Transport Committee
Oral evidence: Investing in the railway, HC 257
Monday 27 October 2014
Ordered by the House of Commons to be published on 27 October 2014
Written evidence from witnesses:
– The Greater London Authority
– Porterbrook Leasing Company Limited
Members present: Mrs Louise Ellman (Chair); Sarah Champion; Jim Fitzpatrick; Karen Lumley; Mr Adrian Sanders; Chloe Smith; Graham Stringer; Martin Vickers.
Questions [270-385]
Witnesses: Isabel Dedring, Deputy Mayor for Transport, Greater London Authority, Tracey Lee, Chief Executive Officer, Plymouth City Council, and Lead Chief Executive Officer for the Peninsula Rail Task Force, and Mark Pendlington, Chairman, New Anglia Local Enterprise Partnership; Malcolm Brown, Chief Executive Officer, Angel Trains, Paul Francis, Managing Director, Porterbrook, and Mary Kenny, Chief Executive Officer, Eversholt Rail, gave evidence.
Examination of witnesses
Isabel Dedring, Deputy Mayor for Transport, Greater London Authority, Tracey Lee, Chief Executive Officer, Plymouth City Council, and Lead Chief Executive Officer for the Peninsula Rail Task Force, and Mark Pendlington, Chairman, New Anglia Local Enterprise Partnership.
Q270 Chair: Could I ask you to give us your name and your position in your organisation?
Isabel Dedring: My name is Isabel Dedring. I am the deputy mayor for transport at the Greater London Authority.
Tracey Lee: I am Tracey Lee. I am the chief executive of Plymouth city council and the lead chief executive for the Peninsula Rail Task Force.
Mark Pendlington: I am Mark Pendlington, chairman of the New Anglia Local Enterprise Partnership and co-chair of the Great Eastern Main Line Taskforce.
Q271 Chair: Recently, the Treasury released some figures for spending per head on rail in different parts of the country. Londoners have £294 per head spent on them, the south-west has £41 and the eastern region has £58. Is that fair?
Tracey Lee: Absolutely not. The under-investment in the far south-west is clearly there to be seen. I am pleased that those figures start to unmask the south-west figures. For quite some time, the figures included the Bristol region, and Bristol is having quite a lot of investment at the moment. For the first time, we are starting to see the real inequality in the amount of investment for the far south-west.
Q272 Chair: Would anybody else like to comment?
Mark Pendlington: The Great Eastern main line suffers serious under-investment, so I would like to mine into those figures. Perhaps a bit later I will chat about the subsidy that we do not get—or the amount of money that we think we do not get—but I would like to expand on that under the subsidy point, if I may.
Q273 Chair: Ms Dedring, do you think it is fair that London gets so much more than everyone else?
Isabel Dedring: We would probably all agree that we are looking for higher levels of investment than we are currently seeing. The problem we have in London is that a huge amount of the overcrowding that is experienced in the country is experienced in London, so there is a lot more that we feel needs to be done in London as well. Fundamentally, an approach that says there is a limited pot of money and we need to pick winners and losers is probably wrong, in the sense that there is probably a much bigger pot of funding that could be made available if we were to think more creatively about how we are funding rail infrastructure, not just in the capital but elsewhere.
The other aspect of your question about what is fair illuminates is that we should have much greater clarity about how we prioritise, not just over the control period but beyond. What is the long-term prioritisation that exists within this vast laundry list? All of us have our own laundry lists, and if we had more visibility of how that was prioritised, it would help everybody.
Q274 Chair: How is rail investment linked to economic growth?
Tracey Lee: It is a massive driver for economic growth. The figures for that are there. Sometimes the way in which the calculations are done masks the impact that investment in transport generally and in rail specifically has on economic growth. I would like to echo the point that one of the key issues about investment is, what are we investing in? What is our minimum standard? What is our expectation for different cities and areas of the UK? We talk about a national rail service, yet we are not quite clear what those national standards are and what we are expecting.
Q275 Chair: What is the impact on the economy of the relatively low investment in the region you operate in?
Tracey Lee: It is about the negative impact for my area when the rail line goes down. We were here earlier in the year, so you will all be aware that we had no rail service to the far south-west for nine weeks. That was on top of a two-week closure of the rail line for planned maintenance work. It had a significant impact on the economy, calculated at over £600,000 a day just for the Plymouth area. There is an issue in terms of resilience that moves us backwards. There are also figures for what is possible when you invest in the rail service, particularly the work that is being done by the University of the West of England on distance decay and the impact that distance from London has on GVA. There are some very compelling figures.
Q276 Chair: Mr Pendlington, would you like to tell us more on the point you raised earlier? What is the impact of funding on subsidies—or lack of them?
Mark Pendlington: Of fundamental importance to the growth of the East Anglia economy is the golden thread that runs through Norfolk, Suffolk and Essex, which is the Great Eastern main line. We have a lot of world-class companies that are already based in East Anglia and many more that want to come here; we certainly want to make sure that those that come stay.
We have potential, through our strategic economic plans, for 205,000 more jobs and 184,000 more homes. The value to the economy of our East Anglian economy is £60 billion. We are saying that, unless you invest in rail to make that a mobile and accessible world-class economy, it will stifle growth, cut off inward investment and be a positive disincentive. I have several examples of people in world companies who want to locate, invest and bring jobs to East Anglia, but they are very concerned about the state of the transport links that exist. We see the golden thread of the rail line as absolutely fundamental to stimulating growth and to bringing jobs and enterprise to the East Anglian region.
Q277 Chair: Do you have any examples of companies that say they have not come because of lack of rail connections and transport investment generally?
Mark Pendlington: I have examples of companies that talk to me about relocating to East Anglia but are very nervous about doing so because of the state of the railway. I have examples of passengers who are moving home because they cannot rely on the railway to get to their jobs. I have the example of one international businessman who is currently making a decision on whether to locate to Norfolk. He came to see me from south-east Asia and got as far as Liverpool Street station; that is where his journey largely finished. I was at the other end of the line, waiting to meet him to say, “This is a great, vibrant, dynamic economy. You need to be here for lifestyle, for work, for employees and for skills,” but I could see the look he gave me when he got off the train. Investment is key to stimulating jobs. I am sure there are many more people like him that we need to encourage to locate in East Anglia, but there is a big disincentive to doing that at the moment because of the state of the railway.
Q278 Mr Sanders: There are a number of issues for any peripheral part of the United Kingdom. Resilience is obviously at the top of the list, but there are also journey times, punctuality and the journey experience, which includes capacity. Are you facing all of those issues in your respective areas? I would be interested to hear Greater London’s view on those four issues and which of them it faces.
Mark Pendlington: If I may, Mr Sanders, I will challenge you on the phrase “peripheral part of the UK”. We are not a peripheral part of the UK. As the economy is being rebalanced north-south and, importantly, east-west, East Anglia is one of the two regions in the country that is a net contributor to the Treasury. We have, literally, a very dynamic economy.
I come to this inquiry with the perspective of supporting UK plc. I do not want to have to compete with the west, London or the north; I see us all in it together, for UK plc. Therefore, we have to look at investment and opportunity. With investment going into the north, as it quite rightly should, and into other parts of the economy, my fear is that we are left behind; the golden goose should not be stopped laying the golden eggs that it is currently laying. We are not a peripheral part of the economy—I see us as absolutely central.
Q279 Mr Sanders: I did not mean economically—I meant geographically.
Mark Pendlington: Right.
Tracey Lee: All of those issues are important. As the Peninsula Rail Task Force, we cannot separate any of them, because of the issues that we have had. It should be a basic right to have a railway line that is not severed. Ours is now back up and running. There is some work for this winter, but at least £350 million needs to be spent to ensure that that coastal route is resilient for future winters.
On the issue of journey times, peripherality is a state of mind but it is brought on by the fact that, if you are standing at Paddington station and your train is delayed by an hour, the far south-west does feel very far away.
Q280 Mr Sanders: On resilience, it is not just about what happens in the west country. Most of the delays to west country traffic into London occur between Reading and Paddington.
Tracey Lee: You are absolutely right—45 minutes on Friday due to a freight train in the Reading area. Our rail line is hugely impacted by the congestion around London. This has to be a national network that works as a network—that is the key. I am as interested in what is happening in Reading as I am in what is happening in Exeter or Paignton.
Q281 Mr Sanders: In the view of Greater London, of those four, which is a real issue for London? Is it resilience, journey times, punctuality or the journey experience—or all four?
Isabel Dedring: It would be very difficult to pick between them. The simple capacity issue is a major problem. I will pick out the resilience point particularly because it is a really important one. We recently put forward a proposal to strengthen significantly the orbital links in London. That regenerates town centres, which echoes some of the issues that exist outside London. It also relieves congestion and hence those hair-trigger events near the central London termini, because you get more and more trains and passengers starting to make movements around the centre, thereby avoiding the congested termini. For us within London, or within the whole Greater London area, it is both strengthening the inner orbital connections of the Overground and introducing more outer orbital links. The success of the Overground in terms of the growth in ridership shows that there is a huge appetite for that. It is not all people moving between points on that network; it is people who are coming in radially, avoiding central London stations and then coming further into the centre. It serves a number of different purposes.
Importantly, the resilience point is not well picked up in Network Rail’s business case processes and in the way they assess schemes. It is an issue that we have had in making the case around why you would invest in resilience, because it is not valued correctly, as far as we can see.
Q282 Mr Sanders: Is there a reason why it is not valued correctly?
Isabel Dedring: There are a couple of areas where it is important that Network Rail’s prioritisation process and how they assess schemes is reviewed. Another example would be around the regeneration and economic impact of schemes. We have had a very hard time making the case for four-tracking up the Lea valley and for extending the railway line to Barking Riverside. That would trigger 10,000 new homes, but homes are not a transport objective. When faced with all the pressures we know about, of course Network Rail is not going to prioritise that kind of scheme. Perhaps it is just seen as peripheral to the main business of transport.
Q283 Mr Sanders: I have one final question. Everybody makes the case that investment in rail helps economic growth, but there have been periods when investment in rail has fallen. Were there corresponding falls in the value of the economy in those periods?
Chair: Ms Lee, do you have any examples of that?
Tracey Lee: I do not have any examples in precisely that area. The investment we need is investment for the long term. Clearly the economy will go in cycles, but from the Peninsula perspective we are looking at the investment we need until 2043. This is not for the short term; it is about the long-term aim of getting a network that works the way it should for a country like Great Britain.
Q284 Chair: Mr Pendlington, you made a strong point about the impact on economic activity of not having the right investment. Is there anything you would like to add to that in response to Mr Sanders’s question?
Mark Pendlington: Last year we were invited to put a case to Government to justify investment and the economic benefit that could bring to the economy. There are two things. To my mind, if you invest in a railway, in people and places and in the economic potential of somewhere and if you allow people to release the potential they have for jobs and growth, business will respond to the investment and make sure that Government and the taxpayer get a return on that investment.
All we say to the Government is, “Give us the reason to release the potential in East Anglia.” From our latest proposal, which goes to the Government next week, we know that if the Government do that we can release potential of as much as £4.5 billion to the economy. It is a massive opportunity. I know, because I have been in business for 30 years, that business generally really likes an enormous challenge to make the most of growth, to employ people and to upskill them. It is just about giving them the opportunities to succeed, for UK plc as much as for East Anglia.
Isabel Dedring: I am not sure about the meta-economic point, but there are endless examples of schemes in London—the Northern line extension, Crossrail and the Jubilee line extension—where there are huge amounts of data about the growth that has been triggered, and you can compare it with surrounding areas. The Crossrail growth impact has been substantially above the impact that was forecast when the business case was originally put together. At that scale, you can see it very clearly.
Q285 Chloe Smith: It is clear that we have a certain number of facts in the baseline. We have public expenditure, which varies per region. We have subsidy, which varies per region and goes down to the extent of subsidy per passenger mile, so we have distance coming in there as well. We also have figures available to us on regional usage. For example, when you look at the growth in the past year reported by the ORR this April, you see that the east and London were the two regions with the highest passenger growth—4% and 4.7% respectively. In fact, the number of journeys in the north-west decreased.
Considering that any Government has to share limited resources across a country, that it takes time to plan—change will not happen overnight, whatever you do with the baseline—and that perhaps, she says courageously, all passengers ought to be equal, how does each of you think that the Government ought to move from here to a better service across the country?
Tracey Lee: As I said earlier, one thing I would like to see is what the national standard is. Is the national standard to have rail lines that are electrified, because of the speed of transport? If that is the case, in the south-west they are not and there is no plan for electrification. It is really important that we understand what that baseline is. The danger otherwise is that we all put our cases to Government and it feels a bit like, “Pick me, pick me.” We can create those cases, but we need to see this as a whole network and to see what the network solutions are for the rail network as a whole. That is the important part—making sure that we have a very long-term plan and that we are really clear about what the baseline is, and what we are not going to fall below, so that we do not leave any region behind; otherwise we will have regional rail services, not a national rail service.
Isabel Dedring: I like the way you framed the question. To go back to the point I was making earlier, the idea that this is a finite pot—or that it is entirely grant funded—must be the wrong idea. For example, we have had a very hard time in discussions around HS2, talking about the fact that it costs more to do Euston properly and we do not have any budget. The argument is that if you redevelop the area around Euston there is a higher amount of funding available overall, because of land value increases, and you can use that to fund a better Euston, potentially. The idea that you can use whatever type of land value capture you want to help to fund some of these schemes is a very difficult case to get heard on the rail side of the world, for whatever reason. It is something that we have been doing more and more, because we accept that in London Crossrail 2 will not be primarily grant funded; in fact, we will be lucky to get any grant funding from Government. We are moving increasingly in the direction of using that as the absolute funding of last resort, whereas on the national railway network the assumption of a lot of the people we speak to is that this will be entirely grant funded. If you want to extend that funding further so that everybody can get a bit more, we all have a common interest in trying to expand those tools to capture more revenue from development and economic growth, and plough it back into the network.
Q286 Chloe Smith: Before Mr Pendlington comes in, can I take the opportunity briefly to ask you about franchising? In a way, franchising can be seen as a multiplier—as a lever to allow more to be put in. Is that your view? Can you talk me through your views on that?
Isabel Dedring: Yes and no. In London, the Mayor has been very clear that he thinks more franchises should be devolved to London and that we need to restructure the franchises in and around London, but there is also just the capital investment in the network, which is not entirely captured by the franchises. It is more around those larger-scale interventions. There is no reason why we could not structure some of that investment in the vein of a Crossrail 1 or a Crossrail 2, which runs to a large extent on existing lines; the investment could tap into that. Devolution of franchises, for us, or franchising, plays a part in that in terms of service standards, but it will still be stuck if, fundamentally, the line needs a major amount of investment—re-signalisation, platform lengthening or lifting bridges so that double-decker trains can go through. All those sorts of things will not be captured within the franchising process, in all likelihood.
Mark Pendlington: There is the point, which is well made, about a national strategic plan. There is also the point about making sure that the incentive to be a good franchisee attracts the right quality of person or company that wants to do it. At the moment we have Abellio Greater Anglia running the Great Eastern main line. For the privilege of running that line, they paid about £450 million in the most recent franchise period. For the return they get on that, they might as well have put their money into a savings account and not bothered running a railway. They have to be incentivised for excellence.
On the fairness point, I do not want to sound parochial, but it cannot be right that the passenger not only has to fund the £450 million but also suffers in East Anglia the second worst rate per passenger mile, of 1.5p, from the pot that comes from DFT, through Network Rail. That is way below the national average of 12.5p per passenger mile. There has to be a strategic plan and a way for excellence to come forward in terms of service and service provision, but we must never get into the position where there is a rail line, such as the one I am here to support today, where no line speed improvements and no major capacity improvements have been made in the last 20 years. There has to be a better way to formulate and manage our rail network, particularly from the perspective I am looking at this through.
Q287 Chloe Smith: One thing we will be looking at with our second panel is rolling stock, which is quite a visible signal to the passenger of the quality of their service. As Mr Sanders quite rightly said, resilience comes in of course, as do speed and time, but quality can often be one of the most visible things. Is there a smart way to do this across the country?
Mark Pendlington: There probably is, but then I would say that because our passengers, commuters, visitors and businesses travel on 25-year-old rolling stock, which is the oldest, when you compare it with other inter-city lines, although it is going to be modernised.
Q288 Mr Sanders: That is quite young compared with First Great Western.
Mark Pendlington: I will pursue my point. That 25-year-old rolling stock will be illegal in 2019. You are right. The passenger needs a quality journey. They need to work on the train and they need resilience and reliability. All of those things should come as standard. On the Great Eastern main line, we are looking for new rolling stock, because we have suffered enough. Without the investment that is now, we hope, coming forward, we are turning the Great Eastern main line into a heritage line—a great place to see a beautiful range of countryside and a beautiful place to be, where the timetable can be rather flexible. We need to turn it into an enterprise and economic corridor. That can be done only with modern, new rolling stock that serves an economy that wants to do its very best for the country.
Tracey Lee: I am one of four children, so I am used to hand-me-downs, but sometimes the state of the rolling stock is something no family would be proud of. We are still waiting to see whether we get some hand-me-downs from the electrification of the line to Bristol; we are hoping for a few crumbs off the table, just to get a bit more capacity in the region. Again, it is about that uncertainty. We have got to have more certainty in the system, to have a plan and to have clarity about what we are getting and when we are getting it.
The key factor for us in the far south-west is that we are the only region without a plan for electrification. We need to know whether there is going to be electrification of the far south-west, otherwise you can give us all your hand-me-downs because the rest of you will not be able to use the rolling stock that we will have in the far south-west. It comes back to the question of what standards we are setting. The improvements that you can get as a result of good rolling stock should not be underestimated. In the plans that we have, we are eking things out. There is no magic bullet for us in terms of journey times—it is about lots of incremental changes. The rolling stock is a really key part of the changes you need to make to reduce journey times.
Q289 Chair: We heard from Ms Dedring about how increasingly London is raising funding from increased development value, and may not be totally dependent on grant. Is that something that can be achieved only in London? Could it be achieved in your area, Mr Pendlington? Is that a way you could raise money for investment in rail?
Mark Pendlington: It could be explored. With the public purse constrained at national and local level, it is probably a time for some innovation to be explored, looking at leveraging in private sector investment and international investment from other places. I agree that it is time to look at how we might do things differently in the future, to see whether it could work better.
Q290 Chair: Do you think the potential is there?
Mark Pendlington: I would like to explore it.
Q291 Chair: Ms Lee, what is your view on that?
Tracey Lee: There is some potential. The main potential, as you have heard, is very much around schemes, and can be around particular assets. With railway station improvements, you can normally lever in extra resources to help put forward a scheme that really works and can be very attractive. In terms of the impact that reduced journey times have on companies relocating, as you heard earlier, it is very difficult to pull in and get the benefits realised within a traditional financial business case. This is about the macro-economics of how the economy in a region is working as a result of faster journey times. It is not impossible—
Q292 Chair: Would devolution of decision making in relation to rail help your services?
Mark Pendlington: As part of our strategic economic plans—
Q293 Chair: How could it work? Would it be something you would welcome?
Mark Pendlington: It would be something we would welcome, because through our strategic economic plan we are asking the Government for things apart from rail. We are talking a lot about transport and growth, and we are asking for independence and flexibility, so that we can make decisions from the pot we have to ask for from Government and into which we bid. Whatever size the pot is, we are asking for the freedoms and flexibilities to determine local decisions.
Q294 Chair: Who is the “we”?
Mark Pendlington: It would be the local enterprise partnership, educationalists and local authorities, working in partnership. It is the triumvirate that has succeeded—
Q295 Chair: Is that structure there or is it something that you would have to create?
Mark Pendlington: It is there through the local enterprise partnership board. We then have local boards for Greater Norwich and Greater Ipswich. The structure is there to have a proper debate—an accountable, democratic debate—and to take the decisions locally. We are bidding into a pot. We got an above-average settlement as part of our growth deal this year and we are very grateful for that. What we want are greater freedoms and flexibilities to earn the money and spend it locally on the priorities that we see as necessary and that local people tell us are priorities for them.
Q296 Chair: Ms Lee, you referred a number of times to what you call national standards. Would it be better for you if there was devolution of decision making on rail and perhaps other transport issues? Would you be able to create your own standards then or would you be at a disadvantage compared with other, better-off areas?
Tracey Lee: It works on two levels. Inter-city services are part of a national network and need to be funded as part of that, but the opportunities to create local services and make transport work within regions would be hugely welcomed. There are some really good success stories on how that works and brings innovation to make sure that local services are there. I do not think it is one or the other; it has to be both of them working together.
Q297 Chair: Ms Dedring, would further devolution of powers to London make a better service?
Isabel Dedring: Yes. The Mayor has a very strong view on that. Over the last few years, we have consistently campaigned for more devolution of franchises in London—in particular, splitting short and long-distance commuter franchises. That does not mean that the short-distance commuters are improving at the expense of longer-distance commuters, because those paths are protected and defined by the DFT. There is often a misapprehension that if you improve regional or local services it will have a negative impact on longer-distance services. That does not need to be the case.
The experience of the Overground—we have the West Anglia franchise coming in next year, in 2015—shows that you can specify something that will significantly improve services locally but not at the expense of other services. It brings a focus that otherwise you simply do not have. Otherwise, inevitably you end up with a situation where the longer-distance movements always kick out the shorter-distance movements and are prioritised over the more local movements. That applies on every level, in terms of day-to-day operations and reliability but also in terms of paths and longer-term decision making and investment.
Q298 Chair: Are you seeking further infrastructure investment in London?
Isabel Dedring: Yes, that is right.
Q299 Chair: Why?
Isabel Dedring: We are looking for devolved franchises across large chunks of the city. That does not work along all the different radial routes, but we have campaigned for further devolution in the south-east—the whole quadrant coming out of London bridge; in the south-west, where the service is hugely overcrowded and, in our view, very poor; and north-east of Liverpool Street, where we have gotten the franchise split out. In parallel with that, you also need a proper programme of capital investment.
Q300 Mr Sanders: In terms of devolution, there is devolving certain political decisions that might involve having real regional input into franchises, but there are also certain fiscal freedoms—certainly in London, but maybe even in other parts of the country, too—where having some say over the taxation of the real estate and encouraging investment in better station facilities and integrated transport connections could have a significant impact on the economic benefit. Is anybody making the case for that kind of devolution? It is not something that will come from here—“Oh, here’s a good idea; let’s give them that power.” It is actually going to have to come from the regions—even London; they will have to say to Government, “If you give us this, we can deliver that.”
Isabel Dedring: Both those points are absolutely right. Just to be clear, the devolution we are looking for is that, effectively, the Mayor, rather than the DFT, lets the franchise, the argument being that we have a much better understanding of local conditions within Greater London, what kind of movements there are, what people need and the local impacts of improvements around stations and things like that.
Q301 Mr Sanders: But would you be doing that for inter-city? The other end of the line has a point of view on that.
Isabel Dedring: We are explicitly not trying to get into those questions. We are trying to carve out franchises that are 90%-plus within the footprint of Greater London. That is the first point.
On the second point, the issue of financing is a real area for common cause between the regions. It is a good argument to have with Government, because it is not about cash; it is about flexibility, provisions, TIFs and things like that. At the moment people are sticking their toe into lots of different waters—“Let’s try tax increment financing here and an enterprise zone there”—but there is no sausage machine that is churning these things out. The issue with these fiscal structures is that every single one of the schemes is very difficult to pull off, because each one is unique and never to be seen again. If you do not start to get some replicability and some clarity from Government about what kind of structures they are going to support, it is very difficult to scale up the amount of investment that is coming into these schemes from third parties, because nobody knows what they are confronting every time they start off on one of those journeys.
Q302 Chloe Smith: Talking about a sausage machine process, you may have pre-empted my next question, which is about Network Rail and how adequate you think their planning process is. Statutorily, they are asked to run a planning process with five-year chunks of plans and a cycle that feeds it. How adequate do you think that is? Secondly, do you think there is the right balance between an official-run process and political interventions? After all, we live in a democracy.
Tracey Lee: There is some work to be done in terms of the planning process. Five-year planning chunks are not huge when you are looking at national infrastructure. That can lead to short-term decisions, but actually we need to see a longer-term plan. How does it fit together over a much longer period of time? Everybody can then see the part they play in that, and we can plan for and work through the opportunities that come as a result.
Network Rail’s forecasting leaves a lot to be desired, certainly in terms of passenger growth and the network. I know that we have experienced some issues in relation to forecasting, where we have exceeded all demands as a result of that. Finally, looking at the resilience element, for us there were no plans for resilience. We had a £31.3 million hokey-cokey in terms of funding for schemes that were in the budget, then out of the budget and then back in the budget as a result of the failure of the line at Dawlish. Those are all things that need to be planned for.
We are really heartened to see things like the western route studies and the route studies for all the corridors, which are nearly complete. The studies on climate change and adaptations are coming through, so the work is there. It now needs to come together in a much longer plan than chunks of control periods.
Q303 Chloe Smith: Can I get greater understanding of your point about a hokey-cokey, which is nicely put? A note that I have in front of me says that Network Rail has pledged to spend £31 million on 10 sites on the western route, which I think is the same thing as you are referring to. Are you saying that they have not pledged it and it is not happening?
Tracey Lee: No, they have. But the Committee will be aware that when we came to you earlier in the year the £31.3 million was out of the budget, having been in the budget. It then went back into the budget, as a result of Dawlish. It is the money that moves around that causes uncertainty in the system. The money is in the system now and the schemes are being designed and delivered. We are really pleased about that.
Isabel Dedring: I echo Tracey’s points; I totally agree. I am not a huge student of Network Rail’s organisational processes, but, as I understand it, we have visibility of the current control period and of the next one, as it starts to emerge, so arguably we have visibility of something like six or seven years. My understanding is that they have a tentative plan to 2043, but that is internal to the organisation. We cannot see that; we have no idea what is on the list and how it is prioritised.
Tracey made the point a couple of times that we do not know what their prioritisation process is. That is very important, because it triggers people saying, “I’m going to try to be the squeakiest wheel, because then we will get the grease.” That is crazy for everyone—for us and for Network Rail—and a waste of everyone’s time. It also triggers recourse to the political route, as an attempt to influence the process. There are a lot of improvements that could be made.
Having said that, we have a great relationship with Network Rail—probably not any more, after what I have just said—and there are very good people there. To me, it feels like they are a victim of this process. They could be capable of so much more.
Mark Pendlington: I absolutely agree with that. Like Isabel, I do not want to start upsetting Network Rail, because I am about to ask them for over £400 million to help my Great Eastern main line. In that context, I have to be careful. To Tracey’s point, I see short-termism and lack of long-term strategic certainty as a big problem. Going to the victim point, I think they are probably a slave to the political process. We generally are not doing our best to set them up for success. There are some extremely good professionals there, but they are not set up for the success we need them to deliver for us all the time.
Q304 Chair: What would need to change so that they were set up for success?
Mark Pendlington: They need to be freer from the constraints of Government, perhaps, and they need longer time horizons to plan. They do not need the stop-start of the political process or to be nervous or uncertain about the political process; they need it to be within a long-term strategic framework, so that the professionals can get on with their job. There are performance, efficiency and productivity issues at Network Rail, but I am not sure it is their fault. From what I see, there are lots of people wanting to do better, but the system is quite constraining. Like Isabel, I am not an expert or a scientist on Network Rail by any stretch of the imagination, but wearing a commercial hat—from the business point of view—I can see a lot of frustration in Network Rail at not being able to deliver to the standard that we, the customer, and indeed the politicians expect.
Q305 Chair: What do you think is holding them back?
Mark Pendlington: It is about freedoms and flexibilities—an expression I have used before. They need to have confidence and they need longer time frames in which to operate. I am sure they would respond to the challenge.
Q306 Chair: How confident are you that you will secure the investment you seek for the next control period?
Mark Pendlington: I am very confident. We had the Chancellor of the Exchequer in the region last year on one of his regular visits. He invited us to make the economic, social, commercial and strategic case for investment, which we have done. It is the strongest and most compelling case for investment that I have ever seen in my over 30 years in business. I am hoping that we get that investment, otherwise we are consigning the local economy of one of the two great contributors to the Treasury to 10 more years of misery and inadequate infrastructure.
We will give a return on the investment. In fact, when you look at the investment we are asking for, it is in budgets already. It is not new money; we are just asking for prioritisation and a little bit of help, and we will give a return. The indications are that the return we can give on that investment is three or four times the return that HS2 will bring to London and Birmingham, and that HS3 investment will bring—up to eight or nine times every pound that is spent. I am confident of our case, and I hope that the Chancellor is listening when we hand in the document.
Q307 Chair: When you say “return”, what exactly do you mean? How have you been able to show one?
Mark Pendlington: If we were to get an investment of just over £400 million, there would be benefits; for every pound invested, we would probably get back potential of up to £9. That is in economic benefit—in jobs and growth, in construction work and in a whole host of things that would make a return. Inward investment would make a return. More jobs would be created. More people would come to the region. It would be more accessible and mobile. We would be very free to create the California of Europe, playing to our specialisms in the east of England in high tech, clean technology and innovation. Companies tell me, and I am with them often enough to believe them, that they are just waiting for that investment to release the potential. We estimate that potential is upwards of £4.5 billion, with £1.3 billion in extra capital investment as well. It is very exciting. We just need a bit of help to kick-start a great part of the UK economy.
Q308 Chair: Do you think that the current ways of assessing returns and adequate returns take account of what you are saying?
Mark Pendlington: Yes.
Q309 Chair: You feel confident about that.
Mark Pendlington: Yes. I am happy with it.
Q310 Chair: The Peninsula Rail Task Force has said that the south-west has been “starved” of investment. Why do you think that has happened? What can you do to change it?
Tracey Lee: I do not know why we have been starved of investment. I do not know whether we have made the case loudly enough. It comes back to who is making that case and shouting loudest, but we are really clear on the investment we need. We are in a slightly different position, in that we need investment to get to the starting point. Because of the resilience issues that we face in the region, there is investment that is needed to prevent us going backwards, never mind coming forwards. That has to be the starting position.
The Dawlish line needs £350 million of investment to get it where it needs to be, but Network Rail are talking about £20 million over the next full control period. We cannot have a full control period to get us to the starting line; it has to be accelerated. That is about losing money for the economy, not adding to the economy. I will be a drain on my colleagues unless we get to that particular starting point. From there, it is about the investment that we need, along with all the other regions.
For us, in particular, journey times are a massive issue. The fact that Newcastle is over 50 miles further along than Plymouth but that you can get from there to London an hour faster is not something we would expect in the future. That is the sort of issue we face—slightly different from colleagues—to make sure that we are always compressing journey times, through a lot of the incremental changes that are needed. The total package for us, which changes the game for the peninsula, is about £5 billion. That is what we need for the game changers that take significant amounts off journey times to the far south-west. Looking at the productivity increases as a result of that investment, calculations show a return of over £600 million year on year, so we think we have a good case to make as well. I am sure we will all be pitching up with our cases to the Chancellor.
We recognise that it is not about one control period and that the game changers we need are over a longer period of time, not least because some of ours are major engineering works that need to happen. It is not about asking for everything at once. If you get the longer-term plan in place, everyone can see where they fit into that. Of course we would all like to go first, but we know that design and development for some of the major infrastructure elements take some time to get in place. It is not about everything happening in one phase.
Q311 Chloe Smith: I strongly sympathise with what you are saying about the time it takes to get solutions through. Just to make sure that the voice of the passenger comes through loud and clear in this session, how do you go about explaining to passengers that it takes 10 or 20 years to get this or that thing? That question is directed to the whole panel, because it is crucial that you take people with you on these reform cases.
Tracey Lee: For us, it is very much about the package—a package of works that need to happen. Some of those works are relatively quick wins that reduce journey times. Making sure that the train paths to London are clear for inter-city services—the priorities that are given there—and improvements to rolling stock are all about the incremental changes that are needed over time to get us the big game changes over that period. Waiting for jam for 2043 is not something that passengers who have had an hour’s extra wait for a train want to know about, so you have to make sure that you are making the improvements as you go. It is not about one thing or one magic bullet.
Mark Pendlington: Passengers have to see a good intent from the train operating companies and from everybody involved in making sure that they can get to and from work and visit where they want to visit really well. It is really important to have good communications. I have a number of examples personally, and in my role, of communications not being good enough. Passengers need to see progress happening and to understand what is happening on their behalf and what investment is going in. It is not good enough for passengers to be left in splendid isolation on substandard trains that are late and unreliable, and to have no idea when or if they will get to their destination; they have to see progress. It is up to all of us to make sure that they help us make the compelling case for investment. As far as the Great Eastern main line is concerned, the passenger voice is saying loud and clear that we want this term of investment.
Isabel Dedring: Earlier you talked about rolling stock. In the case of the Overground, we put a lot of effort into CCTV, repainting the handles that go up and down the stairs, rebranding the station, and staff. All of that stuff is not as expensive as fundamentally upgrading the line, but it buys you quite a lot of forbearance from the passenger while things are improving. All of that will not work without some fundamental improvements—people will not tolerate that—but it helps to buy you a lot of tolerance room for problems with insufficient capacity or reliability.
Q312 Chloe Smith: Frankly, do you think that is enough while we hear the headlines about HS2 and HS3? No doubt the whole panel is in the position of having to explain to passengers in their area whether it is possible to have investment on such lines, and for them as well.
Isabel Dedring: It has worked on the Overground, because there has been a lot of investment in increasing the timetable. First, you do the cosmetic stuff, which gets people starting to use the line but with the old timetable. There were no improvements in service but, when we had improvements in service after that, people could see the whole package. Without that, people will get very frustrated.
Mark Pendlington: There is no savvier group of people than the travelling public. They can see through short-termism and cosmetic fixes. What they want is solid investment and a good strategy. They will understand if it is going to take several years to implement, but communicate with them, explain it and give them hope that there are lots of people on their side and they are not sitting in their seat in splendid isolation—that people care about their journey, who they are and where they are going. It is very important to make sure that the passenger is taken with us on the journey of future investment. If it is going to take five or 10 years, tell them, explain it to them and make sure that they are an ally in getting the investment, rather than an enemy of good intentions and future investment.
Q313 Mr Sanders: We have talked a lot about passengers, but there is also freight. From the point of view of the far south-west and the middle of the south-west—Somerset—freight is really important in getting minerals, in particular, to market. Is that part of the Peninsula Rail Task Force, to get that business voice behind it to complement the passenger voice?
Tracey Lee: Freight is incredibly important, for the reasons you have outlined. The Peninsula Rail Task Force has both LEPs and chambers of commerce represented on it, so the voice for the industry is certainly there. It is absolutely essential. In fact, we believe that we can have more freight. If we can get that investment, it is a real opportunity for the far south-west, particularly for minerals.
Q314 Mr Sanders: The business case that is being made is not just about the far south-west, is it? If you improve signalling further up the line, you improve the service for other areas of economic interest. Are the LEPs further up the line, towards the north, Birmingham and London, being involved?
Tracey Lee: From the Peninsula Rail Task Force’s perspective, yes. Our LEP is working with four other LEPs, looking at the wider transport and network needs. That is absolutely essential. Nobody sits in glorious isolation.
Q315 Chair: Mr Pendlington, how many LEPs work together in your area?
Mark Pendlington: There is the New Anglia LEP, the Essex part of the South East LEP, and the Greater Cambridge Greater Peterborough LEP, to the west. On freight, we have two ports, one in Essex—Harwich—and Felixstowe, the UK’s largest container port; 40% of imports come through Felixstowe. We and the port authorities see the electrification of the Felixstowe-Nuneaton route as hugely important, because at the moment all the containers have to go from Felixstowe to Nuneaton via London, which clogs capacity for passengers on the routes. Another element of our ask is to make sure that the ports have the freedoms and flexibilities to move goods—imports and exports—from Felixstowe in the most efficient manner. Key to that is the electrification of Felixstowe-Nuneaton.
Chair: Thank you very much.
Examination of Witnesses
Witnesses: Malcolm Brown, Chief Executive Officer, Angel Trains, Paul Francis, Managing Director, Porterbrook, and Mary Kenny, Chief Executive Officer, Eversholt Rail, gave evidence.
Q316 Chair: Good afternoon. Welcome to the Transport Committee. Could I have your name and organisation, please?
Malcolm Brown: I am Malcolm Brown, chief executive of Angel Trains.
Mary Kenny: I am Mary Kenny, chief executive of Eversholt Rail.
Paul Francis: I am Paul Francis, managing director of Porterbrook.
Q317 Chair: The Liverpool to Manchester line and the Todmorden curve are just two examples of new, improved lines that cannot be operational because the correct trains are not available to run on them. How have we got into this situation? Is it your fault?
Malcolm Brown: That is a very good opening question. Investment in UK rail is taking a step forward. We have seen a great deal of electrification work on the infrastructure; you mentioned the Todmorden curve. We need to align investment in the infrastructure with both new train procurement and the refurbishment of trains. For the north-west of England, we have just procured £133 million of new electric trains to operate under the wires. Those trains have arrived on time and are working out of the box, but we need to do more and we need to get that joined-up thinking. That is one of the things we have been working on, in collaboration with other industry partners, to try to get a 30-year plan for rolling stock in the UK.
Q318 Chair: But who should be doing the joined-up thinking? You say “we”. Who should it be?
Malcolm Brown: “We” is the rolling stock companies, the train operating companies and Network Rail, with freight in there as well, because you are competing on a finite infrastructure. What we are looking for from Government is long-term strategic planning that allows us to respond to that.
Q319 Chair: And that is not there now.
Malcolm Brown: It has not been there, but we are starting to make progress on that.
Q320 Chair: Does anybody else want to add to that?
Mary Kenny: Network Rail are very much part of that group and feeding into our long-term strategy.
Q321 Chair: Do you think that is happening as well? At the moment, if passengers find that newly electrified lines cannot operate properly because the rolling stock is not there, they are pretty angry. Is that going to change soon?
Mary Kenny: We have had some challenges, especially as we have come through the short-term award process, post the problems with inter-city west coast. The group Malcolm referred to was formed as a result of Roy McNulty’s value for money report—it was the industry’s response to that study. We are beginning to see success in working together with Network Rail. We have now published two plans, which provide a common framework that we in the industry and the Department can use as a baseline.
Q322 Chair: But when is this going to show results? In the meantime, people cannot get the benefit of the investment that has taken place, which seems absurd to the passenger and to the public. Investment has taken place to improve the line, but it cannot be used properly.
Paul Francis: It is starting—
Q323 Chair: Perhaps you can bring more information to this. I think you know about another aspect of it as well.
Paul Francis: I have the good fortune to have been here since 1996, so I have seen all the iterations of rolling stock. We have never really had a proper rolling stock strategy delivered to the industry, except for the one that we have developed as an industry in the last two years. We teamed up with Network Rail, the Department and the train operating companies and have now issued two versions of the rolling stock strategy document, the most recent in February. That looks throughout the whole period to 2043, with all the overlays of passenger growth projections, and identifies where the pinch-points are in rolling stock strategy requirements.
Essentially, it has shown that with the electrification programme, there is a very large requirement to fund a lot of new electric vehicles—somewhere between eight and 12 new electric rail vehicles per week, every week between now and 2043. We are starting to do that. Malcolm talked about an order that they have just placed; we have just been announced as the preferred financier for a £400 million order for Southern, which we are in the process of closing. That will allow lots more older electric trains to be cascaded out around the network, for areas such as the south-west, which we have talked about already in today’s session, but also for Northern. As we speak, we are in the process of delivering a number of 319 vehicles for Northern, to allow additional diesel vehicles to be moved across for other parts of the service that will not be electrified. I know it looks frustrating from the outside, but the industry is making these rolling stock cascades work, because we now have the benefit of the Thameslink order and the new rolling stock that that is freeing up.
Q324 Chair: But isn’t it correct that nine class 170 Turbostar trains are due to leave the TransPennine Express to go to Chiltern?
Paul Francis: It is.
Q325 Chair: How can that have happened?
Paul Francis: Because when the wires are up and the electric trains have been moved to the north, there will be a sufficient number of diesel trains available to back-fill those services. Those trains have not yet moved; throughout the period 2015-16, they will not move until, maybe, 2016. They would never have stayed in the TransPennine Express franchise; they were not required by that franchise and were always identified as a peripheral small fleet. Class 185 DMUs, which are owned by Mary’s company, will be the long-term solution for the lines that are not electrified. The class 350s and other electric stock that we and Malcolm are putting in will satisfy the overall requirements for rolling stock.
We have had a number of discussions with you previously about the class 170s. I understand why the issue has been reported as it has, but the operator never gave an indication that they wanted those trains in that franchise for the long term. Throughout that period, all discussions involved the operator, the DFT and ourselves.
Q326 Chair: What are you saying? Are you saying that there will not be any removal of those trains from TransPennine routes?
Paul Francis: At the moment, there is a long-term agreement—
Q327 Chair: What has happened? You say that it has been reported wrongly. Have we all imagined all of that?
Paul Francis: No. A new lease has been signed with Chiltern Railways from the end of April 2015, but there are sub-lease arrangements for the trains to be left in the franchise indefinitely, in so far as the operator and the DFT agree that that is the appropriate thing to do. There is no physical requirement to remove the trains until the DFT and the operator have agreed that it is the appropriate thing to do.
Q328 Chair: So, if they agreed that they wanted to do it, the passengers would be left without a train.
Paul Francis: As I said, the intention is that sufficient other diesel trains will be freed up by the cascade of electric trains.
Q329 Chair: That is the intention, but will other trains be freed up? Where from? Will they come from other parts of Northern Rail?
Paul Francis: There are electric trains moving north, as we speak, to free up additional vehicles. Malcolm’s company also has diesel vehicles in and around the TransPennine conurbation that are being freed up, so there will be diesel trains available in the next three to four years to back-fill services as and when required.
Q330 Chair: Mr Brown, can you shed any more light on this?
Malcolm Brown: We are bidding, and we have nine electric vehicles that are currently not on lease. We would desperately like to put them to use somewhere, as they are costing us a significant amount of money a month being off lease. We would like to put them into the north of England, but for the passengers’ sake I would like to put them in in a refurbished condition, with new motors on them—we invest about £80 million a year in refurbishment of trains—to give good-quality service to passengers in the north of England.
Q331 Graham Stringer: What is the justification for cascading?
Paul Francis: The justification?
Q332 Graham Stringer: Yes. When an area like the north-west or the north of England needs new trains, why doesn’t it get new trains?
Paul Francis: By and large, new trains are a lot more expensive than existing rolling stock. The economic argument is that, if you can deploy existing vehicles and extend their lives throughout the UK, the national rail network will get a more economically attractive service.
Q333 Graham Stringer: Who makes that decision?
Paul Francis: Essentially, it flows through the franchise bids and the DFT, in terms of what is an affordable railway as part of its franchise re-let process. My competitors and I are providing commercial offerings of rolling stock for those franchise bidders.
Q334 Graham Stringer: How do we know that the trains will be cascaded before the franchises have been drawn up and let?
Paul Francis: That will form part of the negotiation that we will have with all bidders for any one franchise—what their rolling stock requirement is and how it is best satisfied by access to either new fleets or existing fleets.
Q335 Graham Stringer: But Ministers have sat where you are now and told us that these are going to be cascaded. Are you saying that you have no say in that? You are telling us that they are going to be cascaded.
Paul Francis: I am running a commercial business, so my interest is to make sure that my rolling stock is deployed wherever it can be deployed most effectively. I am making commercial offerings for cascades all the time. For example, at the moment the Thameslink vehicles that are coming in—the large Siemens order—are displacing 344 class 319 vehicles. We have two choices. We can put those into sidings and buy a lot more new trains, or, hopefully, we can cascade them around the network—whether it be to First Great Western, Northern or the Welsh valleys—and get better value for money service provision for the taxpayer, and the passenger of course.
Q336 Graham Stringer: How much profit do you make on each carriage?
Paul Francis: Are you talking about a new carriage or an existing carriage?
Q337 Graham Stringer: You can give me the figures in whichever way you want. Both those figures would be of interest.
Paul Francis: I cannot give you the profit figures in this forum, in front of my competitors. I can, of course, write to the Chairperson of the Committee with such information as I can make available.
By and large, this is how the process works. When you bid for a new train, you know how much the train costs, in terms of its capital costs. Let us say that it is £1.5 million a carriage. I will go to the funding markets and raise external finance to pay for that train, so I will pay a credit spread on whatever I borrow to pay for it. I need equity to raise debt—I cannot have one without the other—and my equity providers will require a certain level of return to be earned for them to provide the equity for the company.
That is the funding model, which has been very successful. Between the three of us, we have raised over £6.5 billion of external funding, which has not gone on to the Government’s balance sheet and is not required. Therefore it is available for other parts of the Government’s balance sheet such as schools and hospitals. We have private funders in the business, whether they be pension funds, insurance funds, banks or financial institutions. That has enabled the UK to continue to buy lots of new rolling stock.
Q338 Graham Stringer: When British Rail was privatised, the rolling stock companies were the only part that was not regulated, weren’t they?
Paul Francis: They were not directly regulated, although each of us signed a voluntary code of conduct with the Office of Rail Regulation.
Q339 Graham Stringer: What I am trying to get my head around is that you want the certainty of a plan from the Government and Network Rail—
Paul Francis: I do not think that I actually said that.
Q340 Graham Stringer: Correct me; I am happy to be corrected. I am trying to understand.
Paul Francis: I think what we said is that we are developing our own plan for rolling stock requirements, which we can then use to educate the supply chain, tell Government what we think is required and, therefore, educate our own funding and equity investors as to what the long-term commitments could be.
Q341 Chair: Mr Brown, did you want to say something? You commented on this area.
Malcolm Brown: If I can take a step back, our model—our business—relies on churn. We look to invest in new trains, existing trains and so on. At some point, the trains stop and we scrap them or do whatever we do with them at the end of that. To be healthy, our business model requires us to continue to invest in new rolling stock on an ongoing basis—on a churn basis—so we look at the fleet of trains we have very much as a portfolio, rather than just as individuals. Where we look to invest is not geography specific. There is nothing that says we cannot invest in new trains in the north of England; we have just put in £133 million. Who decides that? I think that was your original question.
Graham Stringer: That was my original question.
Malcolm Brown: It is a decision that is taken between the DFT and bidders for the train operating franchises. Our position as ROSCOs within this market is to provide them with prices for new, refurbished and existing rolling stock. It is for them then to put together the business case to fit the franchise. Does that help?
Q342 Graham Stringer: To go back to Louise’s question, what has gone wrong? Is it that you have assessed the market incorrectly, or is it that the Government have not specified it properly? We are going to end up with lines without trains on them, or not as many trains as we would wish to have on them.
Malcolm Brown: My colleagues will comment on this, but from my perspective, representing Angel Trains, our model relies on our investing in new and existing trains at this point in time. As I sit here today, I would dearly love to be buying more new electric trains for long-distance and intermediate commuters, to increase the capacity that is available to passengers—so that there are more seats on those trains—and to give them a better environment, through the refurbishment of existing rolling stock. Our model relies on that. Hand on heart, there is nothing that I can say from Angel’s perspective that would prevent us from investing in new, appropriate rolling stock.
Q343 Graham Stringer: That addresses my first question. The last question I asked was what has gone wrong?
Malcolm Brown: I think the industry—by that I mean the industry in its totality, including DFT—has got out of line in terms of electrification and infrastructure projects going ahead, and the specification for the rolling stock, and hence the passenger service that goes with those. We should not talk about these things as inanimate objects; they are trains that are running around throughout the UK, carrying people to their jobs, their children’s plays and so on. You have to think of it in those terms. We as an industry have got that out of sync.
Q344 Graham Stringer: I have a final question for Mary Kenny. You said that problems had been caused by the extensions to franchises following the west coast main line fiasco. Could you expand on that?
Mary Kenny: By problems, I meant pressure on the industry to co-ordinate cascades. Investment in a refurbishment or a new build has a very long gestation period. It can take 12 months to plan and two years to deliver the refurbishment of a mid-life fleet, to move it from one part of the network to the next. When we had the short-term awards, we were negotiating short-term leases with incumbent franchisees and it was not easy to plan for longer-term investment. It caused a few problems in moving the pieces around on the chess board, but we are largely over those now. From where we are sitting in our business, with our plans, the fact that they have demonstrated that they have the franchise process up and running again means that we can get back to normal.
Q345 Graham Stringer: I understand that in general terms, but can you specify what particular problems there have been? I understand that when people change the contracts it will cause you planning difficulties, but give me some specific examples.
Mary Kenny: For instance, 18 months to two years ago we decided to invest in a large refurbishment of some 321 trains that run out of Liverpool Street. That was a £200 million refurbishment, but we thought that we would be talking to a long-term franchisee by the time we ran the demonstrator round and tested it with passengers, and before we really committed to the whole amount—because you do not want to waste £200 million—but at the time we ran the demonstrator round we were talking to somebody who was only going to be there for 18 months to two years. We have no certainty that the ITT that comes out for the long-term franchise will not prescribe new build, so it is very difficult to take a leap of faith and say, “Let’s make a massive investment,” when we cannot see out, for 10 years, what is going to happen.
Malcolm Brown: It is a sound question. Our industry is long term; these are long-term capital assets, whether it is track, stations, trains and so on. One of the things that the SDA has caused is around an event horizon coming up in 2019, which is the PRM TSI—the passengers with reduced mobility legislation that is coming in—and each of us has a long-term plan to get our trains into a condition that complies. That is exactly what we should be doing—that is how we roll in the industry—but, in doing that, we have to liaise with the train operators and say, “We want to take some trains away from you, because we want to put spanners on them and fix them.” We do this in the UK all over the place—from Kilmarnock to Doncaster; it is good and it creates jobs. Of course, if you have a short-term franchise, that is a very hard discussion to have, because effectively you are asking the franchisee to give up something now for the greater good in the long term. That can create an imbalance.
Q346 Martin Vickers: Returning to the issue of the transfer from TransPennine to Chiltern, notwithstanding what I have heard this afternoon, I am still a little confused. We have had Ministers before us in Parliament, and we had a parliamentary debate on the issue. Ministers have continually reported that, basically, they were working at it, and the impression has been given that a solution has been found that will give TransPennine passengers units of at least equivalent age and quality. Is that going to happen?
Paul Francis: As I said, the solution is a cross-industry solution. It will depend on a number of cascades, deliveries on electrification and electric units being in place to free up diesel units, but the back-stop is that TransPennine Express has the right to continue to operate and sub-lease those vehicles on that particular line until such time as Chiltern and the Department for Transport decide that it is no longer an appropriate thing to do.
Q347 Martin Vickers: Okay; at least I am clear about where responsibility now lies. Can I move on to a similar issue involving East Midlands Trains, which has a service serving my constituency through to Lincoln and Newark. Many of the services are provided by a single unit. When you get on the train, the guard will announce, “After we have had two or three stops, this train will be overcrowded.” For four years, East Midlands has been telling me that this is because there are no other units available. Is that correct? If after four years that is still the case, why is it the case?
Paul Francis: A number of years ago, the DFT went into a process where they were going to order 200 new, directly procured diesel trains. Malcolm, Mary and I have all procured DMUs—diesel multiple units. We have 499 Turbostars; Malcolm owns a number of Meridians and CrossCountry stock. The fact of the matter is that at present there is no manufacturer of trains, either in or outside the UK, who will commit to building a new, low-cost DMU for the UK market. The reason they will not do that is that they look at the electrification programme and the long-term position with existing diesel rolling stock in the UK and they know that there will be a surplus—I know this is difficult, because it does not feel like that at the moment—so there is no manufacturer at present who will come into the UK to build a new DMU.
We have units such as the ones you refer to—class 153s, which are single-car trains. They were procured by British Rail in the ’80s and they are still in traffic. You are right; they do not couple very easily with anything else, other than 150s. The operators want to reserve the right to deploy the service and to have the flexibility of single-car train operation, so we still have those vehicles. We will have them all the way through to 2019 and, possibly, beyond. We have to take this position, with the electrification of the network, and to generate enough cascades of electric trains such that newer, multiple units such as 158s, 159s and 156s can be cascaded around the network and deployed to provide the very services that you mention.
Q348 Martin Vickers: I understand exactly the logic and the business case for what you are saying, but that is obviously not a satisfactory situation for the passenger, is it?
Paul Francis: I could not agree more.
Q349 Martin Vickers: Surely it is incumbent on the industry to do something about that. You referred to the Department for Transport procuring 200 carriages or something, which is fine, but in what is supposedly a private industry why isn’t the industry dealing with it?
Paul Francis: Because there is no manufacturer that will position a product with a large enough production run. I have appeared before this Committee before. We as a company have bought trains speculatively, with no lease and no operator. When we were originally buying Turbostars, which we built speculatively, we went out and bought 160 new diesel cars, but there is no manufacturer out there currently who wants to build a platform for the UK.
Q350 Chair: Mr Francis, can you clarify exactly what the position is? You appear to be saying that nobody is prepared to manufacture these. The long-term rolling stock strategy, updated in February this year, says that “no new diesel vehicles…would be required” in control periods 5 or 6. Put against that the statement a month ago by the managing director of TransPennine Express, who said: “With no spare diesel units around, we may end up not running trains in certain locations.” At its last meeting, the Committee was told that in Merseyside they would not be able to run services because there was a shortage of trains, or that there would not be enough trains for passengers across the northern hub area. What is it? Will nobody manufacture them, or is the rail industry saying that they are not needed? This is very confusing for the passenger.
Mary Kenny: We are currently again doing a round of several manufacturers to see whether we can get specification we can invest in and get someone to build it. Twelve months ago, the situation was that there was no appetite out there. We are doing another round and we are hopeful that that might change. I am sure that my competitors are doing the same.
Q351 Chair: Mr Brown, can you bring us up to date on this? What is it? Nobody will make them. It might change. In the meantime, we are told that services will not be able to operate because of a shortage of diesel trains.
Malcolm Brown: Everything that you say is correct. There are three separate issues, which I will break down. At this point in time, there is no common platform available for the UK from the manufacturers that any of us can buy. That is a statement of fact. We are looking, and there are people on the fringes who are sort of but not quite close.
The rolling stock plan that you have in front of you predicts that there will be a surplus of diesel trains, without any new trains coming in, in 2016-17—I am doing this from memory, because I do not have the benefit of the figures in front of me—following the Great Western electrification and electrification in the north of England. For the short term, which is the third issue you raised, I am not sighted on what has gone on in Mersey specifically, but if there is a cascade of trains out of any area without trains coming in to replace them, yes, that will cause a shortage.
What it all points to is the importance of electrification, because there is a lot riding on the ability to take diesel trains from under wires and reposition them elsewhere in the UK. Surely electrification has to be the long-term answer. It provides lower whole-life cost and lower whole-system cost and is a better environment for the passenger. What we then do is reinvest in the diesel trains and place them strategically—or tactically, as it were—around the rest of the UK.
Chair: It is a very confused picture. I referred to Mr Brown. He was speaking in his capacity in relation to One North, so he was talking about rail across the north, not just in one part of it.
Q352 Mr Sanders: I do not know whether you were listening to the earlier panel, but one of the issues that came up was finance and devolving financial mechanisms. Presumably you need a business model that works for you. It does not really matter where the financing comes from—or does it? If a larger local authority or a series of local authorities were able to realise something that they could partner with an LEP and Network Rail, are there deals that could be done?
Paul Francis: I cannot speak for Malcolm and Mary, but our financing model is basically bank and bond markets and institutional investors. There is no doubt that they take some comfort from the overall section 30 obligation in the Railways Act, in terms of the requirement to run services on an ongoing basis. They do not necessarily look at the credit of the counter-party itself—they look at the overall railway model and, therefore, UK rail as a whole and the projections for growth. I do not think it would be a particular difficulty if a franchise model became devolved in some way and we were looking at a more local authority-orientated model. In fact, we already lease to PTEs and other vehicles. Essentially, I do not think that is a big problem.
Q353 Mr Sanders: Where is the demand for better rolling stock, for example, coming from? Obviously passengers are putting pressure on politicians and politicians are putting pressure on rail companies, but where does that pressure exert itself within your world?
Malcolm Brown: As Angel Trains, we lease to Merseytravel; we lease directly to the PTE. There is absolutely no issue with that. There is a very successful partnership between us, Merseytravel and Merseyrail, and it works well. With other parties such as Rail North—you mentioned David Brown and the work he has done on that—we are all investigating and discussing working with those types of organisations. There is no issue with that, as long as you are coming at it from a perspective of partnership.
The pressure for new or additional rolling stock comes through the franchising process. We can approach train operators and passenger transport executives. As I explained, it is in our interest to continue to invest. Whether that is us investing solely or working in partnership with a local authority, a LEP or whatever, we are looking to invest in new and existing rolling stock all the time, but where that actually manifests itself is in the franchising process. I cannot turn up to a train operator and say, “There are 40 new trains. Do what you want with them, and by the way, there is the lease to go with that.” We need to have it structured.
Paul Francis: My observation on the last 18 years is that that is one of the problems. Inevitably, the franchise bidding process is always the driver for new trains. I would love to be in a situation where I could go to East Midlands Trains, which is the incumbent operator, tomorrow and say, “We know you have this requirement for new trains. Why do we have to wait until the next franchise bidding round to get on with it? Why can’t we start to talk to you about it now and get the order processed?” We have to make sure that the trains arrive at the right time and that the wires are up, but some of the problems have arisen because every new train order is tied to the franchise bidding process. There is no doubt that there is a short-term problem with the things you mention around diesels in the north. We have some mismatches, partly because of the short-term extensions that Mary mentioned and the mismatches of operators and investment. I would love to be able to go to each franchise operator and say, “We’ve got the funds. We want to invest. Why can’t we work together? Let’s talk to the DFT about getting the process started now.”
Q354 Mr Sanders: That is very helpful, particularly, as you may have heard earlier, given the age of some of the stock. In my part of the world, it is over 40 years old. There is a fear that if they have one more lick of paint they will be too wide for the tunnels.
Paul Francis: I was sort of expecting to be asked that question, because—as some of you may be aware—I have some new owners as of last week. They have come to this industry, and it is fantastic, because they are long-term owners. They are Allianz, EDF, Hastings and AIMCo, which is a Canadian pension fund. They really want to invest and to deploy money in this industry for the long term. They have no exit plans; they are here for the very long term. They are pressurising me and saying, “When can you go and secure some more rolling stock? When can you go and grow the business?” I am saying, “I have to wait, by and large, until there are franchise re-let situations. And then I have to bid competitively.”
Q355 Chair: Can you be a bit clearer? What are you advocating as a way of addressing this?
Paul Francis: I do not see why a new train order, a new piece of growth or a new investment decision always has to be tied to a franchise re-let situation. Southern have done it with their new rolling stock. They have gone out, procured the trains and just re-financed it. That was mid-franchise.
Q356 Chair: Does this mean that the DFT has to become more involved?
Paul Francis: The DFT’s nervousness is that, if it is an incumbent operator, there is always a worry that they will get caught. They have existing franchise terms with that incumbent operator. If the franchise has to do any more work on procuring new investment, how do they make sure that they can handle that negotiation, other than by having a competitive bid as part of a new franchise process, where everybody is bidding for the new rolling stock? I do not see why that should not be solvable. That is just a personal observation; I am not speaking for Mary and Malcolm.
Q357 Chair: Does anybody else want to comment on how we can resolve the problems?
Mary Kenny: I can see benefits to what Paul says, but I can also see why the Department would want to use the franchising process. It allows them to make sure that they are getting the best bang for their buck.
Q358 Chair: But what about the passenger?
Mary Kenny: They may argue that the best way of looking after the passenger is to get best value through the franchising process. I can see it both ways.
Q359 Chair: But if they cannot get on the train, they may not see it in quite that way.
Mary Kenny: Like Paul, I would love to be able to invest at any point.
Malcolm Brown: We are facing a very positive challenge. We have a successful railway, we are carrying more passengers than ever before and we have safety in a better place than it was—touch wood—with better punctuality and so on. The UK is in the fortunate position that there are external, private sector investors—very long, stable, slow-burn investors such as insurance companies and pension funds—that are looking to invest in rolling stock in the UK. The more that we collectively, in partnership with the train operators and the DFT, can do to get in new rolling stock and refurbish existing rolling stock, the better, because it can only encourage more passengers to travel.
Having listened to the evidence given previously, I can sympathise absolutely with passengers who are stuck on very overcrowded trains. It is about economic growth. I loved the line about the golden thread of the rail line—it does encourage economic growth. You need to go up to Manchester or Leeds and stand in the station early in the morning so you can see the number of people who are coming in. That is a powerhouse; it gives that connectivity. The more we can do to encourage that, the better.
Q360 Chair: What is the age of the rolling stock you have?
Malcolm Brown: The current average age is 19 years. Within that, I have trains I have literally just finished bidding for and have closed the contract on, so they are only lumps of metal on a factory floor, right through to trains that I doubt will see it past 2019.
Q361 Chair: How old are the oldest ones?
Malcolm Brown: The oldest ones will be 34 years old in 2019.
Q362 Chair: Where are they placed?
Malcolm Brown: They are in Wales and the north of England.
Q363 Chair: Ms Kenny, what about yours?
Mary Kenny: My average age is similar. My oldest trains are probably the ones running through the Moorgate tunnel.
Q364 Chair: How old are the oldest trains?
Mary Kenny: Forty-plus years.
Q365 Chair: Where are they placed?
Mary Kenny: Running through the Moorgate tunnel.
Q366 Chair: Mr Francis, what is the age of your trains?
Paul Francis: It is about 17 years. My oldest trains are probably the HST sets that were running on Midland Mainline and Great Western. They are about 40 years old.
Q367 Chair: Why do you still have Pacer trains? The ORR has indicated concern about their safety, but they are still there.
Malcolm Brown: First, let us say categorically that the Pacer trains are safe, by all the standards that the ORR sets. We have taken the ORR to task on that and questioned why it put that out.
Q368 Chair: It was in the ORR’s report.
Malcolm Brown: Absolutely. Trust me—I read it and responded to that with vigour. Let me be clear: as far as I am concerned, the trains are safe. The Pacer trains are currently operating because we do not have a replacement for the trains to cascade out and replace them fully. The trains will be 30 years old next year. However, what they provide is a very low-cost solution for the rail network. I have a fleet of about 79 Pacer trains in Northern, which is about 158 vehicles; they are about 25% of the Northern Rail franchise. At some point, they must be replaced and they have to come out, but of course, we need to order additional rolling stock to replace them.
Q369 Martin Vickers: I fully understand the arguments about more electrification affecting the market for diesel units, but for the very foreseeable future—even into the middle distance—some services are not going to be part of the electrified network. Even if you are cascading down, that must surely mean that passengers on those routes are going to be in very old rolling stock, even though it may be refurbished. Surely there must be some mechanism for providing newer—not necessarily new—rolling stock for those services. Even 15 years from now, they could still be diesel services.
Paul Francis: Mary said that she approached a number of manufacturers; we have also approached a number of manufacturers. Let’s say that we could identify a manufacturer tomorrow to build a new diesel train for the UK. The first deliveries would probably be in 2016 or 2017. By that time, according to the rolling stock strategy document, you will have a surplus of diesel units; you will have the 156s, 158s and 159s that, potentially, can cascade around the network. What we have is a short-term mismatch between electric and diesel rolling stock. That is what it is. We are desperately trying to get out 319s, 321s and 317s—all those other trains—and get the electrification done to time, so that we free up as many diesels as we can for the network.
Malcolm Brown: Mid to long-term, I totally agree with you, Martin. There are certain parts of the network that we will not electrify—or not in the foreseeable future—so we will need some self-propelled trains. We have to work with the Siemens and the Hitachis of this world to look at an alternative to diesel trains. A train lasts circa 30 years. Where will we be with diesel, diesel availability and the cost of diesel in 30 years’ time? Surely, with the industry as it is, we should have some ambition, and we should be looking at a combination of wires and battery, rather than simply going back to what we know and what was developed about 60-odd years ago. We should have more ambition in this industry.
Q370 Chair: Who should have the ambition?
Paul Francis: There are a number of really good, exciting engineering initiatives in hand at present. Most of them are covered by confidentiality agreements, which I cannot talk about, but there are some really good, exciting engineering initiatives.
Q371 Chair: When are we going to know about these exciting engineering initiatives?
Paul Francis: You will know about them soon.
Q372 Chair: How soon?
Paul Francis: Within the next year to 18 months, for sure, but possibly a bit sooner.
Q373 Chair: You said that there was a short-term problem. How long is that short-term problem going to last?
Malcolm Brown: By 2016-17 we will move into physically having a surplus of diesel rolling stock.
Paul Francis: On electrics, we will be in surplus before then. We will have class 319 units out of what was Thameslink parked up in the sidings next year.
Q374 Chair: If electrification is delayed, what impact will that have?
Paul Francis: It will make this particular difficulty last longer, because you will not free up a load of diesel trains.
Malcolm Brown: Just now we are working on sensitivity. If—I use the word “if”—electrification is delayed, what is the impact on diesel and electric availability going forward? I say genuinely that we have not yet finished that work, but when we have I am sure we will be happy to share it with the Committee.
Q375 Chair: When will that be?
Malcolm Brown: It is literally only weeks away. We are in the process of doing it. We have seen a couple of drafts already.
Q376 Graham Stringer: Does that mean that you do not have contingency plans if electrification is delayed?
Malcolm Brown: We have plans for the rolling stock. The question is what the contingency is if electrification, which sits with Network Rail, is delayed. That is the meat of the question.
Paul Francis: We are all working towards making sure that we have PRM compliance and all those other things, such that, if beyond 2019 this surplus does not materialise for any reason, we can all run all of our rolling stock beyond that deadline. Wales is a good example. It is planned that the valleys will be electrified. There are a lot of diesel trains down in Wales that are not presently scheduled to be made compliant with PRM legislation. We do not like that; we think that is the wrong solution, because ultimately there is no plan B in the event that electrification is delayed in any way, shape or form in the valleys. They need to be able to continue to run services for passengers, so we need to make sure that the rolling stock is fit for purpose and compliant with legislation.
Q377 Chair: Who is going to make sure that it is fit for purpose?
Paul Francis: We are going to invest in it.
Q378 Chair: We? You?
Paul Francis: Yes—us, the rolling stock companies, or us, Porterbrook.
Q379 Chair: The rolling stock companies will be responsible.
Paul Francis: We are doing a Pacer vehicle in Derby, with RVEL, one of our local engineering companies. We are going to put £800,000 into a Pacer vehicle. Notwithstanding everybody’s dissatisfaction, we want to show stakeholders, whether they are people from Northern, people from DFT or politicians—whoever wants to come and see it—what you can genuinely do with that Pacer vehicle to modify it. That will form the back-stop if the surplus of diesel rolling stock does not materialise and you have to continue to operate Pacer vehicles. We have taken that decision quite independently. We have just decided to invest that money.
Q380 Chair: Mr Brown, do you want to add to that?
Malcolm Brown: We have plans to make all the other diesel trains that we have compliant with PRM TSI, so that we do not retire any trains at this point. I have taken a different view from Porterbrook. Because of the views of passengers and the train operators on Pacers, I have not developed a plan to refurbish the Pacer trains, so I am currently planning that in 2019 the Pacers will be retired. However, if there is a demand or a need because of delay in electrification, I will, of course, respond to that.
Q381 Chair: Did you say 2019?
Malcolm Brown: Yes.
Q382 Chair: So the Pacers will be retired in 2019.
Malcolm Brown: That is the assumption I am currently working on, because passenger demand and the train operators—the customers—are not telling me anything different at this point in time. As I said, should the circumstances change, I will have to re-evaluate my position, but at this point that is what I stated.
Q383 Chair: Would delay in electrification be one of those changes in circumstances?
Malcolm Brown: Yes, definitely. You would have to look at it, because I do not want to be in a situation where I am retiring 79 trains from Northern with nothing to replace them. We will not get ourselves into that situation. That is my responsibility as a rolling stock company, and I will have to adjust and change that.
Q384 Graham Stringer: My last question is a fairly obvious one. You have given us some suggestions as to how the system could be improved—for example, by separating investment in new rolling stock from the franchising process. Are there any other changes in the overall system that you would like to see that you think would bring benefit both to the industry and to the travelling public?
Mary Kenny: To me, it is just about consistency in policy. The industry is quite mature. Everyone—rolling stock providers, manufacturers and Network Rail—is capable of working well together to deliver solutions. What hinders us is when there is a change in policy. One minute we think it is a market-led approach, but if the Government then intervene it is very difficult for us to get confidence to go ahead with investment plans. We need consistency in policy.
Paul Francis: I share Mary’s view. Policy stability is an important thing for investors and funders. I think we are moving towards a more mature place, with the rolling stock strategy group that we have. Government Ministers recognise that and are prepared to listen. They may then start to think, “Maybe we could do things a bit differently around the franchise wrapping and the points where rolling stock is ordered.”
Earlier Mr Stringer asked where it had all gone wrong. I do not want to seem complacent but, between the companies, we have invested a lot of money in new rolling stock. All Mark 1 replacement was done and we have one of the youngest train fleets in Europe, so there are a lot of good things. There is no doubt that at the moment there are some things that could be a lot better—the things in the north you outlined—but we have a strong investor base. There is a good story here. People want to invest and to develop the rolling stock fleets. That is a very strong position to be in.
Q385 Graham Stringer: I just think that when you have a market that is getting stronger and stronger, with more and more passengers, we should get a better and better system. It is very mixed at the moment.
Malcolm Brown: Mr Stringer has kindly answered his question for me. We have a strong industry in the UK at this point in time. The most important thing is that we have passenger numbers growing and passenger satisfaction increasing. What we must do is make sure that we continue that progress throughout the UK. We are in a position where we have investment possible in rolling stock in the UK. We have manufacturers who are willing to build reliable trains that work and arrive on time and on budget. This is a very strong position to be in.
Your previous evidence panel spoke of a hokey-cokey. What we need to avoid is musical statues, where we frenetically run around for a short period of time and then stop. All that does is increase costs in the overall industry, which is unhelpful and unnecessary, when we should be looking for a long-term, steady strategy going forward, which is what we have been trying to do with our colleagues in Network Rail and the train operators, so you can see a steady flow of investment. I must keep bringing us back to the fact that it is about both new and existing rolling stock. The £80 million a year that is invested indirectly supports 2,500 jobs throughout the UK. If you have that sort of long-term stability, the rail industry in the UK can continue to go from strength to strength.
Chair: Thank you all very much.
Oral evidence: Investing in the railway, HC 257 2