Looking at The McNulty 'Value for Money' report on railway costs.
The author of the recent ‘Value for Money’ report presented his findings at the Railtex trade fair at Earls Court on June 16. The headline numbers were that UK railways are 20% more expensive than their European counterparts. Ticket prices are around 30% more expensive than in Europe on average per passenger kilometre. State funding was also significantly higher than in Europe with an overall 40% efficiency gap identified.
Sir Roy McNulty, the report’s author, described his findings on why UK railways are so expensive, which to experienced railway staff did not really come as a surprise! The main reason for the high cost of our railways was due to the roles of the Government and the rail industry itself which had brought about the inflated cost since the 1994 fragmentation at privatisation.
High costs could also be, Sir Roy said, partly due to the geography of the UK with London as the main hub but not in the geographical centre. Another factor was the barriers to efficiency created by fragmentation and managing the resultant many interfaces and relationships - all of which had also raised costs.
A review of employment and staffing should take place alongside a review of overheads and administration. Interestingly, the need for improved industrial relations was identified in the report without mentioning Bob Crow who was in the audience.
Readers will not have to have a long or good memory to recall the SRA, the Strategic Rail Authority set up by the Labour government in 1998???. This report proposes that a Rail Systems Agency (RSA) be set up to oversee technical excellence, rationalise and develop common standards and to drive innovation. Plus ca change?
Three levels of integration and co-operation were also suggested ranging from cost and revenue sharing on a route to full vertical integration which would possibly be counter to European railway legislation which prompted the split up in 1994! It was hoped that a couple of joint ventures would take place within three years alongside a vertically integrated pilot scheme.
An alternative infrastructure owner/operator to Network Rail should be in place running a test area within four years led by the DfT and ORR. This should be included in the budget for the next Regulatory Control Period commencing in 2014.
One curious recommendation was that franchisees should reduce their costs. An obvious immediate observation here is that you would expect them to have already done this as it makes sound business sense to generate the profits that shareholders will demand.
So far as the public side of the railways are concerned, a thorough review of the fares system and levels are suggested. Also concerning passengers, McNulty said that communications must improve, with better information systems for all, but mainly for the benefit of passengers.
The behind the scenes suggestion is that the ticket settlement plans should be overhauled, which is presumably ‘code’ for re-allocating fare revenue. This will create winners and losers, so change and consequent effects on franchise budgets will be difficult to get all participants’ agreement on this.
Looking at the supply chain part of the railway, McNulty said that new objectives, incentives, structures and interfaces should be created to make improvements between infrastructure, trains and operations. Earlier participation of all parties involved in railway schemes should be started in new partnering arrangements - which if one believes the PR generated by the Industry, already takes place!
The Rolling Stock companies (ROSCOS) were investigated by the Office for Fair Trading for abuse of monopoly a few years ago but no action was taken. The ROSCOS have to take the risk and rewards and are, for example, losing hire fees on the Mark Three stock stored at Eastleigh, taken out of service as a result of the DfT Franchising policy.
The report said that Network Rail should be decentralised and longer franchises with more leeway as to services provided be awarded. Again these are not new thoughts! Greater responsibility and accountability for local authorities and Passenger Transport Executives is also suggested, something BR achieved very well in its latter years under the three business sectors.
Another recommendation was to have clearer definitions of individual roles and for the Industry to accept greater responsibility for strategic planning. A Rail Delivery Group is to be set up with all the key players and also maybe to take a lead on some critical issues from the Secretary of State. That could almost be British Rail by another name!
The suggestion that the Government should provide greater clarity about what Government policy is and that the DfT should work with the Industry to develop a comprehensive analysis of how subsidy is used. This could be revealing and for example, Rolling Stock hire is thought to account for around 15% of costs.
Government intervention in the form of the Department for Transport’s micro-management also increases avoidable costs for the Industry. A current example of this is the 10 or so First Great Western liveried Mark Three buffet cars in store under cover out of view at Eastleigh Works. This is understood to be as a direct result of the DfT instructing FGW to increase seating capacity on the GW Main Line at the expense of on-board facilities.
The demise of Gatwick Express a few years ago is also a prime case of the DfT wasting money. The trains built for the Victoria to Gatwick Airport service were put onto longer runs while the former Waterloo – Bournemouth Class 442 stock was initially withdrawn by Stagecoach and then refurbished and put onto Gatwick Express services! Many pundits wonder why and what purpose was served by this?
The Industry can only collectively hope that when Mr McNulty says …we need a thorough understanding of the causes of excessive costs…. that he has the high level support to overcome the barriers with strong leadership and a concerted effort by all.
How this will come about in the heavily contractualised rail industry of 2011 is not clear when individual players may be unwilling to relinquish hard won long running contracts.
So far as the safety standards that exist, Sir Roy said that safety on the privatised railways had vastly improved. Again, experienced railwaymen will look back with deep regret and sadness to Southall, Ladbroke Grove, Hatfield and Potters Bar and some would possibly take a counter position here.
Successive franchising policies have added to the cost which may be potentially expensive to change yet again as a result of the study. This could be mitigated by introducing change as the existing myriad of contracts expire. This of course is the main trick that each Government has missed in the last 17 years along with differing levels and direction of Economic Regulation - which sometimes has been at complete odds to the Government of the day.
In what seems to have been a clear dig at Railtrack and Network Rail in particular, Mr. McNulty said that relationships and culture combined with poor supply chain management had created further difficulties.
It is known that potential suppliers to Network Rail have been put off by the demands created by the infrastructure company when tendering for work from them. The cost of tendering itself inflates the cost of the operational railway and combined with the cost of bidding for franchises estimated at tens of millions of pounds, it is easy to see where large sums of money go for no return!
This had created an inefficient culture, not disputed or helped by the Government’s micro-management in the shape of the Department for Transport (DfT) which had become more involved in decision making than in British Rail days!
This in turn had led to the rail industry not taking decisions or being held responsible for consequential actions due to the DfT’s frequently changing franchising and rolling stock policy changes. These had often led to delays in projects.
The report agreed with Network Rail on the subject of Rolling stock procurement which it suggested should be standardised along with the trains themselves. This is an area where the DfT have a long track record of interfering. Their altering specifications for the new Intercity Express Project and other trains are estimated to have wasted £20m of taxpayers money in fleet procurement so far!
One suggestion made five years ago by the Community Rail movement is that of differential standards for lightly use lines in both infrastructure and operations which would reduce costs. This was also revisited by Mr. McNulty in his presentation but could prevent heavy freight and charter trains running on such lines which would be contrary to the NR License in maintaining the network.
The end of the ‘Value For Money’ report says that lessons should be learnt from history, and that the Rail Delivery Group should lead change and a small independent change team should monitor the change. An implementation plan should be ready for the Autumn was the final recommendation.
Savings could reach £1b a year in eight years time, but only if the complete package is accepted and implemented representing a cost reduction of 30% McNulty said. The barriers and solutions are well known but he did not mention the huge subject of European legislation and its far reaching consequences at the presentation.
Savings are envisaged as being made from Network Rail’s current funding period being achieved combined with better train utilisation and other measures outlined in the report. Sources within Network Rail have spoken about a Business Briefing recently held where the anticipated savings demanded by 2014 were most unlikely to be achieved.
The ‘Value For Money’ presentation and report is well presented and deeply researched and railway staff will agree that changes for the better can and should be made. At the Q & A session following McNulty’s presentation, The RMT leader, Bob Crow and his acolytes somewhat hijacked the available time with questions and political point scoring speeches which served no real useful purpose.
Mr Crow did not attempt to answer McNulty’s point that rail industry wages had risen 16% more than the average since privatisation, a point widely recognised amongst railway staff who have been in the Industry for a decade or more.
Posted on Thursday 8th March 2012 | 3:46 PM
I think that both fares and parking at the station are prohibitivly priced . Shift workers have to pay for two days parking for every shift worked. This is just profiteering and there is no overnight seervice. A pity McNulty didn't include parking in his review - in Europe I believe parking at the station is free and there are free usable bus services to shuttle folk to and from the station but not in rip off Britain. The train service is unreliable cramped dirty and generally just a complete misery twice a day. I have travelled when there was a seat but nowhere to put my feet. If someone is tall you can forget it because they don't fit in the seats. Constantly interleaving knees with those sitting opposite you is extremely unpleasant to say the least. I would consider travelling under the current conditions as expensive at a third of the price.