Written evidence submitted by the Welsh Government

Dear David,

I welcome the opportunity to respond to this call for evidence.

The Welsh Government expects the transport network serving Wales to be modern, accessible and affordable. The rail services delivered through the Wales and Borders franchise have an important role in transforming the socioeconomic prospects of Welsh communities through connecting people, businesses and communities.

It will be important to ensure that the right choices are made for the future so that our railways deliver the best possible service for the public, and we believe the Welsh Government is best placed to make these choices.

Additionally, we continue to stress to the Department for Transport (DfT) the importance of us being able to set Network Rail’s priorities and funding in relation to its Wales Route. Information published by the Office of Rail and Road (ORR) illustrate that, since it’s inception in 2011, only around 1.5% of the rail enhancement expenditure across England and Wales has been made in the Wales Route areas.

In order to deliver the desired improvements to speed, reliability, capacity and safety across the network, we believe there is a clear need to address the disparity in devolved powers between the Welsh and Scottish Governments. We are calling for a devolution settlement for Wales which includes both the full range of franchising functions, and functions and funding for rail infrastructure.

Our responses to the questions posed by the committee are attached to this letter. I trust you will find this evidence useful.

Yours sincerely,

Ken Skates AC/AM

Ysgrifennydd y Cabinet dros yr Economi a’r Seilwaith

Cabinet Secretary for Economy and Infrastructure

Question 1 - What standard of performance has been experienced under the current franchise?

The Wales and Borders franchise was awarded to Arriva Trains Wales (ATW) in 2003 by the then Strategic Rail Authority for a 15 year period. The franchise sets out the services and service standards that ATW is expected to deliver. Franchise operations are paid for in part from revenue income (including ticket sales), and in part from a substantial government subsidy.

The Welsh Government has, with the Department for Transport (DfT), been jointly responsible for the management of the current Wales and Borders franchise since 2006. As part of this arrangement, funding was transferred to the Welsh Government in 2006-07 at a level sufficient to cover the baseline franchise.

Both the contractual arrangements and the funding transfer did not provide for the growth in demand that has experienced across the Wales and Borders area. The Welsh Government has subsequently stepped in to provide funding in order to deliver the services customers require.

Key Statistics – ATW 2010-2016[1]

Financial Performance

Welsh Government has provided ATW with £700m between 2011-12 and 2014-15 in franchise subsidy payments, including funding for services additional to those within the franchise.

Track access charges have been significantly lower than was forecast when the franchise was let in 2003. This has resulted in ATW returning up to £60m per annum in recent years to the UK Government. This can be seen in the reduction in Net Franchise Receipts from Government line in 2014-15.

The following table presents an overview of ATW’s franchise income and expenditure from 2011-12 to 2014-15[2]

Operational Performance

There has been a significant expansion in both service capacity and passenger numbers in the Wales and Borders franchise area since the franchise was awarded in 2003. Between 2003-04 and 2015-16 the passenger journeys for services provided by ATW increased by around 60%. This includes services on re-opened lines sponsored by the Welsh Government; for example to Ebbw Valley and Vale of Glamorgan lines.

The rail industry’s standard measure of operational performance is the Public Performance Measure (PPM). This shows the percentage of trains which arrive at their terminating station on time (within 5 or 10 minutes of their intended arrival time), and combines figures for punctuality and reliability into a single performance measure. ATW’s contractual benchmark of 88.8% has been met and exceeded since Quarter 4 of 2006-07.

The next table shows the performance of ATW at key change periods.

ATW – PPM Q1 Comparison 2003, 2006 and 2015/16[3]

The following graph presents the increasing performance trend from 2003-04 to 2014-15

ATW’s most recent PPM data shows that it performs relatively well as a regional operator, both in terms of PPM and the Moving Annual Average (MAA).

Comparison of Regional Rail Franchisees PPM

These performance improvements have taken place over a period of rapid growth and expansion. In the 7 years leading up to the 2003 franchise award, growth was in total only 29%. In 2013, circa 29 million passenger journeys took place compared to 18 million at the commencement of the contract. This is a growth of nearly twice the pre 2003 level - around 55%[4]

Passenger Satisfaction

Since the Welsh Government took responsibility for the day to day management of the franchise, customers’ satisfaction with the services provided by ATW has generally improved. This is evidenced through Transport Focus’s National Rail Passenger Survey (NRPS). The NRPS is conducted twice a year and has a sample size of more than 50,000 passengers across the network. The Spring 2016 Passenger Satisfaction results were published in June[5].

For a number of years passengers have overall considered the services provided by ATW to be good.

The following graphs provide a visual overview of satisfaction with ATW’s operation, compared with that expressed for the other regional operators (i.e. Northern, ScotRail and Merseyrail).

Question 2 - What lessons can be learned from the current franchise?

When the franchise was let by the then Strategic Rail Authority in 2003, there was minimal requirement for investment in growth, and no requirement within the contract to add additional services and / or trains. Since this time, there has been a significant growth in passenger numbers across the UK. For the Wales and Borders franchise, passenger numbers have grown by around 60% since the franchise began in 2003.

The Welsh Government has stepped in to ensure that rail services are able to accommodate the growth in passenger numbers that has occurred. This has resulted in the Welsh Government providing around £15m in additional funding each year for extra services and capacity. Despite this extra funding, there remains issues with overcrowding that are unable to be resolved due to the limited availability of diesel rolling stock across Great Britain.

Additionally, the contract awarded in 2003 provides few incentives for the franchise operator to invest in the network, unless there was to be a commercial return.

Although the contract awarded in 2003 focused on punctuality and reliability requirements, only basic requirements for customer service quality were set.

Question 3 – What improvements to rail passenger services should be expected under the next franchise?

Services must be designed to meet the needs of passengers in the twenty-first century. The next franchise, which is planned to commence in October 2018, will enable us to put rail services at the heart of our transport system and drive our ambitions for a vibrant and dynamic economy.

It will do this through supporting the goals of our Well Being and Future Generations (Wales) Act 2015, and by delivering the following high level outcomes:

• Development of new services and increased capacity on existing congested services
• Modern rolling stock, complying with modern standards.
• Improved efficiency realising savings which can extend the service further.
• Co-operation with other transport providers to provide an integrated public transport service.
• A commercial structure which incentivises the right behaviours with fair commercial returns

In the first quarter of 2016, a public consultation was held which aimed to inform our approach to procuring the next Wales and Borders franchise[6]. Respondents to the consultation stressed the need for enhancing the experience for passengers and provided us with their views on a wide range of areas. Priority areas suggested consideration included reducing overall journey times, reducing costs, capacity improvements, enhanced accessibility, better connectivity and improved punctuality, reliability and quality.

Respondents also stressed the importance of improving facilities that enable people to work and communicate more effectively. Greater levels of comfort were called for, along with improvements to provision for disabled passengers and consistently available catering services. Reliable ventilation and air conditioning, and adequate space to store luggage and bicycles were also focuses for respondents.

At stations, respondents to the consultation said they want improvements to the availability of sheltered seating facilities, enhanced ticket purchasing facilities, better CCTV, expanded secure bicycle storage, improved cleanliness and developments in catering and retailing outlets.

Question 4 - How do the Welsh and UK Governments co-operate in deciding how rail passenger services in Wales should be run?

Responsibility for the day-to-day management of ATW was given to the Welsh Government in April 2006 by way of a Joint Parties Agreement (JPA) between the Welsh and UK Governments.

Responsibilities retained by the UK Government under the JPA include

• Re-letting, or extending the franchise
• Operator of Last Resort
• Rights and liabilities in respect of the services operating wholly within England
• Fares Policy (for flows considered to be primarily related to English passengers)
• Relationship with the regulatory (statutory)
• Management of regulatory regimes
• Track Access
• Station Access

In managing their respective franchise responsibilities, relevant officials from both Governments have regular contact with each other. They also attend:

• Quarterly review meetings with the franchise operator
• Six-monthly cross border forum meetings to enable local authorities in England to hold the franchise operator and both governments to account for the delivery of cross-border services.

The Secretary of State for Transport is retains functions for directing and funding Network Rail in Wales.

Additionally, the Secretary of State has a statutory duty to consult the Welsh Ministers on a number of passenger rail provisions, including

• Statement of Franchising Policy
• Other franchises which operate services in Wales
• Statutory Guidance to the ORR

25 August 2016