11 Mar 2019

Williams Rail Review – where are we now?

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In the first of a series of articles on the Williams Rail Review, Jacqueline Cook and Darren Fodey from the Stephenson Harwood Rail Team consider what has happened so far.

In this article, we explore some of the submissions from key voices in the rail industry: Transport Focus, the Office of Rail and Road and the Rail Delivery Group and summarise the key messages (so you don't have to read them in full!).

The Review

Appointed by the UK Government in September 2018, Keith Williams is the independent Chair of the Review looking at the rail industry in Great Britain, covering England, Wales and Scotland. To some degree, the railway is a victim of its own success since privatisation with more passenger journeys now than ever before, albeit that recent years have seen passenger numbers levelling out and (in some areas) starting to decline.

With changing working patterns and lifestyles, the railway needs to respond. This fundamental review of the industry is one which promises to challenge existing organisational and commercial frameworks, whilst looking to balance the interests of both passengers and the taxpayer.  The Review expects to publish a white paper on reforming the rail industry during autumn 2019, having sought and considered evidence from many groups and users of the rail network. Over the next few months we are expecting to see 'evidence papers' on different topics, inviting comment.

The Bradshaw Address and the first Evidence Paper

"Franchising cannot continue in the way it is today. It is no longer delivering clear benefits for either taxpayer or farepayers. The review will contribute to examine what the best commercial model or models are for the future…"

 The press quickly picked up on this bold statement from Keith Williams at the Bradshaw Address on 26 February, at the launch of the first Evidence Paper published by the Review. The paper looks at the role of the railway in Great Britain, its costs and benefits while opening the door to different ways of financing investment to maintain and enhance rail assets. Inevitably, a mixture of government, public and private funding is being considered in light of the key areas under the spotlight. Key messages include:

  • Passenger Focus: The railway has faced a number of challenges – most recently, the timetable issues in May last year as well as confusion around fares and ticketing (which the Rail Delivery Group (RDG) has been considering – see below). The Review has felt the need to state its aim as making recommendations for a 'customer-focused sustainable railway'. Key aims include looking at the day-to-day passenger experience for commuters, business and leisure users: from buying tickets, use of technology, on-board facilities, use of wifi, routes and comfort to having easily accessible compensation for delays when things go wrong. At all times, reliability and safety are fundamentals.
  • Structure and Commercial model: With the current franchising model seemingly subject to radical reform, the Review will have to propose an alternative. Core to this will be where the balance of risk and reward properly lies between the public and private sector and what the right structure is for a reactive, responsive and accountable industry. As Chairman of the John Lewis Partnership, Williams will be considering the possibility of track and train management being brought closer together through Alliancing or other partnership models. Could this work? How would roles and responsibilities be allocated? Even the role of Network Rail, funded by UK Government to manage all of the track in Great Britain is up for discussion as well as the possibility of localised, even devolved, decision-making for track and train. Behind all of this seems to be a need for clarity of responsibility, yet trying to promote the concept of various parties working together acting "like a single business absolutely focused on customers" whilst respecting "ultimate accountabilities" of each party.
  • Affordability: The views of both the passenger and the investor will be considered, whether Government spending from taxpayer revenues or from private funding. The Review will look at fares, taking into account that other methods of transport compete with rail on certain routes.  The Evidence Paper provides a useful diagram of the current Government funding into Network Rail in 2017-18 including a Network Grant from government of £4.5 billion. There is also some analysis on public spending on all transport in the UK and spending on rail alone in the same period. With more than half of public expenditure on transport being spent on rail, the Review is looking for ways to increase private investment in the industry so that the UK rail industry is financially sustainable. This reflects a number of messages we have seen from the Department for Transport and the Office of Rail and Road (ORR) in recent years, particularly relating to "market-led proposals".
  • Essentials: Safety and the environment; freight; and the rail industry's workforce remain fundamental. With some of the most intensely used routes in Europe, the UK's safety culture and the contributions to a cleaner transport sector are key drivers. Freight has to be part of the strategy as a vital contribution to the economy and reducing vehicle numbers on roads. Hardworking staff are recognised, with the need for a diverse, modern, workforce with satisfying careers and the right skillsets, whilst not forgetting industrial relations.

Transport Focus

In its first submission to the Review, published on 4 February, Transport Focus takes a step back and considers "what do passengers want?". Drawing on its wealth of research over a number of years, the key themes focus more on the passenger experience aiming to engender trust in the railway:

  • The 'core product' is extremely important to the passenger: the provision of an affordable, punctual, reliable, frequent rail service where passengers either have a seat, or at least, stand comfortably. Incentives for Network Rail and train operating companies should be aligned with passenger priorities. For example, a train arriving late at an intermediate station is still "late" for the passengers leaving the train there, irrespective of whether the train arrives at its final destination on time. The impact of this should not be underestimated: satisfaction reduces by 2-3% with every minute of delay. Service quality also needs to be built in – if a train is on time but dirty and overcrowded, with unhelpful staff and poor passenger information, satisfaction will go down, even though the train has met punctuality targets.
  • 'Effective management of disruption' is also seen as key for passengers, both for planned and unplanned disruption. Improvements are needed in the quality of information so that operators provide passengers with timely, accurate information which can lead to improved levels of passenger satisfaction.
  • 'Value for money' is top priority for passengers, not just in relation to ticket price, but also links to punctuality and availability of seats. Transport Focus also identifies "complicated and confusing" fares structures – a topic which RDG has also recently considered (see below). Making an informed decision is key. Transport Focus makes suggestions for a fare structure, adopting a number of themes:
     
    • affordable flexibility: preserving the walk-up element, having the ability to exchange tickets prior to travel; 
    • easier to understand: removing anomalies, making it simple without removing choice;
    • easy to buy: choice of outlets, expansion of digital methods; 
    • personalisation: flexible season tickets, alignment with travel patterns; 
    • catering for national and local needs: consistent approach to national products with separate local products meeting the needs of local communities; 
    • consumer protection: balancing commercial considerations and social pricing, with "captive" passengers protected by regulation;
    • consumer confidence and trust: addressing split ticketing, price caps, ability to claim compensation for delays.
  • Accountability and transparency are the key requirements from passengers when considering  the structure of the rail industry. Passengers want to know who is in charge and that that body or person is accountable when things go wrong. Passengers are rightly concerned with their journey's punctuality and service. They want to know that their voices matter and are heard. Transport Focus highlights its important role (which, critics might argue, is an effort to retain it in any future structure) within the industry to act as a voice for passengers, keeping a check on regulators, Network Rail and train operating companies across the industry.

With a customer-focussed railway being at the heart of the Review, we expect to hear more insights from Transport Focus on behalf of passengers as the Review progresses.

ORR

The ORR's initial submission to the Review, published on 11 February, relates to the roles of regulation within the rail system, in which the ORR summarises some of its current work (including a helpful table setting out its functions) and how the ORR's role has evolved. Readers will no doubt be familiar with most of the ORR's roles, including health and safety, protecting passengers, competition and administering the licencing and safety regimes. Interesting messages to emerge from this paper include some of the following:

  • Single regulator: Quite subtly, the advantages of having a single regulator for the rail industry, covering all of the functions of the ORR and allowing experience and best practice to be shared, is highlighted as a key advantage. We see merit in this approach as delivering real value, although critics might again highlight it as protectionist.
  • Independence: The message of the regulator acting independently of government (a role ingrained in law) also emerges from the ORR's submission. The view is that the ORR is best placed to balance the funding available from government against what the industry can truly deliver, driving industry efficiencies. Included within this is the ORR's oversight of core industry processes such as refereeing fair access to the network for passengers and freight and licensing operators as 'fit and proper'.
  • Protecting passengers: This is a core focus of the Review and one where its objectives closely align with the ORR's role. Enforcement of consumer law is highlighted as a particular area of work – and the ORR has also recently concluded a consultation on guidance for train and station operators on Disabled People's Protection Policies, with licence condition amendments proposed.
  • Adaptive: The ORR highlights areas where it has adapted its regulation to reflect changes within the industry – for example the recent Network Rail periodic review process. This evolution is continuing to evolve – for example, recognising the need to improve information for passengers when things go wrong, as with timetabling or planned or unplanned engineering works; developing new regulatory tools to help ORR hold Network Rail to account such as ORR hearings, financial sanctions on routes; a new approach to financial penalties.

RDG

RDG published its first submission to the Review on 18 February following on from its fares and ticketing consultation last year:

  • Reform of the Ticketing and Settlement Agreement (TSA): Core to RDG's proposal is a fundamental review of the TSA, which underpins the industry fares and ticketing arrangements. This document was created at privatisation and has not evolved – either with technology or as travel patterns have changed. It is an unwieldy document, so making it simpler to understand and use will be a driver of change, whilst recognising the need for a cross-system, multi-operator revenue collection, fare issuing tool.
  • Generation of revenue: RDG highlights the core principle that the railway still needs to drive revenue for government – and interaction with operators' franchise agreements cannot be forgotten. Franchise agreements contain prescriptive requirements on which operators set regulated fares, with more freedom for those fares that are unregulated (e.g. Advance tickets) allowing operators to manage demand.
  • Principles: RDG identifies a number of core principles to be achieved as part of the reformation of fares. These include simplicity, flexibility, fair pricing, value for money and regulatory protection. In essence, this envisages one fare between each origin/destination, with a series of "add-ons" or "savings" such as first/standard class, peak/off peak and more/less flexibility. Fares would be priced by leg, so a return journey would be double the price of a single. There would also be flexibility for those who do not work a standard working week or who may work from home on one or more days, whilst recognising the need for walk-up fares to remain available.
  • Technology: Key to the proposal will be the effective deployment of technology, including smart ticketing which is currently being rolled out across the network. This will also facilitate multi-modal transport opportunities, as well as offering flexibility to change tickets as plans change.

We largely agree with the principles as a helpful starting point. Practice may be more difficult. One of the key elements to consider as the plans are taken forward is what happens when principles compete with each other – which takes priority? The current aspiration is to do everything for everybody, to have flexibility whilst having cheaper fares currently associated with less flexibility. At some point a decision will need to be taken on prioritising  principles: for example, what happens if implementing flexibility means less revenue for Government? We agree that technology will be a core element of the success of this reform – and the underpinning industry arrangements such as a reformed  TSA will need to cater for that and be flexible in itself, so that we do not have the same issues in 25 years' time.

Read, review and have your say!

The appetite and will for reform seems clear and we can see a pattern emerging from many sides, to improve the rail industry and to keep it working safely and efficiently. Common priorities are already being seen from diverse groups at these early stages, so we are optimistic that reform is heading in an aligned direction.

It may well be at the next level of detail – where the variety of commercial or corporate structures are proposed – where ideologies could clash. We look forward to considering new ideas for methods of investment or even a new wave of contracts and management practices. The Review will be calling for further evidence to be submitted before 31 May 2019 – please let us know if we can assist you in making your submissions.

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KEY CONTACT

Darren Fodey

Darren Fodey
Senior associate

T:  +44 20 7809 2388 M:  +44 7920 201 290 Email Darren | Vcard Office:  London

Jacqueline Cook

Jacqueline Cook
Senior professional support lawyer

T:  +44 20 7809 2051 M:  +44 7585 303 636 Email Jacqueline | Vcard Office:  London

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