The review by Sir Roy McNulty, former Chairman of the Civil Aviation Authority and Board member of the Olympic Delivery Authority, was billed as the biggest shake-up in the rail industry since privatisation in the 1990s. Following publication of his Summary Report, what are the implications for passengers and taxpayers?
European benchmarking indicates that both passengers and taxpayers are paying 30% more than those in other countries. McNulty believes that the industry should be aiming for a 30% reduction in unit costs for GB railways (per passenger km) by the end of the next control period (2018/19). He has not looked at possible cuts to the network as a means of achieving this reduction, thus avoiding any comparisons to Beeching but potentially missing an opportunity to look at whether certain rail lines and services are the best way of addressing the public’s transport needs in rural areas. He concludes that rail fares are too high, and so has not considered further increasing fares to provide additional support to the industry.
His key recommendations can be summarised as:
- Development of clearer definitions of the roles of Government and industry
- DfT to analyse how its subsidy is being used – in particular what is it paying for and does it meet DfT objectives?
- Establishment of a Rail Delivery Group from Network Rail, TOCs, freight and other stakeholders to lead a ‘programme of change’ based on the recommendations
- Less prescriptive franchising (already underway) plus consideration of price-based specifications, up-front payments instead of performance bonds and a review of the franchise map with a possible ‘Northern Region’
- Decentralisation and devolution within NR (already underway) to support comparative regulation of route-level units
- A pilot scheme for vertical integration (possibly Greater Anglia) and two joint ventures/alliances where TOCs and NR work together
- Cost and revenue sharing across all TOCs and NR
- Potential for all subsidy for NR to be channelled through access charges making it more transparent where the costs are borne
- ORR to take on an expanded role of the ‘single industry regulator’ including regulation of franchises
- DfT to undertake a full review of fares policy and structures, with a view to a system that is less complex and aids the management of peak demand within the boundary of revenue neutrality
- Acceleration of smart cards and other retail technologies
- Overhaul of the Ticketing and Settlement Agreement to reduce ticket office opening hours alongside more ticket machines, simple internet sales channels, print-at-home and mobile ticketing
- Improvements in asset management, programme and project management, and supply chain management – including involvement of the private sector earlier in projects with wider use of partnering approaches
- Review of many aspects of staffing and working practices, overheads and administration including Driver Only Operation as standard unless there is a commercial or technical reason for additional staff
- Increased standardisation and more effective procurement of rolling stock
- Pilot approaches to reducing the costs of less intensively used networks
Did we get the big shake-up we were expecting? No, what we have got are a lot of small changes rather than a few significant ones. It is a glacial change rather than a tsunami. But if a 30% (£1bn per annum) reduction in unit costs can be delivered in less than eight years, then the industry will have moved towards the performance of its European neighbours and the taxpayer will be feeling a bit happier as well. Now it is over to the DfT, who will be preparing a White Paper in the autumn of this year which will include some (or all) of the recommendations.
Privatisation failed to deliver what it has done in other industries, that is, provided transparency over the cost of providing the service. The rail industry today is a financial merry-go-round and DfT grants to NR make it impossible to see the drivers of high costs. Hopefully McNulty’s suggestions, for all NR subsidy to go via access charges and DfT to review where its subsidy is being spent, will provide the transparency required to challenge industry costs in more detail and lead to better decision making on where rail subsidies are spent.