Chapter 4 - Transforming our railways CM 6234

The railways are a vital part of the country's transport infrastructure, carrying a large proportion of travellers and freight on many of the country's busiest routes. As the economy grows there is increasing demand for travel, and the railways will play an important role in meeting this demand, providing an alternative to travelling by car.

The challenge

4.1 Successive governments have failed to ensure that sufficient investment has been made in the rail network on a consistent basis. And where major projects have been taken forward, they have often been subject to false economies - for example the electrification of the East Coast Main Line, where lightweight structures have proved vulnerable to high winds. The 10 Year Plan has provided substantially increased funding for the industry, but a legacy of under-investment remains, which will take time to address.

4.2 The privatisation of the rail industry in the early 1990s assumed that private sector innovation and discipline would drive down the railway's subsidy requirement and drive up the quality of service. In part this has been borne out - demand for both passenger and freight services has risen since privatisation. But it proved entirely incorrect in relation to the operation of the infrastructure. Railtrack's engineering work was outsourced to maintenance companies that were given responsibility not only for maintenance and renewals, but also for the specification and inspection of their own work. This led to Railtrack's knowledge of the state of its assets diminishing and to a maintenance strategy that saw the condition of the track deteriorate rapidly.

4.3 The accident at Hatfield in October 2000 exposed the extent of this deterioration. And the widespread speed restrictions that followed caused a steep decline in reliability. The reaction to Hatfield also undermined public perceptions of safety on the network.

4.4 In response, Railtrack increased the level of maintenance and renewal work, but this generated a steep increase in costs. This, combined with the separate loss of cost control on the West Coast Main Line project, contributed to a worsening financial situation which led, eventually, to the company's entry into administration. Network Rail, a company limited by guarantee which operates in the wider interest and which is accountable to the rail industry through its members, has now taken over responsibility for the rail network and has made some progress in addressing the problems of the past.

4.5 Rail is now carrying record numbers of passengers, its safety levels are improving, its customer focus has got better, and, in the aftermath of the accident at Hatfield, reliability is slowly recovering.

4.6 The picture of growth in passenger numbers and improving levels of service is similar on London Underground and light rail.

Rail and light rail patronage in Great Britain

4.7 The challenge for Government is to ensure that these trends continue and accelerate, and to create an industry fit for the next 30 years.

Where we want to be

4.8 The rail industry must get its costs under control and live within the available budget. The 10 Year Plan significantly increased investment, but this money must be spent efficiently. The industry still has to deliver real and challenging efficiency gains in order to provide value for money from the increased levels of investment.

4.9 This means managing projects better. It means eliminating waste and reducing unit costs - through better procurement and planning. And it means taking a long hard look at where costs arise and whether they can be justified, and making careful trade-offs based on robust information when decisions are taken on procurement.

4.10 Reliability must also be improved. The rail industry must serve its customers and this is their number one concern. Unless passengers continue to use the railways, investment cannot be justified.

4.11 We must concentrate investment and effort where it delivers most benefit. This will mean taking decisions based on an improved understanding of the network. And it will mean giving local and regional stakeholders, who best understand the needs of their areas, the opportunity and incentives to make sensible choices between different forms of transport, helping build balanced public transport networks for their communities.

4.12 Finally, the complex and over-bureaucratic structure introduced at the time of privatisation, with too many overlapping responsibilities, no clear control of strategy and no single point of accountability for performance, must be reformed. This structure has allowed money to be wasted, and new initiatives to fail. A new structure must be put in place which ends the confusion of responsibilities and enables the industry to work together to deliver clearly defined goals.

What we have achieved

4.13 These challenges are great, but they are not insurmountable. They can all be solved through better management, strong leadership, and through all parts of the industry working together.

Getting on with delivery

Last year the rail industry:

• renewed over 800 miles of track; and
• completed the Train Protection and Warning System programme to improve safety by preventing trains overrunning red signals.

At present the rail industry is:

• building a major new line (the Channel Tunnel Rail Link);
• upgrading one of the three main rail arteries (the West Coast Main Line);
• modernising the power supply south of the Thames; and
• replacing all of the slam door rolling stock on the network.

Local authorities have also been bringing forward new light rail systems. New lines have opened, including:

• the Croydon Tramlink;
• the Sunderland extension to the Tyne and Wear Metro;
• the Eccles extension to Manchester Metrolink; and
• the Nottingham Express Transit.

And on the London Underground, Public Private Partnership (PPP) has been put in place. Under the PPP, private sector companies have been awarded long term contracts to modernise and maintain the infrastructure of the Tube. This will inject massive investment into the Tube network, focusing on structural renewal and service improvements. Under the contracts:

• new or refurbished trains will be running on all lines by 2020;
• 80 per cent of the track will have been replaced;
• 249 stations will be improved and modernised;
• Delays on lines should be reduced, with estimated improvements on the Metropolitan, Circle and Bakerloo Lines of 30 per cent;
• Capacity of the system will be increased by 12 per cent by 2012.

Outside the PPP, other improvements to London Underground infrastructure are also being undertaken in partnership with the private sector. New communications and power systems will be provided in the next few years. And Transport for London has also introduced the Oyster Card smart ticketing system across London. This allows people to travel on the Underground, buses and the Docklands Light Railway as well as some parts of the rail network. Nearly 1.4 million cards have been issued since its launch in 2003.

Costs

4.14 As part of its commitment to the Office of Rail Regulation (ORR), Network Rail will improve efficiency by 31 per cent. The company has a wide range of initiatives to deliver these savings, including bringing maintenance back in house and streamlining its organisation. There are also opportunities to secure savings throughout the franchising process.

Safety

4.15 The rail industry's safety record is good and is improving.

Significant train incidents from 1975 to 2002-03^*

^*Data prior to 1991 relates to significant train incidents per calendar year. From 1991-92 onwards this data has been collected in relation to financial years.

Performance

4.16 Delays and cancellations are a key concern to anyone who regularly uses our rail network. In the aftermath of the tragedy at Hatfield performance dropped to an all-time low. Since then it has steadily recovered. But progress to date has been slow. We need to accelerate the rate of improvement.

Public performance measure - moving annual average, 1 April 1998 to 31 March

4.17 Overcrowding also causes concern for rail passengers. The problem can be particularly acute in London and the South East. Despite the increase in passenger numbers, overcrowding levels in the morning and evening peaks on the London commuter network have decreased from a high point of 3.6 per cent in 2000 to 2.9 per cent in 2003. New train carriages are helping to tackle this. Over 1,500 new railway vehicles have been introduced over the last two and a half years.

London Underground

4.18 Nearly a billion passenger journeys are made on London Underground every year with three million passenger journeys every working day and some 500 trains operating during the peak hours.

4.19 It is a large and complex transport network with a high level of integration and a frequent service. It needs a unified operational command in order to work effectively as a system. But to maintain the network it also needs the efficient management provided by the private sector. The Public Private Partnership, supported by the Government's unprecedented commitment to grant funding for the Underground (amounting, on average, to more than £1 billion a year for the first 7.5 years of the PPP) provides this.

Light rail

4.20 While light rail use has increased significantly over the last few years, the picture for individual schemes is mixed. Some have been very successful in attracting passengers. The Docklands Light Railway now carries 46 million passengers a year, and is showing double-digit patronage growth. Manchester Metrolink has attracted so many passengers that it often operates at, and sometimes above, capacity. However, other schemes have not been so successful. The number of passengers on Sheffield Supertram, Croydon Tramlink and Midland Metro remains significantly below the levels forecast. We need to use this experience to improve the assessment and evaluation of schemes in the future.

What are we going to do next

The railways

4.21 The Railways White Paper(1) outlines a new structure for the industry, aimed at tackling the challenges the railways face. It has been developed in consultation with key industry and regional players. The diagram below shows how it will affect passenger services.

A new structure for the rail industry

4.22 This new structure will be based on six key changes.

• The Government will take charge of setting the strategy for the railways

It must be for Ministers, accountable to Parliament and the electorate, to set the national strategy for the railways, but in the current industry structure this is not the case. Under the new arrangements, the Government will set the level of public expenditure, and take the strategic decisions on what this should buy. This means that the SRA will be wound up, and its strategic responsibilities and financial obligations will pass to the Secretary of State. There will continue to be a crucial role for the independent economic regulator, who will protect the rights of investors and customers and ensure the Government pays the proper price for what it is buying. New regulatory and contractual arrangements will be put in place between Network Rail and the Government, to run alongside, and provide the context for, the franchise contracts with train companies. Combined with more robust information, this will enable the Government to act as a strong client to the private sector industry, protecting the interests of taxpayers and fare payers alike.

• Network Rail will be given clear responsibility for operating the network and for its performance

With no one organisation clearly in charge, improvements in reliability have been sluggish, and the railway has not delivered the performance that passengers expect. The changes outlined in the Railways White Paper will give Network Rail a strengthened role as operator of the network, with overall responsibility for its performance. Government will set out what Network Rail is expected to deliver for the public money it receives, and on that basis Network Rail will lead industry planning, set timetables and direct service recovery. Too often under the current system, companies have been able to pass the buck for poor performance. Under the new structure, Network Rail will be held accountable for ensuring that the network delivers a reliable service for its customers through an agreement with the Government.

• Track and train companies will work more closely together

The new structure will deliver more efficient working between Network Rail and the train companies at the front line, bringing track and train closer together operationally. The roles and responsibilities of each part of the industry will be clarified through new local agreements, and their incentives brought into line with one another. The number of franchises will be reduced and they will be aligned more closely with Network Rail's regional structure. The industry has made it clear that it is committed to ensuring that these new arrangements drive more effective working between Network Rail and the train companies in the interests of passengers. They will replace the current confrontational relationship with one based on aligned interests - and will create the scope for even closer working in future where all parties agree to it.

• There will be an increased role for the Scottish Executive, the Welsh Assembly Government and the London Mayor, and more local decision-making in England

Central government is not always best placed to take decisions on the transport needs of different communities. In future, the devolved administrations will take on increased responsibilities for passenger services and, where appropriate, infrastructure. In England, the Passenger Transport Authorities (which manage transport provision in some of the main metropolitan areas) will be able to buy additional services, and to transfer funding between rail and other transport modes. Transport for London will also have an increased role with regard to rail services in the capital. And the Government will promote the role of Community Rail Partnerships in improving the management of local branch lines.

• The Office of Rail Regulation will cover safety, performance and cost

Bringing regulation of all aspects of the rail industry - safety, reliability and efficiency - together under a single public regulator will streamline the regulatory system, reduce bureaucracy, and ensure that these issues are looked at as a whole, and not in isolation from one another. This means responsibility for safety regulation will pass from the Health and Safety Executive to the Office of Rail Regulation, and will remain independent of Government and the industry.

• A better deal for freight will enable the industry and its customers to invest for the long term

Because of the high up-front investment costs for rail freight, businesses using these services need to be sure about their access to the network. But this has to be balanced with the fact that freight users only pay for the cost of operating their services and not for the costs of the underlying infrastructure. Freight operators will be given greater certainty about their rights on the national network, and a group of key routes will be identified on which freight will enjoy and pay for more assured rights of access.

Over the longer term

4.23 The conclusions of the rail review are about more than creating new bodies, or change for its own sake. They focus on putting in place a clearer, simpler structure which will enable the different parts of the industry to deliver together for their customers.

4.24 Further new lines for London, airport links and other improvements may also be needed to cope with increased demand in the future. New rail projects need to be considered in the light of the overall transport budget, and the extent to which other sources of funding can be harnessed. We will ensure that such projects represent good value for money and are properly managed and specified so that they are delivered on time and to budget. Consistent with the enhanced roles for local and regional bodies on rail, and the partnership approach underlying the creation of the Transport Innovation Fund, local and regional bodies will be given a greater role in specifying and funding such future rail projects. This will include the ability to specify and fund minor enhancements without excessive bureaucracy or central control.

Crossrail

Investing in the capacity of London's transport system is vital to maintaining its pre-eminence as a world class capital and business centre. The case for Crossrail is strong and will only strengthen further as demand on the capital's existing transport networks grows.

That is why Government intends to seek the appropriate powers for its construction through a Hybrid Bill at the earliest opportunity.

The Montague Report makes clear the funding challenge that Crossrail represents. This still needs further work. Department for Transport and the Treasury will work with the Mayor and the London business and finance community to find a funding solution that is equitable to all parties. This will include consulting on appropriate alternative funding mechanisms.

Regional and local dialogue

4.25 While central Government will have overall control of our rail network, regional and local players need to have the means to influence services in their own areas. Rail may not always be the most cost-effective or appropriate transport solution. Rail should be considered alongside other forms of transport, including bus and light rail, to provide a coherent solution to local issues that delivers the best service for the lowest cost. We believe that decisions are often best taken at a local level, and will ensure that an effective system is put in place. We will give local players an incentive to invest or find savings.

Safety

4.26 Rail safety must remain a high priority for the industry. High management and operational standards will be critical in this area but new technology may also have a role to play, in particular, when a proven and viable system is available. One new system currently being trialled is the European Rail Traffic Management System (ERTMS), which has the potential to increase network capacity and also improve safety by harnessing new technology.

New technologies

4.27 We will also consider the use of new technologies to improve rail services. For instance, hydrogen may be more suitable as a fuel for trains than cars. Fuel cells are more efficient when they are bigger, and the rail refuelling infrastructure would be simpler than that required for road vehicles.

Light rail

4.28 We need to learn from our experience so that light rail solutions are pursued where they are most appropriate, to deliver local authorities' wider transport strategies. Local authorities need to look at what works best in their particular circumstances. Light rail can work best for routes with the highest traffic and passenger flows. Bus options are likely to offer the most cost-effective solutions on most corridors.

4.29 Proposals for new light rail schemes require rigorous assessment. Authorities need to reassure themselves of the realism of forecasts of passenger numbers, and ensure that they are taking appropriate measures to attract people to use the new services. For example, schemes can be enhanced by better integration with other forms of transport - through integrated ticketing and bus Quality Contracts, and provision of park and ride facilities and complementary parking policies. The involvement of local transport planners and practitioners in the heavy rail system will also facilitate better integration and sensible decisions on the balance of funding between different forms of transport.

4.30 We are also working with promoters to explore ways to make light rail solutions more affordable. A number of promoters are developing alternative procurement approaches, with a sharing of the revenue risks and in some cases separation of infrastructure procurement from operations. And there may be scope for cost efficiencies through making more use of common design approaches and more tailored safety standards for light rail schemes.

Conclusion

4.31 Railways are a vital part of the country's transport infrastructure, carrying a large proportion of travellers and freight. The new structure we are putting in place for our national networks:

• is based on the key principle of partnership between the public and private sectors; and
• recognises rail's status as a public service, specified by the Government and delivered by the private sector.

4.32 It will provide a stable foundation for a reliable, safe and efficient rail industry fit for the next 30 years. Supported by light rail, where it offers best value, underground and metro services, our rail networks will continue to play a central role in meeting travellers' and businesses' needs.

(1) The Future of Rail, CM 6233, Department for Transport, July 2004. Available at www.dft.gov.uk/railways/whitepaper