Railways: Franchises
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It is precisely one year and two days since I asked an Unstarred Question in your Lordships’ House on what the Government were doing to provide capacity to meet the increased demand for rail travel. Noble Lords will be relieved to know that I do not intend to repeat the speech that I made then, although many of the arguments that I and others who spoke in that debate put forward apply with equal or even greater force today. Increasing capacity to cope with the demand for rail travel has become an even greater priority, as a number of speakers have already said.
What has moved on is the debate on climate change, particularly since the publication of the Stern report. The case we made a year ago for promoting the use of the railways to combat CO2 emissions has been greatly strengthened and enjoys wider support than it did. Most people accept that the best thing that the railways can do for climate change is to carry more people. On the basis of passenger kilometres, the rail system already generates about 50 per cent less CO2 than cars and 75 per cent less than domestic air transport. In the case of Eurostar—a very special case—a full train uses one-tenth of the carbon emissions of a flight from London to Paris or Brussels.
Over the past 10 years, there has been a greater reduction in carbon intensity from the railways than from cars, and that trend is likely to continue. It results from trains carrying more passengers, combined with the benefits of things such as regenerative braking on electric trains and low emissions from the newest diesel engines. This improvement has been achieved, even though trains are heavier than they used to be, first, because they are predominantly air-conditioned; secondly, because they are stronger to protect from collision damage; and, thirdly, because new trains are fitted with retention tanks for train lavatories. I am sorry that the noble Baroness, Lady Wilcox, is not in her place, because the latter is a subject that she has brought to the attention of your Lordships on a number of occasions.
At the same time, the rail industry continues to improve its environmental performance through the extension of regenerative braking and initiatives such as the use of biofuels. Virgin, for example, claims that its Pendolino trains on the west coast main line return 17 per cent of the electricity that it needs back to the National Grid, which, in a press release that came out this week, Virgin says is,
“enough to provide power for a year to all the houses in a town the size of Motherwell”.
“Carry on flying regardless” is not a credible transport policy, and I hope we hear no more of that from Ministers or, indeed, from anyone else with influence in this area. The one area where there is a growing measure of support and consensus is on the subject of road pricing. I certainly commend the Transport Secretary, Douglas Alexander, for what he said about that and for pinning his colours so firmly to this mast. This is one of those issues where the Government have to be prepared to stand up to the motoring lobby.
I should mention one other significant political development over the past year—the change of policy on the part of the Conservative Party towards the railway system and its structure. It published a paper snappily entitled, Getting Around—Britain's Great Frustration. It contains this sentence:
“We think that an important part of the problem lies in the structure of the industry that exists today. We think, with hindsight, that the complete separation of track and train into separate businesses at the time of privatisation was not right for our railways”.
Words fail me. Those of us who were working in the industry at the time of privatisation—I should declare an interest as a former adviser to the British Railways Board for about 20 years—will remember that the creation of Railtrack was not some casual by-product of a plan for the railways as a whole. It was absolutely central to the Conservative Government’s thinking that because railway managers were so useless at controlling costs, there were huge savings to be made in railway infrastructure, such as cutting down on maintenance, regarding railway stations as shopping arcades—the noble Lord, Lord Chidgey, referred to the fraudulent prospectus on which Railtrack was floated—and so on. That legacy bedevilled the industry for years and only began to be got right by the abolition of Railtrack and the creation of Network Rail.
Before Mr Grayling and his colleagues go too far down this track, I urge him to read the book, written by the late Gerald Fiennes in 1964, I Tried to Run a Railway. It contained the sentence:
“When you reorganise, you bleed”.
It is not helpful for there to be endless press speculation about radical change in the railway structure. It is destabilising for the people working in the industry because they have seen endless reorganisations over the past 25 years, and it bedevils management thinking and investment decisions at a time when the focus should be on delivering a service to passengers rather than on what the next restructuring might be.
Vertical integration could possibly work if we went back to a wholly publicly owned railway, operated by Network Rail, if you like—you might in those circumstances call it British Rail. But I do not think that that is what the Conservative Party is proposing. Maybe the noble Baroness will share her party’s thoughts with us.
Some local train operators could perhaps take responsibility for the tracks they run over. My noble friend Lord Rosser referred to the case that Merseytravel has been putting forward for what it calls full local decision-making for rail services in Liverpool and the surrounding area. How on earth could that work on routes that have many operators, such as the west coast main line or much of the network served by Central Trains? Where would that leave the freight operators?
One thing is certain: you cannot expect train operators to invest in their track, signalling and stations if the length of their franchise is as short as six or seven years. One of the lessons we have learnt from the franchising arrangements so far is that if we are to expect a real improvement in passenger facilities, such as new trains, new ticketing technology, more stations, station refurbishment, experiments on re-opened lines, and so on, the franchises must be longer than we have been used to up to now.
There is a strong possibility that the ORR will refer the leasing of rolling stock for franchised passenger services to the Competition Commission for an investigation under Section 131 of the Enterprise Act 2002. If that goes ahead it will produce some very interesting answers. Rather less comfortable for the Government is the way in which the ORR is questioning the entire franchising structure, as this will throw up some difficult issues for them.
At the heart of this debate is the question of whether it matters more for the franchisees to be able to keep up their premium payments to the Government rather than provide the best possible improvements in passenger service. Over the 10 years of franchise services, the government and PTE grants to the TOCs have fallen by 39 per cent to £1.3 billion. The number of franchises paying a premium has increased from four to seven, while the number receiving a subsidy has fallen from 21 to 14. For the Government and the Treasury that is presumably good news. They are conscious that, despite the move towards premium payments by train operators, the railways as a whole are costing four times as much as they did under British Rail, so anything to get that cost down is worth while. If they can recover money from the TOCs—which effectively means the fare-paying passengers—the policy is working in those terms.
However, it is not as simple as that. We have already heard that some TOCs are in difficulty. The problems at GNER have been widely publicised. Those running First Great Western will have found their ears burning with some of the criticisms they have heard today and in the exchanges on the Question of my noble friend Lord Berkeley in the House on Monday. To cancel services on branch lines through a shortage of rolling stock, as they did a couple of weeks ago, is certainly not acceptable. Nor is it acceptable to run trains so short that they are severely overcrowded.
On overcrowding, there is one point to be made in First Great Western’s defence. There is something crazy about a situation where hiring an extra coach for a local service cannot pay for itself, because even 100 passengers would not produce enough revenue to pay the leasing charges. I am told that even the most modest diesel railcar—the class 153—costs £105,000 a year to lease, and you need a lot of passengers a lot of the time to earn that amount. It makes no sense for First Great Western to send back all its Adelante express diesel trains, or for South West Trains to give up using its popular class 442 electric stock, on the grounds that the leasing charges are too high. This is a clear example of how the pursuit of premium payments by the TOCs is working against the interests of the travelling public.
These are legitimate concerns which the Office of Rail Regulation and the department must address. Against that gloomy picture, however, it is worth drawing attention to some positives about Britain’s railways. We run nearly 20,000 trains every day; 20 per cent more than 10 years ago, and more than any other European country except Germany. Last year, 1.1 billion passengers were carried, more than at any time since 1957 when the network was almost twice as large as it is today. That is also 37.5 per cent higher than 10 years ago.
I hear what noble Lords say about the recent increase in fares, but there is no reason to believe that demand is falling off. Increasing numbers of people prefer to travel by train, because the alternatives are congested roads and parking restrictions for car users, or security nightmares and flight delays at our airports. It was interesting that Virgin claimed that delays on the west coast main line are now significantly less than delays experienced by airline passengers to Edinburgh or Glasgow.
I conclude by paying tribute to my noble friend Lord Davies. A whisper has reached me that he may not be speaking on transport issues in this House for much longer, as he is moving on to—I hope—better things. It has been a privilege to have the opportunity of debating railways and other transport issues with him over the time he has been responsible for them. I certainly wish him well in what he is going to do next.
© Lords Hansard 18 January 2007
My Lords, this is the second occasion on which I have had the good fortune to follow the noble Earl in a debate on railway policy. I remember saying in the previous debate that I agreed with every word the noble Earl had said; I can almost say the same of his speech today. The sentiments he expressed on behalf of the railway industry are certainly shared by a number of Members of this House. I should like to join others in congratulating the noble Lord, Lord Chidgey, on his success in securing this debate today and giving us the opportunity to discuss railway franchising.
It is precisely one year and two days since I asked an Unstarred Question in your Lordships’ House on what the Government were doing to provide capacity to meet the increased demand for rail travel. Noble Lords will be relieved to know that I do not intend to repeat the speech that I made then, although many of the arguments that I and others who spoke in that debate put forward apply with equal or even greater force today. Increasing capacity to cope with the demand for rail travel has become an even greater priority, as a number of speakers have already said.
What has moved on is the debate on climate change, particularly since the publication of the Stern report. The case we made a year ago for promoting the use of the railways to combat CO2 emissions has been greatly strengthened and enjoys wider support than it did. Most people accept that the best thing that the railways can do for climate change is to carry more people. On the basis of passenger kilometres, the rail system already generates about 50 per cent less CO2 than cars and 75 per cent less than domestic air transport. In the case of Eurostar—a very special case—a full train uses one-tenth of the carbon emissions of a flight from London to Paris or Brussels.
Over the past 10 years, there has been a greater reduction in carbon intensity from the railways than from cars, and that trend is likely to continue. It results from trains carrying more passengers, combined with the benefits of things such as regenerative braking on electric trains and low emissions from the newest diesel engines. This improvement has been achieved, even though trains are heavier than they used to be, first, because they are predominantly air-conditioned; secondly, because they are stronger to protect from collision damage; and, thirdly, because new trains are fitted with retention tanks for train lavatories. I am sorry that the noble Baroness, Lady Wilcox, is not in her place, because the latter is a subject that she has brought to the attention of your Lordships on a number of occasions.
At the same time, the rail industry continues to improve its environmental performance through the extension of regenerative braking and initiatives such as the use of biofuels. Virgin, for example, claims that its Pendolino trains on the west coast main line return 17 per cent of the electricity that it needs back to the National Grid, which, in a press release that came out this week, Virgin says is,
“enough to provide power for a year to all the houses in a town the size of Motherwell”.
The other significant development over the past year, referred to by the noble Earl, was the report from Rod Eddington. I think it would be fair to say that reaction to the Eddington report has been mixed. The Association of Train Operating Companies put on a brave face and welcomed it because it confirmed the link between transport infrastructure and economic growth. Transport 2000 liked its support for road pricing but, like me, was deeply disappointed with much of the rest. First, the Eddington report said virtually nothing about creating new rail capacity by building new lines, particularly a north-south route from Scotland to the south of England, referred to by the noble Earl, Lord Glasgow. Secondly, it did not put forward a coherent plan to reduce the growth in demand for air travel, which in my view is an absolutely essential prerequisite if we are to be serious about climate change control; instead, it supported continued airport expansion in the south-east.
“Carry on flying regardless” is not a credible transport policy, and I hope we hear no more of that from Ministers or, indeed, from anyone else with influence in this area. The one area where there is a growing measure of support and consensus is on the subject of road pricing. I certainly commend the Transport Secretary, Douglas Alexander, for what he said about that and for pinning his colours so firmly to this mast. This is one of those issues where the Government have to be prepared to stand up to the motoring lobby.
I should mention one other significant political development over the past year—the change of policy on the part of the Conservative Party towards the railway system and its structure. It published a paper snappily entitled, Getting Around—Britain's Great Frustration. It contains this sentence:
“We think that an important part of the problem lies in the structure of the industry that exists today. We think, with hindsight, that the complete separation of track and train into separate businesses at the time of privatisation was not right for our railways”.
Words fail me. Those of us who were working in the industry at the time of privatisation—I should declare an interest as a former adviser to the British Railways Board for about 20 years—will remember that the creation of Railtrack was not some casual by-product of a plan for the railways as a whole. It was absolutely central to the Conservative Government’s thinking that because railway managers were so useless at controlling costs, there were huge savings to be made in railway infrastructure, such as cutting down on maintenance, regarding railway stations as shopping arcades—the noble Lord, Lord Chidgey, referred to the fraudulent prospectus on which Railtrack was floated—and so on. That legacy bedevilled the industry for years and only began to be got right by the abolition of Railtrack and the creation of Network Rail.
Before Mr Grayling and his colleagues go too far down this track, I urge him to read the book, written by the late Gerald Fiennes in 1964, I Tried to Run a Railway. It contained the sentence:
“When you reorganise, you bleed”.
It is not helpful for there to be endless press speculation about radical change in the railway structure. It is destabilising for the people working in the industry because they have seen endless reorganisations over the past 25 years, and it bedevils management thinking and investment decisions at a time when the focus should be on delivering a service to passengers rather than on what the next restructuring might be.
Vertical integration could possibly work if we went back to a wholly publicly owned railway, operated by Network Rail, if you like—you might in those circumstances call it British Rail. But I do not think that that is what the Conservative Party is proposing. Maybe the noble Baroness will share her party’s thoughts with us.
Some local train operators could perhaps take responsibility for the tracks they run over. My noble friend Lord Rosser referred to the case that Merseytravel has been putting forward for what it calls full local decision-making for rail services in Liverpool and the surrounding area. How on earth could that work on routes that have many operators, such as the west coast main line or much of the network served by Central Trains? Where would that leave the freight operators?
One thing is certain: you cannot expect train operators to invest in their track, signalling and stations if the length of their franchise is as short as six or seven years. One of the lessons we have learnt from the franchising arrangements so far is that if we are to expect a real improvement in passenger facilities, such as new trains, new ticketing technology, more stations, station refurbishment, experiments on re-opened lines, and so on, the franchises must be longer than we have been used to up to now.
A further advantage of granting longer franchises is that it would encourage the TOCs to own rather than lease their rolling stock. That would be a way of tackling the problem of the excess profits now being made by the rolling stock leasing companies.
I understand that the Department for Transport reckons that the ROSCOs are making excess profits of £100 million a year. The Office of Rail Regulation puts the figure at £175 million—equivalent, according to a Department for Transport spokesman quoted by the estimable Roger Ford in January's Modern Railways,
“an annual eight per cent increase on all season tickets”,
and,
“around £2 billion over the lifetime of the train leases in question."
I understand that the Department for Transport reckons that the ROSCOs are making excess profits of £100 million a year. The Office of Rail Regulation puts the figure at £175 million—equivalent, according to a Department for Transport spokesman quoted by the estimable Roger Ford in January's Modern Railways,
“an annual eight per cent increase on all season tickets”,
and,
“around £2 billion over the lifetime of the train leases in question."
There is a strong possibility that the ORR will refer the leasing of rolling stock for franchised passenger services to the Competition Commission for an investigation under Section 131 of the Enterprise Act 2002. If that goes ahead it will produce some very interesting answers. Rather less comfortable for the Government is the way in which the ORR is questioning the entire franchising structure, as this will throw up some difficult issues for them.
At the heart of this debate is the question of whether it matters more for the franchisees to be able to keep up their premium payments to the Government rather than provide the best possible improvements in passenger service. Over the 10 years of franchise services, the government and PTE grants to the TOCs have fallen by 39 per cent to £1.3 billion. The number of franchises paying a premium has increased from four to seven, while the number receiving a subsidy has fallen from 21 to 14. For the Government and the Treasury that is presumably good news. They are conscious that, despite the move towards premium payments by train operators, the railways as a whole are costing four times as much as they did under British Rail, so anything to get that cost down is worth while. If they can recover money from the TOCs—which effectively means the fare-paying passengers—the policy is working in those terms.
However, it is not as simple as that. We have already heard that some TOCs are in difficulty. The problems at GNER have been widely publicised. Those running First Great Western will have found their ears burning with some of the criticisms they have heard today and in the exchanges on the Question of my noble friend Lord Berkeley in the House on Monday. To cancel services on branch lines through a shortage of rolling stock, as they did a couple of weeks ago, is certainly not acceptable. Nor is it acceptable to run trains so short that they are severely overcrowded.
On overcrowding, there is one point to be made in First Great Western’s defence. There is something crazy about a situation where hiring an extra coach for a local service cannot pay for itself, because even 100 passengers would not produce enough revenue to pay the leasing charges. I am told that even the most modest diesel railcar—the class 153—costs £105,000 a year to lease, and you need a lot of passengers a lot of the time to earn that amount. It makes no sense for First Great Western to send back all its Adelante express diesel trains, or for South West Trains to give up using its popular class 442 electric stock, on the grounds that the leasing charges are too high. This is a clear example of how the pursuit of premium payments by the TOCs is working against the interests of the travelling public.
These are legitimate concerns which the Office of Rail Regulation and the department must address. Against that gloomy picture, however, it is worth drawing attention to some positives about Britain’s railways. We run nearly 20,000 trains every day; 20 per cent more than 10 years ago, and more than any other European country except Germany. Last year, 1.1 billion passengers were carried, more than at any time since 1957 when the network was almost twice as large as it is today. That is also 37.5 per cent higher than 10 years ago.
I hear what noble Lords say about the recent increase in fares, but there is no reason to believe that demand is falling off. Increasing numbers of people prefer to travel by train, because the alternatives are congested roads and parking restrictions for car users, or security nightmares and flight delays at our airports. It was interesting that Virgin claimed that delays on the west coast main line are now significantly less than delays experienced by airline passengers to Edinburgh or Glasgow.
I conclude by paying tribute to my noble friend Lord Davies. A whisper has reached me that he may not be speaking on transport issues in this House for much longer, as he is moving on to—I hope—better things. It has been a privilege to have the opportunity of debating railways and other transport issues with him over the time he has been responsible for them. I certainly wish him well in what he is going to do next.
© Lords Hansard 18 January 2007