the project management and the ever rising cost.

 Private investment

 The railway industry has struggled to attract private investment ever since it was privatised, apart from in rolling stock but that, again, is another rather complicated story and I do not have the space to explain it here. Therefore this is a great opportunity for you to show firm intent without much risk. There are a couple of schemes that are waiting ministerial approval such as the Heathrow Southern Railway. The problem is that this will require some guarantees over timetabling from the Department but unfortunately your predecessor got rather ground down in the detail. Given the likely support from the Prime Minister, a bold announcement to give the scheme the go ahead would show that the Department is serious about attracting extra investment for the railways from the private sector.

Recommendation 6: Obtain rapid and thorough briefings on possible private investment schemes and push ahead. This is low risk and high profile.

 Regulatory framework

 This is another area of great complexity which requires reform and is full of anomalies. For example, fines on Network Rail imposed by the Office of Road and Rail merely reduce its capacity to invest and affects rail passengers more than the organisation itself. Safety regulation is split between several bodies and there is undoubted duplication and redundancy. Again, this is an area on which Williams should adjudicate.

Recommendation 7: As a start, learn what these acronyms mean: RSSB, RDG, ORR, RAIB, RIA, RSG, NR,    Your tenure may be too short to worry about this acronym soup but if the government looks like surviving beyond the conference season, I will produce a separate two pager for your perusal. You could, in the style of Jacob Rees-Mogg, recommend to your staff that acronyms be banned from any memoranda intended for your eyes.

 

I have left out, for reasons of space, other considerations, notably the effect of Brexit, electrification and bimode (i.e. trains that can be powered by electricity both from the grid and from on board diesel engines) and the reasons for the recent performance of the railway. I will be happy to supply a second memo on these subjects and any others you may request if that is helpful. In sum, secretary of state, given the uncertain times we are living in, it may be best for you to have a light touch and let matters unfold. The railways are, as I have stressed, very high profile and by getting involved you will undoubtedly inspire a counter reaction which can often be widely reported. After reading this, you may feel that it would have been preferable had another Department become available and that the Prime Minister’s decision to offer you this post may be, how should I put it, double-edged. However, do not despair, but best to leave major decisions to those in the Department with experience of these matters. And if I may say, please take Corporal Jones’s advice – don’t panic.

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