Insider

Williams deflects call for return to failed organisational structures

Seven Pillars of (rail) Wisdom.

It is right that Keith Williams should seek wider stakeholder opinion about a postfranchising rail structure, which includes a call for interested parties to submit written evidence by January 16.

A good starting point in assembling evidence is to look at the current general duties of the Secretary of State for Transport and the Rail Regulator (contained in the 1993 Railways Act), and judge elements that should change (if any) as a result of experience over a 25-year passage of time.

There have been subsequent Acts of Parliament in 2000 and 2005 that first created a Strategic Rail Authority and then abolished it in favour of a Rail Management Group at the Department for Transport, together with the powers necessary for the devolved Scottish Parliament and Welsh Government. These changes did not alter the basic presumptions in the 1993 Act, which have continued to be applied with various degrees of enthusiasm.

The general duties below could be seen as the equivalent of ‘Seven Pillars of Wisdom’ applied to passenger and ‘goods’ traffic. It is unlikely the industry will benefit from any abolition of these goals, given the transformation in demand that has taken place as a result of the framework.

To protect the interests of users of railway services.

To promote the use of the railway network for the carriage of passengers and goods, and the development of the railway network - to the greatest extent economically practicable.

To promote efficiency and economy on the part of persons providing railway services.

To promote competition in the provision of railway services.

To promote measures designed to facilitate the making by passengers of journeys that involve the use of the services of more than one passenger service operator.

To impose on the operators of railway services the minimum restrictions which are consistent with the stated provisions.

To enable persons providing railway services to plan the future of their businesses with a reasonable degree of assurance.

On the first point, the result was the creation of a Passenger Service Requirement that prevented any withdrawal of services and provided timetable guarantees such as the provision of first and last trains.

This was a significant development - previously BR had been required to evaluate providing bus services on many routes as an alternative to infrastructure renewals. As a result, bus substitution proposals were submitted at varying times between 1982 and 1989 - and these included some significant loss of connectivity with service withdrawals across the country.

The concept of controlled fares was also established to protect passengers (particularly season ticket holders) from any abuse of market power, although in recent years the use of the Retail Price Index (RPI) as a benchmark has negated this as a result of policy to increase farebox revenue as a proportion of industry costs.

To protect continued freight operation, a regime was established to provide grants to operators where track access charges caused the price to the customer to be higher than the market. Investment in terminal facilities was aided by a Freight Facilities Grant process.

There has been great achievement in promoting the use of the railway network beyond the expectation of professional forecasters, and stakeholders as a whole. This has happened because management behaviours in operating companies have been able to focus on growth with certainty about the cost of using rail infrastructure, which was not the previous position.

After privatisation, growth immediately took place, and by 2003- 04 passenger numbers had reached 1,023 million. A 31% growth in passenger numbers over seven years did not happen because market circumstances suddenly changed in favour of rail (as some uninformed commentators suggest), but because more people chose to travel by train as a result of improved marketing and product delivery.

Freight shows similar growth. From a nadir of 15.1 billion freight tonne kilometres (FTKM) in 1996-97, that figure grew by 25% to reach 18.9 billion FTKM in 2003-04.

The promotion of efficiency and economy in providing railway services has been achieved by the freight operators as productivity indices have been transformed - for example, with the average size of trains, which are 80% larger than two decades ago. The result of competition has led to large-scale fleet renewal, in more efficient locomotives and wagons, and high levels of workforce productivity.

This is a complete contrast to the passenger market. The failure to secure higher productivity is what happens when companies are allowed a monopoly in an operational market - a factor that has been ignored in the Government’s attitude to the operation of competing passenger services. It was never the intention that franchises should be allowed to operate as continuing monopolies after the initial Moderation of Competition regime.

The lack of competition and the knowledge that train operators were required to increase controlled fares by RPI meant it was inevitable that pay negotiations started with the assumption that staff would receive similar pay increases, which has proved to be the case. The suggestion that competition can be established by franchise bidding can be seen to be deeply flawed.

Passenger use of services provided by more than one operator has continued, with the ORCATS computer application allowing the allocation of revenue between operators. This has not been a controversial part of the way retailing is organised, and reflects the continuing dominance of the ‘turn up and go’ market.

In terms of imposing the minimum restrictions for train operations activity and the ability to plan for the long-term future of business operation, the freight sector has again provided a benchmark.

At the time of privatisation there were two monopolies, with EWS purchasing five of the freight operating companies offered for sale and Freightliner acquiring the business associated with intermodal container movement from ports. The market has since been transformed by new freight operators, creating on-rail competition. This must be the direction of travel for passenger operations.

It is important that evidence, rather than sentiment, guides future change. In market terms the integrated railway was not a success, and is unlikely to be so in the future.

“The suggestion that competition can be established by franchise bidding can be seen to be deeply flawed.”