Rail 653: Ineffective regulation allows NR off the hook

There is something deeply depressing about press conferences at the Office of Rail Regulation. OK, one can hardly expect them to be as exciting as watching the latest episode of Neighbours but at least one should be able to leave in a slightly more enlightened state than before. But somehow one is left feeling as empty as watching Forfar play out a goalless draw with Brechin.

 The ORR is, after, all the economic regulator of the industry. It is full of jolly clever people. Or at least they must be jolly clever because the 300 staff share a generous £20m between them – that’s more than £66,500 each and since that includes clerical staff on half of that, there must be quite a few in the six figure bracket.

 So while one does not expect fun and games, somehow one should leave better informed and with a feeling that our interests are being looked after by the wise men and women at the ORR. In the run up to the latest press conference on September 8, a press release had been issued highly critical of Network Rail’s introduction of a new timetable planning system, and therefore the journalists turned up expecting the company was in for a kicking.

 But somehow, it never seems to happen. The press conferences are led by Bill Emery, the chief executive of ORR and he is not a man comfortable either with words or journalists. His words are more minced than the meat in McDonalds and he lapses into jargon with all the ease of a Federer forehand. Every time he seems about to say something critical or definitive, it becomes clouded with subsidiary clauses and ambivalent wording. When he outlines a Network Rail transgression and a journalist then asks whether Network Rail will be fined or action taken, Mr Emery invariably says that the matter will be discussed at the next board meeting or that the ORR is in discussions with Network Rail.

 As my attention wandered when Mr Emery started talking about ‘wheel sensing techniques’ and ‘power supply capability’ and I thought about creeping over to the side table to grab the only solace in these meetings, the (small} cinnamon buns, his dilemma suddenly dawned on me. If Network Rail is perceived to be doing badly, then the fault lies not just with the organisation but also its regulator. Criticise Network Rail too harshly, and the ORR is effectively criticising itself. In the days of Tom Winsor and Railtrack, there was a much greater distance between the regulator and the regulated. Now, it almost seems as if their fates are entwined because, as Mr Winsor never tires of saying, there is no effective sanction and both parties know that. Since Railtrack was effectively nationalised as Network Rail, any semblance of control by the regulator has been lost. Even if Mr Emery were to announce massive fines for Network Rail’s latest transgression over the timetable planning, the only effect would be to take money from the rail industry and hand it to the Treasury, as the press will quickly point out.

 There is, too, a more fundamental problem about ORR’s presentation. Trying to pin down precisely what the organisation is saying is like trying to nail jelly. It is impossible to understand precisely how Network Rail is performing and understand what difference the regulatory regime is making. The answer to any question never seems to enlighten, merely to make things more complicated.

 For example, at the recent press conference it was announed that Network Rail efficiency had improved by 3.6 per cent. However, in fact this disguised the fact that ‘controllable operational expenditure’ had actually been, coincidentally, 3.6 per cent less efficient. Renewals, however, were 7.1 per cent more efficient and maintenance 2.3 per cent, giving an overall weighted figure of a gain in efficiency of 3.6 per cent. Yet, many fewer renewals had been carried out than planned, and it may well have been that Network Rail cherry picked the easier jobs. So I asked how it was possible to calculate the overall efficiency figure and was told that actually it was ‘provisional’. Moreover, it turns out that most of this efficiency gain ‘was largely due to Network Rail exiting Control Period 3 [2004-9] in a worse position that we assumed in our PR08 [Periodic Review 2008] and that Network Rail has not yet implemented its harmonisation of its maintenance employee’s [sic] terms and conditions’. In other words, it was less efficient than it should have been in 2009 which gave it an easier base from which to start and it has not yet sorted out the thorny issue of how to sort out wage differentials between people it employed directly and those it has taken on from contractors.

 This is all part of a wider societal trend. There is a national obsession with targets and trying to determine precise outcomes of processes, and the whole regulatory structure has been put in place to try to do that. But, as the veteran railwayman Ian Walmsley asked recently in Modern Railways magazine, has there ever been a cost benefit assessment on the legal framework that has created such a bureaucratic minefield in the rail industry. For example, while it is very nice to have a few open access trains and they provide an excellent service, there are only around 30 per day compared with 20,000 franchised services. Yet, the legal structure that has been put in place to ensure they can run probably cost – and I guess here – tens of millions of pounds.

 The regulatory structure is used as an alternative to the only way of increasing efficiency, which is to have good managers right through the organisation and effective processes to which they work, something that we all know is absent in Network Rail. Moreover the ORR is hamstrung by the fact that it only regulates Network Rail and not the rest of the industry and therefore is unable to take a holistic view of the industry and, in particular, why costs are so high. Indeed, one of the core reasons for the high costs is the very structure of which ORR is a part, hardly a conclusion it is going to come up with. The McNulty review, which is looking at all aspects of costs is far more likely to come up with answers than the ORR ever will.

  The logic of my argument is that ORR ought to take on a wider remit in order to look at efficiency across the industry. Indeed, the Coalition Government’s agreement says it will ‘turn the rail regulator into a powerful passenger champion’. But everything in ORR’s past points to it being the wrong organisation to do that. Being the safety and economic regulator has no connection with being the passenger champion, which, in any case, already exists: Passenger Focus which, while not setting the world alight, has done well to highlight issues such as the ridiculously complex ticketing system and the limitations of ticket machines.

 Trying to foist the role of passenger champion on to the ORR will be like trying to make John Prescott talk proper English. Perish the thought that some hapless passenger would try to get past the gatekeepers of these £65k per year suits and start demanding questions about their troubles on the railway. As with all manifesto promises about railways, ministers are learning that things are always more complicated in this industry than they first appear. In effect, the government would have to reorganise the whole regulatory structure – as I have said before, the government may suggest that it wants evolution in the rail industry, but the reality of its promises in relation to franchising, regulation, the McNulty review and Network Rail suggest that revolution is in the offing.

The Pender pay-off

So farewell Victoria Pender. Most of you will never have heard of Ms Pender although she worked for eight years at Network Rail in a job title ‘head of corporate and government affairs’. She was, in fact, very much a behind the scenes person, but enjoyed a very close working relationship with Iain Coucher, the departing chief executive. Indeed, I remember seeing them together at the dinner for the Community Rail Awards on a Friday evening in Norwich and thinking that was rather beyond the call of duty for Ms Pender who must have had better things to do. Or perhaps not.

 Ms Pender and Mr Coucher in fact had created a consultancy business before they joined Network Rail and were initially paid through that business. However, what is more extraordinary about Ms Pender is that she was paid a staggering £215,000 per year for a job that was little more than glorified PR. Indeed, when I met the former transport adviser in No 10, he told me that he had never met Ms Pender. So one wonders precisely what ‘government affairs’ Ms Pender dealt with.

 The affair highlights much about the lack of accountability of Network Rail. I was advised of Ms Pender’s imminent departure two months ago by a very well informed source. However, when I –and various other journalists – rang the press office to get the story confirmed, we were all told categorically that no deal had been done and Ms Pender was merely on extended leave as her son was going to university that summer. It seemed a weak reason to seek extra leave, but the press office was adamant that she would be returning. I am not blaming the press officers who were clearly informed this was the case, but this lack of openness at Network Rail is hopefully something that Mr Coucher’s replacement will change.

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