My manifesto for rail to thrive

Sir Michael Holden, chairman of the Editorial Board of RAIL’s business title RailReview, examines the records of the two parties and delivers his own manifesto.

We are in the last few weeks of this zombie government, as it slithers and slides inexorably towards a painful death.

What will the future look like for rail after the General Election? And more importantly, what would we like it to look like that is different from what we have now?

The RailReview Editorial Board has been attempting to understand what a new Labour or Conservative government might do with the railway, and to come up with what we think the successor must do to secure an industry that can better serve its customers - and thereby thrive. This edition is the result of that thought process. More detailed articles will follow before election day, and we will link to those from here.

Perhaps the first point to make is that rail should be considered key to the structure of whatever society the next administration desires to shape.

What has been lost, but could be regained, is public transport’s place in connecting other government aspirations: for social cohesion, economic rebalancing, housing provision, access to education, and decarbonisation.

The outgoing administration has done little to deliver on a promise to tackle the increasing concentration of wealth in one corner of the UK, to the detriment of the rest. Recent population growth is overwhelmingly concentrated in the South East, driven by relative ease of access to work.

It looks quite likely that the next government will be led by Labour, although a hung parliament is a possibility, and we also must allow for possible Tory recovery towards polling day.

After a lengthy gestation period, we now have a Labour policy on rail which provides an indication of its thinking. In this column, I assess the merits of this and examine its areas of confusion.

I then summarise a possible Rail Manifesto of my own. But first, we need to ask ourselves what (if re-elected) a future Conservative government would do on rail policy.

Conservative rail policy

At the time of writing, nothing has been published to give any indication of what the Conservatives might do on rail if re-elected. However, we have the past 14 years’ worth of direct experience to draw on, so it’s not too hard to read the runes and predict what the future might hold.

The obvious starting point is the Williams-Shapps Plan for Rail, which outlined the Conservative government’s approach to handling structural reform of the railway industry.

Published fully three years ago (a further three years after it had been commissioned), it was handily named both for its principal author and for the Transport Secretary who approved its publication at the time. It appeared to offer the white smoke for which the railway had been patiently waiting for so long.

Many commentators (myself included) observed at the time of publication that the document contained many inbuilt contradictions that would make for difficult implementation, and so it has come to pass. These probably boil down into two main problems.

The first problem was the apparent need for a strong guiding mind, coupled with structural simplification. This led naturally towards a much larger role for quasi-government bodies in the sector, with proportionately reduced private sector involvement in the taking of risk for reward.

In such a world, the future of privately run freight businesses and open access operators

A manifesto for our railway to thrive was uncertain at best, and possibly near terminal in most scenarios.

The second problem was the tension between HM Treasury’s need for firm control over the cost base against the Department for Transport’s desire for government to get out of the weeds of micro-management. Seasoned political observers can predict the outcome of such a tussle taking place behind the scenes, and so it has proved once again.

Williams-Shapps was probably the clearest exposition of government policy on railways as you are ever likely to get. But the two key issues I have identified above are probably the main reason why so little has happened over the past three years to give effect to it.

Undoubtedly, circumstances have combined to make it much more difficult to implement:

The consequences of the pandemic for revenue and franchising.

• Brexit
• Repeated changes of Prime Minister, Chancellor of the Exchequer, and Transport Secretaries.
• Rapid inflation leading to the longest industrial dispute on record.
• The anointing of a Prime Minister in Rishi Sunak who is openly hostile to rail, and who was determined to seek his revenge on Boris Johnson’s grand projet by curtailing HS2 at the first opportunity.

So, what does the future hold for rail if the Conservatives were to be re-elected for a further five years?

My view is probably a lot more of the same, especially if Sunak remains as Prime Minister.

It’s possible to see a scenario in which things get even worse: the absence of a clear strategic approach to the economy in general, to transport as a whole, and to rail in particular suggests more muddling through, accompanied by ongoing dither and delay.

The past 14 years have shown that decisions on such fundamental issues as fuel duty and fares are taken within the Treasury for nakedly short-term political reasons, with no regard for environmental or transport objectives. Over time, this has led to a serious imbalance between road and rail. I see no reason why this is likely to change after the election.

But a new Conservative government led by Sunak could be emboldened through a fresh democratic mandate to become more radical in its anti-rail agenda. The desire to reduce the ongoing subsidy to the industry, by focusing on cost reduction to the exclusion of revenue growth, could become even more marked.

This could lead to a major showdown with trade unions, in the style of the miners’ strike in 1984-85, resulting in a prolonged shutdown of the industry.

I don’t think it’s fanciful to see this leading to staff being rehired after the shutdown on revised terms and conditions, in a similar way to how the Air Traffic Control dispute in the USA was resolved by Ronald Reagan in 1981. In such a scenario, many less-trafficked routes might never reopen.

An additional worry for rail is that any future Tory government will have even less expertise in rail than the current one, with the decision of Huw Merriman to stand down.

Labour rail policy

Getting Britain Moving, despite its grand-sounding title, is Labour’s new rail policy rather than a transport policy.

It sits alongside an announcement made two weeks earlier on asserting local control over buses, but there is still no overarching transport policy at the time of writing.

But while transport was not a high priority for Labour as it built its manifesto for the coming election, there is at least a nod in the document to show how the new rail policy is designed to assist with the five national missions laid out by the leadership.

Most of the attention of mainstream journalists was given to the headline policy of allowing existing franchises to conclude and then be taken back in-house. This was immediately badged, of course, as renationalisation. In reality, it’s not too far removed from today’s position.

The policy has five underpinning principles for Great British Railways (GBR) and six outcome objectives for rail. These are all virtuous, and some are even specific in terms of what will be done.

However, there is a lot of ‘motherhood and apple pie’ text in the document. I interpret this as meaning they still don’t really know (or maybe don’t yet want to commit) how they would convert grand ideals into tangible outcomes.

In summary, Labour’s prescription for rail builds heavily on the existing Williams-Shapps proposals. GBR is the centrepiece of the structural reform, along with some grown-up proposals to rationalise the alphabet spaghetti of railway organisations, and to adjust the role of the Rail Regulator.

The good news is that the architects of this policy appear to have read previously published independent work on rail reform. They have twigged that freight and open access operations are vital issues that need very careful handling in any attempt to adjust the roles and responsibilities of the key players, and to simplify industry procedures.

Commendably, there is a short section on each. The first of these gives an absolute commitment to private sector freight operation, along with safeguards to guarantee fair access to the network.

The section on open access is less explicit, suggesting behind-the-scenes differences of opinion that weren’t quite resolved before finalisation of the policy.

I quote: “Open access services introduced by independent operators to use spare network capacity to supplement existing contract operators will remain where it adds value and capacity to the rail network. Open access operators can play an important role within a rail system.” (My emphasis).

These two sentences read like they have been edited by a committee. Capacity has been misunderstood in a railway context. Extra trains do not add capacity to the network, they consume it! They may add extra seats, but there was already the capacity for that before they existed. And the word “can” in the second sentence explodes the uncertainty which lies within this whole rail policy.

Here’s the rub: railways are complicated systems, and the devil really is in the detail. It’s impossible to devise the legislative changes required to support a reformed rail system until you are absolutely clear what outcomes you want to achieve.

Labour must decide whether it really wants to support open access operators or not. If it does, the access and regulatory framework needs to be devised to enable this, not hinder it. And if the support is half-hearted, then it would be better to eliminate open access and devise a simpler system where all passenger services are specified and delivered by the public sector.

We have seen over the past two decades how crucial the Treasury is in terms of blocking or enabling the funding for policy proposals and individual projects brought forward by the DfT.

Treasury ministers’ first priority is to control public expenditure, and its Green Book approach tends to reign supreme when assessing rail proposals.

Public pronouncements by the Shadow Chancellor have been clear that Labour proposes to live within the same fiscal constraints with which the current government is clearly struggling.

It is therefore entirely possible that an incoming Labour government will find itself without the fiscal headroom to enable it to progress many of the initiatives proposed in Labour’s policy document. It’s always easier when in opposition!

Lest all of the above might sound critical of Labour, this is not intended as such. It is commendable that the party has come up with a policy document with some flesh on it.

As we all know, it’s pretty tricky to come up with a sensible and workable proposal for a revised industry structure and incentives, because every option we can come up with has its pros and cons.

My manifesto for rail

I have distilled my possible rail manifesto down into just nine simple points.

1) Track and train together?

“Track and Train Together” was a central building block of the Williams-Shapps Plan. However, I’m one of a diminishing number of independent commentators who don’t see this as a one-size-fits-all solution.

There are parts of the network where this could work well - for example, c2c and Merseyrail.

Equally, there are other parts of the network where it wouldn’t necessarily be a good fit.

And at the other extreme, there are the heavily interworked main lines for which such a method is unlikely to work well.

My own preferred model would keep the infrastructure provider part of GBR separate from the infrastructure user parts of GBR. I would also create a separate organisation within GBR, within which experiments with restoring vertical integration would be led.

The first candidate for this could be Merseyrail. This would involve removing the infrastructure management element of Merseyrail from the main part of GBR, while requiring it to follow the standards laid down by a Technical Authority remaining within the core.

2) Great British Railways

The existing government is proposing to create something called an Independent Rail Body out of the formal structure of Network Rail Infrastructure Ltd. Many observers have expressed concerns that this will lead to the rather monolithic NR culture carrying across into the new arrangement, which will morph into GBR.

In an exclusive interview with Philip Haigh (see pages 44-49), NR Chief Executive Andrew Haines says he gets angry when people say this. He argues passionately that the existing NR culture is a creature of the purpose for which NR was created, and so if the purpose changes the culture will change with it.

I understand why he says this, and I believe that the senior leadership at NR is trying hard to change the organisational culture towards one that is more customer-responsive and less risk-averse. But the task is like trying to turn a super tanker round 180 degrees - it can’t be done quickly.

His argument is that NR is being abolished, not embellished with additional responsibilities. This is a nice line, but I remain concerned that putting a corporate entity with a strong history as an engineering-led, risk-averse business at the top of the new railway industry structure represents a significant risk to the new order.

It inverts the natural arrangement of customer-facing businesses being at the top of the supply chain, and in so doing risks those businesses which actually earn the revenue being seen more as contractors, rather than the customers they really are.

To avoid GBR developing into an ‘NR Mk 2’, I consider that it would be a better approach to reduce the role of NR to infrastructure provider (an internal supplier, if you like) to GBR.

The role of System Operator will become a really important one, and should be kept organisationally separate from the business of infrastructure maintenance and renewal.

Likewise, the management and development of stations should become a separate activity outside of NR but within the GBR family.

3) System Operator

This gets a separate heading because I believe it needs to become the centrepiece of the new organisational structure.

It should be beefed up considerably to become the long-term home of four main activities:

• Rail utilisation strategy.
• Long term network and capacity planning.
• Medium-term capacity allocation.
• Short-term (annual and less) timetable production.

All of these are of vital importance to the effective functioning of GBR. They all require the judgement of Solomon to handle the myriad and complex trade-offs between running trains and maintaining the railway, and deciding how capacity on any particular route can be optimised with all the competing demands from varying operators to run on it.

This organisation should attract the brightest and the best people the public sector can find.

4) Regional devolution

There is lots of evidence now available to suggest that concession agreements let by devolved local authorities represent an excellent model for urban, suburban and regional services. These work well where there is a powerful and informed regional transport authority in place. Think Scotland, Merseyside and London.

If we want to copy this elsewhere, the challenge becomes to beef up regional transport authorities which currently have less real power, but where clear political leadership is possible.

The obvious candidates are Transport for the North and Transport for West Midlands. I would also carve out the inner-suburban parts of most of the remaining London commuter franchises and pass these to Transport for London.

5) Long-distance passenger

Opinion remains divided as to the role Open Access has played in preventing a workable timetable being created for the East Coast Main Line, such that the recently created additional capacity could be effectively exploited.

Lumo’s Martijn Gilbert is clear that open access operators are not the problem in themselves, instead seeing conflicting access rights and the lack of effective consideration of freight paths as bigger issues. Certainly, the role of the existing Network Code in inhibiting the ability to flex timetable path allocation is one key issue.

But most independent observers (myself included) would consider open access to have brought benefits to passengers on the ECML much greater than any incremental timetabling complexity they may have caused. I hold this view despite my history as a former chief executive of the franchised long-distance operator on this route.

With some adjustments to the framework around open access provision, I think it should be possible to gradually move to a position where the majority of long-distance passenger services are provided by operators carrying full revenue and cost risk for their activities, thus reducing the necessity for the state-run GBR to be pre-eminent in this space.

A long-term solution could see a suitable public sector operator remaining in place to operate residual services and act as Operator of Last Resort, to deal with any failing businesses.

It might take 15 years or more to get from here to there, but it seems likely to result in more dynamic and innovative businesses competing among themselves and with air and road, to the advantage of passengers.

6) Residual passenger

Some service groups will not fit either the long-distance or suburban models.

For the foreseeable future, these will need to be let by GBR as concessions. And wherever possible, I would equip these with revenue incentives in addition to the quality ones we currently have.

Such operators may not be able to handle full revenue risk. And given recent history, this may not even be desirable. But a model must be found that encourages service improvements as well as cost reductions through effective incentivisation.

Such a model has not been found while these businesses have been under DfT control, so this is an important task for the fledgling GBR team in its early years.

7) Freight

Freight is the one unqualified success of the post-1994 railway. This success is all the more remarkable in having been achieved despite a fairly hostile industrial environment.

Tim Shoveller at Freightliner and John Smith at GB Railfreight are two of the brightest and most entrepreneurial railway executives around. They believe that just three smallish changes would make all the difference to their ability to invest in the growth of rail freight:

Create a more level playing field for road and rail by electric traction incentives that mirror the impact of the fuel duty freeze in place for the past 14 years, and by reducing track access charges so that they get closer to the road equivalent.

Provide for much longer-term access rights, unlocking investment in new and much more efficient traction.

Commit now to the ‘no regrets’ list of electrification infill schemes, while developing a longer-term trunk route electrification programme exploiting the lower cost possibilities enabled by the suite of recent challenges to electrification standards

On their own, these three initiatives would be sufficient to drive a step-change in the dynamics of the rail freight market.

In the general scheme of railway finances, they would represent little more than a rounding error on costs. They would also free up capacity on the main trunk routes, because electric-hauled freight can run much faster than diesel and thus squeeze between passenger trains more easily.

8) HS2

The decision to have an earlier election than legally required is potentially good news for HS2. It means that the current administration has not had sufficient time to get on with the process of selling land required for the next phase of the programme. It also means a new government could make a rapid decision to proceed with the London tunnels and Euston itself.

Whatever becomes of Northern Powerhouse Rail, building the terminus at Euston and the early construction of Phase 2a as far as Crewe fit into my manifesto as easy decisions to make.

Euston is required to make any kind of sense of the Aston-Acton shuttle, and to remove the existing bomb site.

And Phase 2a is the simplest element of the whole railway to construct while simultaneously delivering the biggest bang for the buck - significant improvement in journey time and capacity to Manchester and the North West, while unlocking the main north-south freight artery for growth.

9) Access agreements and regulation

Last, but by no means least, is the really important enabling backroom stuff.

You only need this bit if you want to retain private sector freight and passenger operators. But I think these are important to the future success of GB rail.

Two main changes are needed:

• More flexibility to flex schedules, whether for freight or passenger, to optimise the use of capacity on congested sections of the network.
• Access rights to be granted for much longer periods of time, to enable major investment decisions to be made.

When a second attempt is made to deposit a Railways Bill in the next term of Parliament, look carefully to see if these two measures are there. If they are, the future should look brighter.

One thing needs to stay the same, though: the independence of the Rail Regulator to protect the access rights of third parties is critical and must be retained.