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25 Apr 2019

Williams Rail Review update 3 - freight, “metroisation” and “radical” reform

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This is the third in our series of updates on the Williams Review of the rail industry. In this update, we consider what has happened over the last few weeks including:

Reminder – objectives and assessment criteria consultation

A quick reminder that the closing date for the Call for evidence on the objectives and assessment criteria for the review (which can be found here) is this coming Tuesday (30 April). The wider call for evidence remains open until 31 May 2019.

Rail Freight Group: freight outcomes

A lot of the press and submissions to the Review have focussed on the passenger aspects of the industry and how Williams may impact on them. Published on 25 March, the Rail Freight Group (RFG) reminds us that freight operators are also key industry stakeholders with perhaps a slightly different perspective on the industry given their “go anywhere” businesses.

RFG notes its November 2018 position paper where freight – as well as passengers – is encouraged to be placed at the heart of the industry, with fair and equal access being given to encourage rail freight growth and enable investment in the sector. The success of competition in rail freight is a particular area highlighted but caution is offered towards a devolved Network Rail model: freight services cross multiple Network Rail routes and so the right behaviours need to be incentivised.

Key points from the RFG include:

  • Protections and incentives: The current regime focuses more on protecting rail freight operators rather than incentivising use of the railway by freight. If a proposed outcome of the Review is greater integration between train operators and Network Rail, enhanced incentives will be needed in relation to rail freight. This should be facilitated by a mix of legal requirements, regulatory targets and oversight and financial incentives.
  • National network: The rail network is national. Rail freight regularly crosses more than one of Network Rail’s devolved routes, with the need for whole-network co-ordination and the avoidance of issues at the boundary between routes. Short term customer demands mean that services cannot always be planned 12-18 months in advance. A centralised system operator is the preferred solution – one with authority over devolved businesses.
  • Role of government: Government needs to maintain a role in providing a network which rail freight can use. A whole-system approach is advocated, avoiding silos where government freight investments are not realised to the maximum as a result of competing government-procured franchise passenger needs. The role of devolved administrations such as Transport Scotland and Transport for Wales also needs to feature, having explicit regard to the needs of freight.

RFG’s contribution offers a timely reminder that the Review is not simply one for passengers but for other railway users too. We do not suggest for one second that this has been lost – simply a lot of the contributions to date focus on the passenger part of the industry. In particular, it is right to recognise that rail services are not always aligned to Network Rail routes – both freight and passenger – and appropriate legal and regulatory protections are needed to protect the end user.

Click here to read the RFG's submission.

"Metroisation" in the South East: TfL's submission to the Review

On 26 March, Transport for London (TfL) published its response to the Review's call for evidence, alongside TfL’s "Strategic case for Metroisation in south and south east London" document. TfL's submission calls for the review to recommend "at a minimum" that responsibility for procuring local stopping services in and around London be devolved from the Department for Transport (DfT) to TfL.

Interestingly, TfL also goes further, recommending the devolution of asset management responsibility for track and stations on selected routes from Network Rail to locally accountable public sector transport authorities (including TfL in the South East). In TfL’s words, this would enable it to “prioritise investment where it is most needed, whether new tracks or improved signalling, with rail infrastructure being used more intensively”.

TfL contends that the current franchise model is ill-suited for the London urban market, as demand is driven by factors outside the direct control of operators, and fare levels are not sufficiently high to encourage service innovation. In the first instance, TfL recommends that management of Great Northern and Southern commuter services be transferred to TfL when the Thameslink, Southern and Great Northern franchise is relet in September 2021, allowing the creation of a “flagship” route between Balham and London Victoria of up to 18 trains per hour. Thereafter the DfT would devolve other London commuter services where the greatest improvements can be made.

TfL proposes to use the same "gross cost contracting model" as is currently in place for its rail concessions (i.e. London Overground and TfL Rail), under which TfL takes revenue risk, specifies services, takes responsibility for customer information, and actively manages the concession operator's performance. TfL says that the relative benefits of this model are borne out in statistics comparing London Overground to other London and South East services, including better performance, higher customer satisfaction, and less ticketless travel.

In its submission, TfL mentions a number of benefits of its "metroisation" proposal, including:

  • Increased democratic accountability, with the democratically-elected Mayor of London and Greater London Authority taking a close interest in all aspects of the service (and with TfL being accountable to the Mayor) TfL points out that the Mayor and members of the London Assembly are directly accountable to customers, unlike DfT ministers.
  • Predictable services and consistent, simplified, stopping patterns, on identifiable "lines", allowing passengers to simply "turn up and go".
  • Higher frequencies and more capacity, with upgraded interchanges and longer trains.
  • Better customer service, as experienced on London Overground.
  • Financial sustainability, including through developing non-fare commercial income streams.
  • Improving the south and south east London public transport network, which TfL says is currently not realising its potential, to unlock new housing and economic growth.

TfL's response to the review offers an alternative model for the delivery of Britain's rail passenger services in and around major urban areas. When Keith Williams announced the "call for evidence – objectives and assessment criteria" in March, he published a "summary problem statement". In proposing to take on responsibility for both contracting services and managing infrastructure, TfL's proposal goes some way to addressing a number of the problems set out in the statement, including the lack of single strategic direction for the railway sector, unclear accountabilities and sector fragmentation.

Click here to read TfL's submission.

Click here to read TfL's "Strategic Case for Metroisation in south and south east London".

By appointment only: Virgin's submission to the Review

On 24 April, Virgin Trains announced its headline-grabbing submission to the Review: “Reimagining The Railway”. Described as “radical”, Virgin proposes the sale of long distance train paths by Network Rail to train operators, which would be held by the train operator indefinitely. Accompanying this would be the compulsory requirement for long-distance passengers to reserve a seat on a particular service before travelling, and allowing operators to set fares based on the popularity of each service, as is the case with airlines. Virgin says that this would eliminate overcrowding and encourage competition between train operators, while giving customers the choice of lower prices on less popular services.

Virgin's proposed "by appointment only" approach stands in stark contrast to current ticketing arrangements, under which many customers travel using "anytime" tickets, resulting in some trains becoming much more crowded than others. Commenting on the proposal, Anthony Smith from Transport Focus said “Do passengers really want compulsory reservations? They certainly want smarter ticketing that is simple to use, easy to trust, better value for money and flexible enough to suit the way we travel now. Some people will always need to just turn up and catch the next service...”.

As noted above, the submission borrows another concept from the aviation world: the auctioning of slots (or train paths) for particular services. Virgin's proposal echoes an approach advocated by the Competition and Markets Authority in its 2016 report into competition in passenger rail services, which suggested moving towards a system of multiple competing licensed operators in a “fully commercial environment”. In essence, this would see a move from “competition for the market” (as is the case with the current franchising regime) to “competition in the market” for long distance services.

Virgin contends that its proposed approach will encourage more investment in rail services, as train operators will be able to take a longer-term view than is possible under current 7-10 year franchises. Clearly there would also need to be a “public service” element to any slot-based regime, to ensure services are also available outside of the most profitable times and routes. Virgin suggests two alternative approaches to this problem: (a) bundling less profitable slots with more profitable slots at auction (with a requirement to operate both the profitable and unprofitable slots); or (b) establishing a public service operator to run those long distance slots which the market considers not to be commercially viable.

Virgin notes that both options would, in effect, involve a public subsidy, because the bundling of less profitable services under option (a) would decrease the price that would otherwise be received by Treasury at auction for the more profitable slots. Virgin’s proposal would involve a very different approach to long distance rail services and recognises that “one size fits all” across all rail markets is not necessarily the right approach. This is something which has already been recognised by the Review and Virgin’s submission will no doubt offer food for thought.

Click here to read Virgin Trains' submission.

Click here to read the Competition and Markets Authority's 2016 policy document.

Links to our previous updates can be found here and here. Please let us know if we can assist you in making your submissions.

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