Oral evidence: Scrutiny of the draft Rail Reform Bill, HC 584
Wednesday 24 April 2024
Ordered by the House of Commons to be published on 24 April 2024.
Members present: Iain Stewart (Chair); Jack Brereton; Sara Britcliffe; Paul Howell; Grahame Morris; Gavin Newlands.
Questions 1–38
Witnesses
I: John Larkinson, Chief Executive, Office of Rail and Road; and Stephanie Tobyn, Director of Strategy, Policy and Reform, Office of Rail and Road.
Written evidence from witnesses:
Witnesses: John Larkinson and Stephanie Tobyn.
Q1 Chair: Welcome to today’s session of the Transport Select Committee. Today we begin our pre-legislative scrutiny of the draft Rail Reform Bill. Before we get going, I invite our witnesses to state their name and position.
John Larkinson: I am John Larkinson, chief executive of the Office of Rail and Road.
Stephanie Tobyn: I am Stephanie Tobyn, director for strategy, policy and reform at ORR.
Q2 Chair: Thank you. We are very grateful to both of you for your time in giving evidence this morning.
I will start on a fairly general level. You said in your written evidence that the Bill could enable the IRB to deliver on the Government’s objectives, but that the detail will follow later, and that whether it is able to do so cannot be judged effectively at this stage. Do you think that the right general approach is for this Bill to be quite narrow and tightly drawn, with the detail left until later, or do you think that more should be on the face of the Bill at this point?
John Larkinson: Our overall approach in this is that we do not give an opinion on Government policy. Government policy is Government policy. We are the independent regulator, and the question is how we help to give effect to Government policy and, in that context, stick to our current duties and functions. What we meant was that this is, in a sense, one piece in the jigsaw. Other pieces include overall funding arrangements, how passenger operations would be run in Great British Railways, and what the governance arrangements would be. That is more the point we were making. You could do it in different ways but, whichever way you do it, you need to see it in the context of all the missing pieces. For example, there is on the face of the Bill a reference to the integrated rail body having an access policy, but you will only really know what that policy’s impact on, say, passengers and freight will be when you see what is in it. It was more in that context.
Q3 Chair: Stephanie, do you have anything to add?
Stephanie Tobyn: I want to emphasise that we look at it as enabling. It enables the key aspects of track and train to be brought together, but the point is exactly that there is quite a lot more to be done in the detail before we fully understand it.
Q4 Chair: I understand when you say that this is one piece of a broader jigsaw. One common theme in pretty much all the evidence we received was that the industry needs this to get on with reform, and we do not have the luxury of waiting around until every last point of detail is resolved. Do you share that general view of urgency on getting the legislation in place?
John Larkinson: We certainly responded to it, when we saw the Bill, by asking ourselves, “What would we have to do to help in delivering on the intent of the Bill?” The Bill is about integration. It is about bringing track and train together, for some parts of the network. The question is what that means for us. What would the ORR have to do? It is very important that each organisation thinks, “What does that mean for us?”
The Government’s consultation document on the rail legislation says, basically, that there will be an independent economic and safety regulator, the ORR, and its job will be to provide whole-system oversight and assurance around Great British Railways, or the integrated rail body. That effectively sends a message to us that we will have a slightly different job to do. We will have a more whole-sector, whole-system job to do. If that is the imperative—if that is what needs to be done—we need to make sure we are ready, and have the capabilities, to do that job, and we will set out our role and exactly how we will do it. That would be another piece of the jigsaw.
The Government see that as an imperative, and therefore there is an imperative on us to know how we would respond and what we would do. We have done quite a bit of work to try to give effect to that. The Government are saying there is a sense of urgency on this, and therefore it is incumbent on different parts of the jigsaw to respond.
Q5 Chair: To build on that, the draft Bill makes provision for the licensing of the IRB, and the Department is still in the process of drafting that. Do you have any role, formal or informal, in helping to shape that licence, and if not, should you?
John Larkinson: All the way through this rail reform process, one of our key roles has been to provide independent, impartial advice to the Government. We have done that to the best of our abilities. We have had conversations about the content of the licence, and Stephanie has been involved in some of those. There is an advice role, and we will continue to do that. Indeed, in the Government’s statement on the legislation, one of the tasks given to the ORR is to provide advice to the Government. We will continue to do that.
Of course, we have a strong interest in this, because, ultimately, we will be enforcing that licence, so it needs to be fit for purpose for the integrated rail body, for users and everybody else, and for the Government. We need to make sure that we can enforce the licence and that we can connect it to other parts of the system. I think we will have a very close role in providing advice on it, although ultimately the licence is issued by the Secretary of State. It would be the Secretary of State’s licence, but we would provide a lot of advice.
Q6 Chair: But you would not want a statutory role in the drafting of the initial licence, or any subsequent revisions, on the face of the Bill. Is it best kept as a more informal role?
John Larkinson: Following through the logic, the Secretary of State is setting up a new body. The Secretary of State is effectively the ultimate shareholder and funder of the body, and therefore it seems reasonable to us that he will want to issue the licence of the body. In drawing up the licence, he will want to take advice. He will then want to consult on a draft licence, we think. There will be a process to get to that licence. We would see ourselves as advising in some of the early stages. There will be a debate about what is in the licence, and there will be a reaction to that debate, so we think there is quite a process to go through to get to the point where the licence is put in place. We do not think it is a short job. It is going to be quite a big job. We can build on what we already have in Network Rail’s licence, but it will be a bit different. Is that fair, Stephanie?
Stephanie Tobyn: I see it as a key piece of the regulatory framework. It would be quite difficult to get that finalised at this point, at the stage things are. A lot of it comes down to policy decisions, because, obviously, you have to understand what you are trying to achieve, to be able to draft the licence appropriately. As John said, we have had initial discussions and we are very happy to provide additional support on that, based on our existing knowledge. It is also important that the licence is there from day one of the integrated rail body taking effect. It is a very important piece of the jigsaw, to use that analogy.
Q7 Chair: One last question from me at the moment, before I hand over to colleagues. Is it too early to draw any conclusions about how the governance framework for the IRB will look at this point, or are there emerging patterns?
John Larkinson: There are aspects of the governance framework that are not in the Bill. As you said, there is a choice about how much you do or don’t put in the Bill. One key aspect of the governance framework is always the funding of the body. The Government have been pretty clear that, for the infrastructure part of the IRB, there will continue to be a periodic review, in the same way as we have recently done a periodic review of Network Rail.
The infrastructure side of the funding is settled in that way, but then you need to decide on the non-infrastructure side. You could use the current model of the spending review settlement to fund the non-infrastructure side. The funding framework remains something that has to be sorted out. There is then general governance, in terms of the freedom of manoeuvre of the IRB—how it can use its money and how much freedom it has. There is quite a lot of the governance side that still needs to be filled in.
The other bit is that you can have a framework, governance and funding, but the ultimate purpose of the IRB must be to do something different in policy terms, so the real question is what different policies would be pursued. You have the opportunity, with the body, to join things up better. How would that joining up be done better? What interfaces would be removed? What particular policy choices would be different?
There is funding, governance and policy intent. You can see that a little bit. You can see how difficult it is, in the way the approach to the private sector has probably changed a bit during the five and a half years of the rail review debate. That probably just reflects different views in the Government at the time about how much of a role the private sector has in the IRB. Are the train operators contractors in the system, or are they groups of people who have freedom to innovate and take risk? That relies very much on the contractual framing—what sort of contracts you have. To me, it is that sort of policy framework. You could call it governance as well, but it is a policy framework. Those are some of the key bits.
Q8 Gavin Newlands: Turning to the powers of the Secretary of State, it is not unusual these days in legislation in this place for Henry VIII powers to be inserted into Bills, and you had some concerns about that in your submission. Perhaps the wider point is that one of the purposes of the IRB is to remove some of the day-to-day running—I could say “interference”, but that is not the word I would choose—of the rail system by the Department. You talk about potentially “excessively changing its objectives, or blurring accountability” and the need for “clarity about which bodies are accountable for making decisions”. How would you like to see those powers of direction modified in the final Bill?
John Larkinson: It is perfectly reasonable for the Secretary of State to have powers. What we were saying was that it really depends on how often you use them, and on what scale, and the extent to which that does or does not cut across other parts of the governance framework. For example, from our perspective, if we are enforcing the licence—a document that is fixed—and if, effectively, the Secretary of State issues directions that cut across the licence, that would create uncertainty in the system.
The powers would, I think, be best used sparingly and with a high degree of consultation beforehand. They need to be used in such a way, ideally, that they do not cut across other parts of the architecture. A licence needs to be enduring. You have a licence because it provides a point of certainty in the system. Also, the powers need to be used carefully so that they do not cut across any safety responsibilities. We are just focusing on how you use the power.
Q9 Gavin Newlands: What discussions have you had with the Department on that, and are you aware of any other concerns on the same issue, from other parts of the rail network or system?
John Larkinson: The Department knows about our views, and has seen the response, so we have had those conversations with the Department.
If you look at analogies, the Secretary of State has had a similar power on National Highways for the last nine years, and it has never been used. It is not inevitable that people come in and use the powers regularly. That is probably our key concern on the directions and guidance.
Then there is the point about secondary legislation, which you also mentioned. You see some of this in some of the consultation responses. People say, “Hang on a minute. What exactly does that mean? What bits might you change, and for what reason?” Using that power to amend—it goes through the affirmative procedure—you really need the process to be very open and transparent about what is being changed, and why. You need an opportunity, as I think you alluded to, for people to debate it while it is being done. Otherwise, you don’t get some of the benefits of certainty that we could have in the system. That would be our view.
Q10 Gavin Newlands: To be clear, is your main concern about potentially restricting the autonomy and accountability of the IRB, or is it about the ORR’s ability to regulate the IRB? Which was the primary concern about the powers?
John Larkinson: I think it will impact on both. If you are setting up an arm’s length body, you slightly defeat the purpose of it if you step in on a regular basis. From a parochial perspective you are absolutely right. I am thinking very much about the ORR’s role too—our licensing enforcement role—and about certainty, and effectively allowing businesses to plan. One of the advantages of the current settlement, where we have a periodic review and Network Rail gets a five-year funding settlement, is that it gives some certainty to Network Rail. There will continue to be a five-year infrastructure settlement in this process. It is a long-term asset business. It gives some certainty to the supply chain. You get benefits from that. You can achieve efficiency benefits. Stability of the framework is important.
To add one more thing, if I may, on this, a useful distinction in the Bill is that the Secretary of State has the power to amend the licence, but we also have the power to go in and agree a change to the licence. It seems to me that there is quite a lot of scope to make that work well, because licences age over time. You can write a licence, and the wording looks good. Five years later, the world has moved on, even in a technical amendment sense. Network Rail’s licence has been amended a bit over time. There are always some small amendments that can be made to the licence, for greater clarity. That is something that we could do, and we would do it transparently. The Secretary of State would not have to get involved. Therefore, you effectively reserve for the Secretary of State the occasional major policy intervention. That would be my story.
Q11 Gavin Newlands: You mentioned being parochial. If I may be parochial for a second, I will talk about Scotland. Obviously, you are aware that the Scottish Government are primary funders of Scotland’s Railway, but the draft Bill does not provide Scottish Ministers with the power to issue any guidance or directions to the IRB. It doesn’t even include a requirement for the Transport Secretary to consult the Scottish Government before issuing directions or guidance. I will stay away from the politics of all this and speak from a practical point of view, because ultimately the whole point of the IRB is to copy much of what we have tried to do in Scotland with Scotland’s Railway. An unintended consequence of integration may be slight disintegration in Scotland. Would it be better for rail delivery in Scotland to have some power in the Bill for the Scottish Minister to issue guidance or directions to the IRB?
John Larkinson: I would probably classify that as a Government policy issue, but can I make a connected point? Stephanie is our director for Scotland, so I will ask her to come in, in a minute. The way we see it is that the IRB covers a part of the rail network. Scotland train operators will currently be outside the IRB. I think the Scottish Government’s response was that they turned down the offer of being franchisers in the IRB. You would have a group of people inside the IRB and a group of people outside. The Scottish train operator would be outside, as would the freight operators, open access, High Speed 1, Eurotunnel, Cardiff valley lines and so on. From a regulatory perspective it is the classic issue of an insider group and an outsider group.
The boundary of ensuring fair play, in lay person’s terms, becomes quite important from our perspective as a regulator. All rail legislation stays in place. Competition powers stay in place. All the things that we do around authorisations of trains or rolling stock, and all the decisions that might need to be made about who gets access to the track if there is an argument, stay with us. Hence, I would see making sure that it is fair for the people outside the IRB, as well as for those inside it, as a crucial thing we would need to do.
That is why we are an important part of the framework. From our perspective of, say, holding the IRB to account, we need the operations and the infrastructure to continue to work together in Scotland. If we thought that the infrastructure part of the IRB was not doing its job properly in Scotland, we would follow a similar process to now. We would look at the plans of the infrastructure as part of the IRB in Scotland. We would have a process for making sure that those plans were fit for purpose. Indeed, on the recent Network Rail plans for Scotland we came back and said that the freight delivery plan was not good enough. To be fair, Network Rail said, “Okay, fair point. We agree.” We would continue to step in, in those areas. We would continue to monitor, to report transparently about Scotland and to have enforcement powers. From our perspective we will continue to do that job.
Q12 Gavin Newlands: If I can add a layer to that, might the draft Bill as it is make the infrastructure provider more distant from and less accountable to its main funder in Scotland than under the current arrangements with Network Rail Scotland?
Stephanie Tobyn: I think that goes back to what John was saying. The fundamental principles are very much the same. There isn’t a huge amount that is changing. The Scottish Government can still specify what they want from the infrastructure. They can still set funding for it. We still have a role there in ensuring a level playing field. As you have already alluded to, they have brought track and train together under Scottish Rail Holdings. It just presents a slightly different perspective for us to think about. They will be outside the IRB, so we need to think about how those things operate in the future, but all the framework is exactly the same, and I don’t think we can get involved in whether or not our directions are appropriate.
Q13 Gavin Newlands: This is the last question from me, Chair. In the discussions with the Government on the draft Bill, was the issue of how it will work with Scotland being outside the IRB, and of any changes to the current set-up, discussed at all?
John Larkinson: I don’t think we would have been part of the discussions of the Scottish Government.
Q14 Gavin Newlands: With the DFT, rather than the Scottish Government, given that they are the ones bringing forward the legislation.
John Larkinson: Correct me if I am wrong, Stephanie, but I don’t think we have had any detailed discussions with the Department for Transport. Going back to what there is for us to resolve, we are clear that if this went ahead as a process, we would need to set out how we would hold the system to account as a whole. We would need to do that specifically for Scotland too, so we would need to say, “What is different now about what we need to do?” I can only approach it from our perspective on our role. The fact is that the rest of the underpinning legislation has not changed.
Gavin Newlands: Okay. I think I mean to continue this discussion offline, with regard to competing ambitions, and other areas.
Q15 Chair: Thank you, Gavin. Before I pass to Paul, I want to ask a supplementary on your point about the need for transparency in how the Secretary of State would use his Henry VIII powers. One of the rationales for this piece of legislation is to end the micromanaging of the industry by the Department and to let the industry get on with innovating and developing. Any politician or Minister will come under pressure, at times, to intervene. What would the transparency process look like? It is perfectly proper for Ministers, who are ultimately responsible, to have that backstop power, but what would the transparency process look like, to ensure that it was used only in exceptional circumstances, or at strategic points, rather than meddling, if I can put it that way?
John Larkinson: You are obviously right: there is huge political pressure, at any point in time, to do something. A lot of it is about giving assurance to the Secretary of State. Looking at how some of the processes work now, overall, the Secretary of State has the power to approve Network Rail’s delivery plan for a control period. That could drag the Secretary of State deep into the detail. You could imagine a future world where the Secretary of State might think, “There’s an easy way to intervene about this one; I could change the licence for something.” In practice, if you set up a structure around that, giving assurance to the Secretary of State that it has been scrutinised and has been compared to, say, his overall strategic specification, and pointing out the only areas where we think there are material discrepancies, you start to narrow it down. You provide assurance to the Secretary of State that it has been checked and considered.
In the consultation responses, quite a few of the regional bodies asked how ORR would take into account the role of regional organisations in scrutiny of the business plan. That is something that the Secretary of State was particularly concerned about. You can build that into the framework. You can say to the Secretary of State, “Here is the assurance that this has been done. Here’s how it was done.” Some of it is about giving support to the Secretary of State, to allow him or her to say, “Okay, I’ve sought assurance and I’ve got assurance. I don’t need to get involved.” Otherwise, as you say, there must always be a slight temptation to feel that you need to do something.
Q16 Chair: But does there need to be something on the face of the Bill that sets out what that transparency process looks like, or does that, again, follow later in the detail?
John Larkinson: It is just a political choice. It is quite difficult for us, in terms of political choices around the Bill. I take it as a slightly different question. If the aim is to try to make sure that the Secretary of State does not need to intervene in detail, and it is not in the Bill, what sort of process would we have to describe? We would have to set a lot of it out. What sort of process would we have to describe that would give assurance, such that, effectively, the Secretary of State did not do it? I am approaching it from that perspective rather than from that of directive, which is not our role.
Chair: I appreciate that. Thank you.
Q17 Paul Howell: The latter part of the answer has gone largely to the area that I was going to come at you with, about your role in scrutinising the IRB’s business plan. Could you develop that a little further? You talk about scrutiny of a plan after it has been created, but should you be involved in that or in the determination of what that plan’s framework should look like in the first place?
John Larkinson: Our working assumption now—again, we would need to set this out—is that we would get involved, as you suggest, a few steps back. Based on many years of experience of working on this with Network Rail, you need to be clear what you expect to see in a business plan: the data, and the questions you expect to see answered. That makes it a lot easier for the body—for the IRB. Otherwise, it would almost be a “caught you out”-type game, which is not in anyone’s interest.
The specification of what needs to be in the business plan allows the IRB to come up with a draft, but, going back to the transparency point, you want people to understand the business plan and buy into it, so you want the IRB to talk to people about what is going to be in it, and effectively to socialise the business plan, so that when you get to it, organisations like the regional bodies or the supply chain have had a chance to have a bit of a say in it. It sounds slightly bureaucratic, but it is a matter of setting up a process to come up with a business plan that will ultimately be published.
The crucial thing about the business plan is that it then forms the basis of what you can hold the company to account for, but it has been through a fairly robust process to get to that point. Also, we have had our chance to say, for example—this goes back to what Mr Newlands was talking about—"You haven’t really covered Scotland in sufficient detail in this business plan. We need to see more about it.” Eventually you end up with something that, hopefully, covers the bases.
Q18 Paul Howell: It goes back to what you were saying, at the start, about the different pieces that need to be pulled together. Stephanie, do you want to come in?
Stephanie Tobyn: We see the business plan as absolutely key, along with the licence, in our whole-sector oversight role and how we go on to hold to account. We would use it to monitor and to assure that the IRB was delivering what we expected. It is, exactly as you were just about to come on to, a fundamental piece of the jigsaw, but it is not there yet. The detail of the process by which it would work is obviously not there yet, but we expect a licence condition to deal specifically with the business plan.
Q19 Paul Howell: Okay. Going back to the usual point, does the business plan responsibility need to be on the face of the Bill?
Stephanie Tobyn: There is a section in the Bill about the business plan, but it is more that there will be a business plan. Again, it comes down to how detailed you want to make the Bill, because it ties you into certain decisions, or whether it is a piece of enabling legislation, which is how we see it at present, for further detail to be developed.
John Larkinson: It could work like that, because there will be nothing stopping us issuing a public notice saying, “This is what we believe should be in the business plan.” Anyone disagreeing could say, “Hang on, that’s not good enough.”
Going back to the transparency point, transparency is absolutely crucial to this. It will be an absolutely enormous organisation. When you think that Network Rail has not far short of 40,000 staff, and you are spending more than £10 billion a year and then adding a whole group of train operators, you are creating an absolutely massive organisation. You can decide on its regional structure. You can decide on its operating structure, but we have had a lot of conversations with the Treasury about overall public accountability. From the Treasury’s perspective, it is a massive expenditure and accountability area. Therefore, the whole thing needs to be pretty rigorous and transparent.
Q20 Paul Howell: I want to probe regional structure—you used the phrase a couple of times. We all get the desire to have the guiding mind over everything. Does that guiding mind come up from the regions or down from the top?
John Larkinson: To the best of my knowledge, I don’t think there has been any decision taken on what you might call the operating model in the integrated rail body. The way the conversations have gone is that, effectively, each organisation needs to have a target operating model or some formula. What is the structure of these organisations? What are their policies? How do they all fit together?
You can envisage different operating models for the way the integrated rail body works. I am not aware that there has been any policy decision on how that would work if the legislation were to be introduced. From our perspective, to some extent we would have to reflect that in how we are going to work. If there is a very strong regional structure, or a less strong regional structure, we would have to work on that basis. We would need to make sure that our operating model fitted in with that operating model.
Again from a parochial perspective, our funding level is set directly by the Treasury. The sort of questions the Treasury have asked us are, “Okay, if the IRB is going to look like this, what will you need to look like? Are there areas where you would need to build capability in order to deliver your role, and how could you do that?” I think it will reverberate across the system. Depending on exactly what the IRB does, we would have to react, and we would need to show that we had the capability to respond to whatever that structure is. As far as I know, there haven’t been any statements around that.
Q21 Paul Howell: Do you have anything to add to that, Stephanie?
Stephanie Tobyn: No.
Q22 Chair: Before I pass over to Jack, I want to ask one quick question. Do you have any concerns about the removal of your ability to refer matters to the Competition and Markets Authority in cases where the licence is modified without consultation?
John Larkinson: I don’t see that as a big issue. It is a fairly remote power in some ways. Again, trying to follow through the logic of the Government policy intent, the Secretary of State, effectively as the owner of the company, is going to issue the licence. In some ways, from a Government perspective, it might be slightly strange if it could go off to somebody else, almost to second-guess the Secretary of State. From my perspective, the issues are more about the conversation we were having earlier, on how the Secretary of State uses some of his other powers around directions and guidance. That is probably a bigger issue for me than the CMA point.
Q23 Jack Brereton: I want to ask you a bit more about some of the competition issues, particularly the ORR’s competition duty. You have raised concerns about potential changes around that. Could you outline what those concerns are, and how you think it will impact on your work?
John Larkinson: We have to ask ourselves what the policy intent is of changing the competition duty. To be absolutely clear—this sounds a bit technical—it is not about our broader competition powers; whether we can investigate the signalling market or, as we are currently doing, investigating the rail catering market. It is not about that. It is about one of our duties. The duties are the things that we have to apply in making decisions. One of the decisions we have to make is around competing access applications, or around any application—for example, particularly on open access. My understanding of the intent of the change is to try to tilt the balance a little bit to make it a bit harder to approve open access. It is not a dramatic change but almost to give the ORR a bit more pause for thought on approving open access, by referring to the impact on public funds.
The Government can have Government policy. That is not for us to choose, but if you look at how we make decisions on access—I have made many decisions on access—it tends to follow a fairly clear path. If you read our decisions letters, we are quite clear which duties we have drawn on to make a decision. Normally, we look at the benefits for passengers. If an open access operator wants to run to a city that is not served by direct London services, that is a benefit to passengers. We look at the impact on public funds. If the open access operator is taking money away from an existing franchise, that could have a hit to the Secretary of State. We look at the impact on performance, capacity and things like that.
In that sense, we already look at the impact on public funds, on the Secretary of State. We already do that. The reason why we say that we are a bit concerned is that we see it as a bit of a duplication of something we think we already do, but we appreciate and understand that it is designed to send a clearer message around how much weight to place on a particular issue. In practice, we see that happening anyway. The Secretary of State could write to us during any access application and give a view. Indeed, throughout my whole time in the ORR until very recently, each time we have an open access application we tend to receive a letter from the Secretary of State saying, “Please do not approve this application because it is going to cost the Government money,” which is a perfectly reasonable Government position. It is not as if we are not very clear on what the Government of the day think. Recently, the mood has shifted towards more open access. Not surprisingly, Government policy changes over time. It is more the issue that it is a duplication. That is why we are saying that it seems to make it slightly more complex, when we feel that we are already required to do that.
Q24 Jack Brereton: As you have just said, the Government are very keen on more open access. What should be done to promote and encourage that?
John Larkinson: Ultimately, open access is a market decision. We don’t go out trying to get more open access on to the network. It is a market decision whether people want to make an application. We have taken part in a Government and Treasury initiative on what the barriers are to open access. Indeed, we had a session on it and Stephanie might talk a bit about that. Some of the potential barriers for open access are well known, but, from our perspective as a decision maker, we have to apply our legal duties in making an impartial decision. Sometimes we turn down open access requests and sometimes we approve them. Do you want to say more about the barriers, Stephanie?
Stephanie Tobyn: We have worked to try to understand what potential open access operators feel about the process. We have looked at whether or not things could be more transparent, for example on capacity, or documented differently by Network Rail so that a potential applicant could assess more quickly where they could fill gaps. We have looked at our own particular process. We have looked at how we work with DFT. We have tried to take a whole-picture look and check what we are doing. Is it working? Do people have concerns about it, and are there tweaks we could make? Going back to this particular point, we are very transparent when we make decisions about what duties we look at in particular, what evidence we have gathered and what we think the impact will be on Government funds, so there is a slight confusion—
Q25 Jack Brereton: Is the consideration also about what private investment might be attracted into the sector? Obviously, if we have a private company coming to run a whole load of open access services, that is potentially going to result in a significant enhancement to the rolling stock, the fleet and things like that. Is that a consideration or not?
John Larkinson: We certainly look at what the potential barriers to investment would be. One of the things that Stephanie’s team is literally doing now—going back to the transparency point—is putting a dashboard on our website about how the access process works. One of the questions raised was whether people can actually see how things are progressing, who is holding it up and whose fault it is when things take a long time, including regulators.
Q26 Jack Brereton: It might cost a slight amount to Treasury, but it might result in a huge amount more of investment gains.
John Larkinson: Yes. Currently, we have a mini-consultation which has come out of the conversations with the Treasury and Government about whether we need to make any changes to the way we assess access applications, and whether we need to take a broad look at benefits from access applications. We have a mini-consultation. I am not sure whether it is closed or whether it is still open. We are doing that. It is an issue.
At the moment, for the first time ever, we have the prospect of two competing bids against Eurostar. We have never been in the position where there have been people engaged in serious discussions about major investments. If you want to compete against Eurostar you need some new trains. The trains going through the tunnel have to meet particular safety requirements. It is a major investment. That is a radical shift. We are currently in quite detailed conversations with a major investment group about what assurances they need from the regulator, or what they need to know from the regulator, in order to allow them to proceed to an application. We very much think about private investment.
Q27 Jack Brereton: I want to ask you a bit more about creating certainty for companies to invest, particularly when it comes to freight. You will probably be aware that I have asked some questions of the ORR about freight licences and the changes to those. They were previously 10 years. I think it has now gone to five years. Do you not see that as a retrograde step? We are going from a 10-year licence for freight operators, which I get was given on an exception, to a five-year licence. Is that not a retrograde step?
John Larkinson: The base case for all licences, unless there is substantial investment or other circumstances, is five. It is in the legislation. The question is, what more do you need to do to agree to 10, because by definition 10 is taking it to quite a long period of time. You are right that there has been a debate about it. There is no doubt about that. There has been debate about that with the freight companies. One of the things we said we would do is look at the whole basis around the way the decisions are made about length of licence. In a minute, I will let Stephanie come in, because she has been more involved in this. We understand the idea about certainty and encouraging investment, but we have to take into account the fact that the legislation is quite clear about what you can and cannot include. Talking about the wider Bill, and potentially changing legislation, in theory there is a potential opportunity. I will let Stephanie come in on that.
Stephanie Tobyn: As John said, the five-year point is for the track access contract. That is set out in the legislation. We have certainly had discussions and looked at longer-term contracts. It is not impossible that we do that. We have set out the criteria we would look to in order to approve a longer-term contract. It is not quite as black and white as it might sound. Certainly, we have had discussions with stakeholders on that.
Q28 Jack Brereton: What sort of things are you looking for? Is it about investment?
Stephanie Tobyn: It is more about certainty in business plans and reasons why it justifies a longer-term contract, as you might expect. You would expect the plans to be there for what people want to do and what sort of investment they have in place. It is not unusual to ask those sorts of questions. Certainly, we are not seeing that impacted by what we are talking about on the Bill at this point in time, but others might have views on that.
John Larkinson: On overall certainty for freight, it comes back to the interface with the integrated rail body. I think you can see that in some of the responses from the freight groups. To my mind, it is the classic big guy and little guy type of situation in the regulatory setting. You have a very large organisation with, potentially, a lot of power. They are going to publish a document and call it an access document. What is going to be in that document? Is it going to have different priorities? Is it about allocation of capacity? The point is that it must be about allocation of capacity and timetables. That is set out in some of the Government’s documents about it. If you are a freight company looking at that, you will be thinking, “What is actually going to be in these sorts of documents?”
Q29 Jack Brereton: Are you suggesting there could be a risk that freight gets squeezed out?
John Larkinson: I don’t know what is going to be in it. As far as I know, there is no draft of such a document. I do not know what the IRB priority will be. Generally speaking, in all industries, if you are the little guy in the industry, you look at all these things and say, “Is there a prospect of being squeezed?” On the other hand, as you can see on the face of the Bill, there are licence provisions around freight, so that is a supportive measure.
From our perspective, the fact is that the rail legislation stays the same. The ultimate access decisions are ours. They have to be made transparently. They have to be made in accordance with the law. In terms of providing a backstop of certainty, I would have thought that would help the freight industry.
Q30 Grahame Morris: I want to try to clarify some of the issues about access and the role of the ORR under the new framework that is set out in the draft Bill, but I want to get something clear in my own mind first. Your responsibilities currently relate, in particular, to access and safety. You mentioned that it spans infrastructure and the network. Do you have any role in assessing accountability of the operators? You said how important the business plan was as a key element of the Bill. In terms of performance assessment—the current national rail contracts—do you have any role in that? There is nothing envisaged in the new structure.
John Larkinson: Currently, the franchising, and hence Government contracts—National Rail contracts or the future contracts that are set out, the PSCs—are directly between Government and industry. We do not have any role in them. We try to do things, as far as possible, in a whole-system sense. When we look at Network Rail’s business plan, Network Rail talks to the train operating companies about performance forecasts and what the overall performance is going to be. We certainly join in those discussions. We try to work, wherever we can, in a whole industry context. We try to work out the contributions of the train operators and Network Rail, but we don’t have any role in either designing those contracts or monitoring those contracts.
That would change a bit under the new structure. If we have accountability for the whole of the IRB—the integrated rail body—and it would depend very much on how it is structured with the passenger train network, I don’t see us getting involved in the detailed contract negotiations. Is the passenger operation arm delivering what it is supposed to do in the IRB? I would see that as part of the overall monitoring under the public reporting and accountability framework. It is not so much the detail of the contracts and things.
Q31 Grahame Morris: There is an element of performance assessment in that, presumably.
John Larkinson: Yes. What have these companies committed to do? Are they delivering it? Yes or no. I would see us having a role in that; otherwise, we could not do the whole-system oversight and assurance in an independent way.
Q32 Grahame Morris: Is the data readily available, as currently presented by the train operating companies, for you to make a reasonably objective comparison of performance, so that you can hold them to account?
John Larkinson: At this moment in time we would not have access to that sort of data in any detail. Because we are not part of that system, we would not have access to that data. There is no doubt that there have been some issues. If we look at Network Rail’s performance forecast, Network Rail had difficulty agreeing performance forecasts with the train operators, partly because they are on different contractual lengths. The train operators work very much to annual business plans and Network Rail works to a five-year plan, so it was quite difficult to align performance forecasts. At the moment we do not have access to that sort of information.
Q33 Grahame Morris: Thank you. I will pursue that with the second panel. On this particular point, when we are formulating our responses as a Committee to the draft Bill, we are very interested in your view, particularly in relation to some of the new provisions. The draft Bill includes a new duty for the Office of Rail and Road to have due regard to the integrated rail board’s access policy statement. Is there a danger that the integrated rail board is going to be able to trump your ace in relation to access under this new framework?
John Larkinson: I will ask Stephanie to chip in if she wants to add anything or thinks I’ve got something wrong. When we first had a discussion with the Department about it, and with GBRTT, it was clear that there was an intent to have this access policy. Our view is very much, if that is what you want to do, it is going to signal a policy intent so it is a very sensible idea to ask us to have regard to it. Otherwise, you are not following through the logic of your trying to change something. You want the regulator to look at it. That is fine. We certainly don’t have any issues with that. Obviously, at the moment, it is a little bit in the abstract because that document has not been published. It is hard to say exactly how we would react.
Q34 Grahame Morris: Mr Larkinson, you are being very diplomatic, if I may say so.
John Larkinson: I was going to answer your question specifically. Effectively, you asked does it, to use your language, “trump my ace”? Ultimately, with this Bill in place, the role of the ORR to have the ultimate approval of access decisions remains. The underlying legislation has not changed.
Q35 Grahame Morris: Even though you must consult and pay regard to the IRB, your understanding is that you will still retain that.
John Larkinson: Yes, but we would then have to show that we have had regard to that access policy. Is that a fair summary, Stephanie?
Stephanie Tobyn: That’s absolutely it. If you look at it from other stakeholders’ perspectives, setting out how people will be able to access and use the network can only be a good thing. That is very transparent. It should aid consistency and predictability about how the IRB will work. We would expect certain principles to be in there, such as fairness, transparency and non-discrimination. The tool itself is a good way to hold the IRB to account because they will be setting out, “This is how we are going to work.” As John said, it does not trump, if you like, that ultimate power.
Q36 Grahame Morris: Is part of your assessment to do with performance as well? That might relate to freight access or the performance of the operating companies in reliability, cost and so on. Would that be an element in your consideration as to whether a recommendation should be made on access?
Stephanie Tobyn: We look at performance and capacity on the network now. I do not think that would change at all in this new process.
Q37 Grahame Morris: Is your opinion that you do not think it should change?
Stephanie Tobyn: I think those are the absolute key points that you should think about in any access decision.
Grahame Morris: It is important that we know. Thank you.
Q38 Chair: We need to move to our second panel in a moment. We have covered quite a lot of ground this morning. Are there any other points that you would like to make about the Bill or areas that you would advise us to focus on during our scrutiny?
John Larkinson: No, I think we have covered the ground. Thank you.
Chair: Thank you both very much indeed.