Reforming our Railways:
Putting the Customer First
Presented to Parliament by the Secretary of State for Transport, by Command of Her Majesty, March 2012
Cm 8313 £14.75
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Executive summary 7
1. Introduction 10
The Command Paper – purpose and context 10
A vision and a purpose for rail 11
A more efficient railway 11
Investing in our country’s future 13
2. A better deal for passengers 16
Relieving the fares burden 16
Building new capacity to address overcrowding 17
Reviewing fares and ticketing 18
Improving performance and dealing with track closures 22
Specifying to meet passenger interests 24
Devolving decision-making to sub-national bodies 24
The role of the regulator 25
3. A more strategic role for Government 28
Setting a network strategy for our railways 29
Funding and delivering major projects 32
Reforming our franchising system 34
Devolving rail decisions to the local level 34
A greater leadership role for the industry 37
Smarter regulation for the railways 39
4. A more efficient industry 40
Greater alignment between rail industry parties 40
The franchising and incentive framework for train operators 46
Open access operators 49
An expanding rail freight sector 49
Better governance for Network Rail 50
A common sense approach to standards 53
Securing savings from rolling stock 56
A strong and competitive rail supply chain 58
A highly-skilled and productive rail workforce 59
Environmental sustainability 62
5. Better information 64
Transparent finances 66
Transparent railway performance 68
Openly available data 70
Network Rail transparency 71
6. Implementing rail reform 72
Closing the efficiency gap 74
How do we make rail travel more affordable? What can be done to get more out of our existing rail network? How do we improve and expand our rail network when money is tight? These simple yet fundamental questions are what this Command Paper is about.
We all know how important our railway network is to the prosperity and wellbeing of this country. But we too often find ourselves frustrated when the cost, punctuality or comfort of rail travel disappoint.
I believe that Government and the rail industry can and must do more for the passenger and the taxpayer. So we will.
For our railway to be more affordable, it must also be efficient, but Sir Roy McNulty, in his Rail Value for Money Study, identified inefficiencies worth £2.5-£3.5 billion that are being paid for by passengers and taxpayers. I will not allow this to continue unchecked. Network Rail is already due to deliver £1.2 billion of genuine efficiency savings by 2014 with at least a further £600 million by 2019 but the industry as a whole needs to become less dependent on Government subsidies. The industry should aim to fully close the efficiency gap identified by Sir Roy by 2019.
This paper sets out how we will address this challenge and states clearly what we will do with the savings: reduce and then abolish above-inflation rises in average regulated fares, combined with lessening the burden on the broader taxpayer purse. Taken together with my decision to limit the most recent increase in regulated fares I believe this will have a real and lasting impact on household budgets.
But this Command Paper is not only about affordability. Rail franchises will be reformed with greater transparency around costs and efficiency so that taxpayer subsidies are concentrated on the less profitable routes that remain crucial to communities.
We will move to a more transparent, modern and flexible approach to fares and ticketing. Working together with industry we will expand smart ticketing technologies to give more passengers the kinds of benefits that passengers in the capital already enjoy with Oyster cards. We also want to introduce new kinds of season tickets, recognising the reality that not all commutes take place five days a week during rush hour.
Making growth happen means there is no alternative to investing in greater capacity and better connectivity. A new national high speed rail network announced in January will deliver the quantum leap in capacity needed on Britain’s major north-south lines in the decades ahead. While today we are reducing crowding, cutting journey times and improving the passenger experience by funding thousands of new carriages across the country, electrifying swathes of the railway network and redeveloping many of our great railway stations. The Chancellor’s Autumn Statement saw £1bn invested in north of England rail services, freight and measures to prevent cable theft. In total, we have invested £18 billion in this Spending Review period alone.
We want everyone working in rail, be it management or front-line roles, to be involved in all of these reforms. If rail can deliver savings by cutting costs and growing demand there is real potential to grow jobs in a crucial and vibrant industry.
Network Rail is rightly taking steps to reform corporate governance – including its management incentives package – so that it is more accountable to passengers and freight customers. We welcome its commitment to appointing a Public Interest Director, to ensure the interests of taxpayers are articulated during board discussions. Network Rail is also giving greater decision-making powers to its regional Route Directors, making it more responsive and more focused on operations.
The history of Britain’s railways means that for far too long the industry and Government have obsessed about who pulls the levers rather than why. This Command Paper is about placing the passenger back at the heart of everything the rail network is about. By working together on this package of reform, I believe industry, regulator and Government can generate the savings and change we need so that we can all look ahead to a network that not only conveys passengers safely, quickly, punctually and in comfort but one that is affordable and efficient.
The Right Honourable Justine Greening MP
Secretary of State for Transport
1. Britain’s railways are at a turning point. They are still among the most expensive in Europe – for the taxpayer and for the passenger – in spite of the strong and steady growth in the number of passengers using our railways. And the significant improvements in reliability and safety seen in the last decade have come at a price.
2. Reform is urgent because passengers want to know that we have a plan to end the lengthy period of inflation-busting fares seen over recent years. Meanwhile, taxpayers want to see railway subsidy reduced to contribute to the pressing task of cutting our fiscal deficit. Added to these demands are the need to attract investment in UK infrastructure to secure economic growth and the ever-present challenges of climate change and traffic congestion.
3. Fortunately, we are in the best position for many years to consolidate recent gains while driving further improvements in the passenger experience, industry efficiency and performance. The process that will decide rail outcomes and funding for the five-year period from 2014 is now gearing up, at the same time as we embark on the biggest round of franchising since the privatisation of the industry. We are also on the point of pushing ahead with HS2 and Crossrail, both of which have changed expectations about the investments we are capable of delivering.
4. That is why we are publishing this Command Paper now, to set the agenda for the decisions we and the industry must take over the months ahead.
5. While promoting and protecting the achievements of recent years, we will now focus the industry on collaboration to achieve world-beating excellence in efficiency and in serving its customers – the taxpayer, passenger and the freight industry. Only by making sure everyone in the industry has clear objectives and aligned incentives will we be able to secure our objectives. Partnership working and driving behavioural change in the industry will be at the centre of our strategy for securing the savings we want.
6. Reform must deliver against four objectives:
securing value for the passenger, addressing concerns about rail fares and the impact they have on hard-pressed families – by ending inflation-busting increases in average regulated fares at the earliest opportunity and introducing new ticketing technology;
dealing with the fiscal deficit, putting public finances on a healthier and more sustainable footing for the long term – by aggressively searching out savings and sharing these savings with the taxpayer;
supporting economic growth – through continued taxpayer investment for passengers and freight, to enhance capacity, connectivity and service quality where this is affordable and provides value for money, and by providing industry with the opportunity to invest in improving our railways; and
delivering our environmental goals – by reducing carbon emissions from trains and stations and by encouraging passengers to use the train rather than their car.
7. The rail industry is not broken. The case for a further round of major structural change, impacting safety, performance and cost as the industry struggles to adjust, has not been made. But the industry must continue to evolve. It remains unacceptably inefficient.
8. This Command Paper sets out our ambitions for Britain’s railways. We look to industry, already pushing for better alignment between track and train, to bring forward partnerships equipped and incentivised to drive the efficiency agenda. We welcome Network Rail’s work to find new and more efficient ways of managing its assets, including long-term concessions to third parties for the management of parts of the network. We want to move towards an Office of Rail Regulation (ORR) empowered to pursue whole-industry efficiency. Train operators must improve their efficiency in ways that are visible on the bottom line. And we want to see continued investment in rail enhancements – including electrification, high speed rail, rolling stock and stations – where it delivers value for money and supports the continued and sustainable growth of the industry and the economy.
9. This Command Paper sets out how we will use all of the tools at our disposal to achieve our objectives. Franchises will be more flexible to exploit opportunities for growth and efficiency, while our High Level Output Specification, to be published later this year, will set out how we will boost capacity and deliver environmental benefits through electrification. Passenger and freight operators will be rewarded by incentive schemes that will help to deliver substantial savings and act as a spur to develop smarter and more effective industry alliances. We will help the ORR to develop its role in relation to improving the passenger experience. We will use our fares review to deliver smart ticketing technology and a more flexible fares system that, in turn, make better use of existing rail capacity by spreading demand more evenly over the day.
10. The Command Paper sets out how our partners are changing. Network Rail is leading governance reform and decentralisation to ensure the company is focused on delivering for the customer and rewarded appropriately when it does. The rail industry, led by the Rail Delivery Group, has declared itself willing and able to respond to Government’s strategic challenges. Train operators will have the flexibility to deliver what passengers want, within a sustainable budget. And the ORR will serve the passenger and taxpayer by driving relentlessly for efficiencies.
11. We believe that, as a minimum, efficiencies worth some £2.5 billion by 2018/19 are achievable – the low end of the efficiency gap identified in Sir Roy McNulty’s Rail Value for Money Study. However, the industry can and should deliver more than that. Our strategy is to incentivise the industry to entirely close the £3.5 billion efficiency gap by 2019. The High Level Output Specification and Statement of Funds Available, which we will publish by July 2012, will set out our plans in more detail.
12. While efficiencies are crucial, they do not mean that our goal is a subsidy-free railway, limited only to profitable services. There will always be a strong case for subsidy to secure services which deliver wider social, environmental and economic benefits but which would not be commercially viable without taxpayer support.
13. To ensure success, the whole of the rail industry – track and train, management and workforce – must now work together better, with a strong shared incentive to reduce costs and improve services for passengers and freight users. The challenges are clear, and it is right that the leadership for tackling them should come jointly from industry and Government. This collaborative approach has meant that Government, the ORR and industry are already pressing ahead with measures to deliver better value for money. Reform is under way and savings are already being delivered.
The Command Paper – purpose and context
1.1 This Command Paper sets out the Government’s vision for the railways, alongside the policies that are needed to realise that vision. Making life better for customers – both passengers and freight users – is at the heart of our approach. We must also help to reduce the demand on taxpayer subsidy, ensuring that the railways are financially sustainable in the longer term and can contribute towards the country’s economic growth and environmental goals.
1.2 The geographic scope of this Command Paper is England and Wales. Setting a rail strategy for Scotland is a matter for the Scottish Government. Scottish rail services are therefore not directly covered by this document, except for areas relating to safety and standards, and cross-border services specified by the Department for Transport (DfT). We will continue to work closely with the Scottish Government towards our shared goal of successful and efficient railways.
1.3 This Command Paper sets out the Government’s overall objectives, as well as the way it intends to work with the industry and others to secure significant reductions in the railway’s cost base, while at the same time improving the railway for passengers and freight customers. A key challenge is to get the two elements of the rail industry, track and train, working better together with a shared incentive to reduce costs and improve services for passengers and freight users.
1.4 This Command Paper considers the findings and recommendations set out in Sir Roy McNulty’s independent Realising the Potential of GB Rail: Report of the Rail Value for Money Study. Furthermore, it provides the policy framework in advance of Government announcements by July 2012 on:
the rail outputs that Government wishes to specify for the five-year period 2014–19 (the High Level Output Specification, or HLOS); and
the money available to do that (the Statement of Funds Available, or SoFA).
1.5 The Command Paper is published as the Office of Rail Regulation (ORR) takes forward its 2013 Periodic Review of Network Rail’s funding and the incentives for the whole rail industry. It follows in the wake of the whole rail industry’s Initial Industry Plan1 for delivering a better and more cost-efficient railway from 2014 to 2019.
1.6 The Command Paper also comes near the beginning of an intensive period of re-letting franchises for railway services, heralding a radical change of approach in the way that the Government specifies train services for passengers.
A vision and a purpose for rail
1.7 This Government’s vision is for a transport system that is an engine for economic growth, is more environmentally sustainable and improves quality of life within our communities. In that context, the railway must:
offer commuters a safe and reliable route to work;
facilitate an increasing amount of business and leisure travel;
support regional and local public transport as a key means of connecting communities with public services, workplaces and other economic opportunities; and
transport millions of tonnes of freight around the country, relieving congestion on our road network and helping to meet our environmental goals.
1.8 On average, rail is greener than current road-based forms of transport and aviation, and safer than road. So modal shift from road and aviation to rail can help reduce transport’s carbon emissions and (from road) improve safety. For these reasons, Government seeks to accommodate an increase in rail travel where that is practical and affordable by providing for extra capacity. The challenge for the railway is to ensure it maintains its environmental advantage over other modes through more efficient operating practices and the sensible application of existing and new technologies.
A more efficient railway
1.9 Nevertheless, the Government’s first priority since taking office has been to reduce the fiscal deficit and put the nation’s finances on a more sustainable footing, setting out clear and credible deficit reduction plans that will reduce debt as a proportion of the UK’s GDP.
1.10 In 2010/11, rail cost the taxpayer around £3 billion per year and charged the farepayer more per mile on average than most other European railways. Sir Roy McNulty and the ORR have identified significant potential for improved value for money. Over the coming years, our ambition is to reduce the cost of the railway and improve value for money both for passengers and taxpayers (Figure 1.1).2
Figure 1.1 Farepayer and taxpayer contributions to GB rail since 1989/90
Source: National Rail Trends, DfT statutory accounts, TOC statutory accounts
1.11 As significant savings are made as a result of the reforms announced by this Command Paper, we will reduce and then put an end to above-inflation rises in average regulated fares, as well as relieving pressure on taxpayer funding. As a first step, the Government has listened to passengers’ concerns about the impact of such increases on family budgets by keeping the increase in regulated rail fares to an average of RPI+1% for 2012.
1.12 We want a railway that in time covers more of its own costs and in which the extra revenues from higher demand play an increasingly important role in enabling continued investment in the network.
1.13 The Rail Value for Money Study points towards a range of barriers to efficiency and value for money that need to be addressed if the financial gap is to be closed. It sets a challenge of reducing unit costs by 30% on 2008/09 levels by 2018/19, without reducing the coverage of the network or increasing fares beyond what has been planned.
1.14 Nonetheless, the Government will not risk any steps that reverse the improvements over recent years on safety, performance and other areas. While some areas of reform covered in this Command Paper are indeed radical in their outlook, they do not envisage a fundamental restructuring of the rail industry or the rail network.
1.15 There will always be a strong case for subsidy for services which deliver wider social and economic benefits but which would not be commercially viable without taxpayer support. Like Sir Roy McNulty, we believe the rail industry needs to reduce costs in order to earn future growth: to continue to expand capacity and services for passengers and freight users.
Investing in our country’s future
1.16 We predict significant growth in passenger demand into the future.3 Estimates for demand growth by 2030, based on current GDP trend forecasts and fares policy, are set out in Table 1.1 and are split by the three main passenger rail sectors. Some of this growth could be accommodated by making more efficient use of our existing railway infrastructure and rolling stock, such as by running more trains or encouraging passengers to travel at less congested times of the day. It is likely, however, that substantial investment in infrastructure capacity, particularly on inter-urban, London & South East routes and major city commuter routes will be needed.
Table 1.1 Growth in passenger miles from 2011
London & South East
Source: Network Modelling Framework (NMF) – estimates based on model runs conducted in October 2011. Lower values in the ranges provided are based on an average of 20% lower than current forecasts. The range of regional forecasts is based on a 10% range around the NMF central case.
1.17 We have therefore allocated funding for the following:
Additional capacity into cities at peak times
to provide around 2,700 new carriages4 for the rail network, of which around 1,800 will represent additional capacity, including extra peak capacity into London, Birmingham, Leeds, Manchester and other major cities;
to expand light rail in Manchester, Birmingham and Nottingham;
to deliver a major upgrade of the Tyne and Wear Metro; and
to complete Crossrail and Thameslink.
Additional capacity on other parts of the railway
to deliver the Swindon to Kemble re-doubling; and
to continue delivery of the Strategic Freight Network, for example to provide further freight paths on the key route between Felixstowe and Nuneaton for deep-sea container traffic.
Faster journey times, more frequent trains, and through journeys
a major redevelopment of Reading station, unlocking additional capacity, helping to reduce journey times, and improving performance on the Great Western Main Line;
for London Underground to deliver a 30% increase in peak capacity across its network, and enabling a link between the Metropolitan Line and Watford Junction (as announced in December 2011);
for Transport for London to complete an orbital rail link for London, extending the East London Line to link Highbury and Islington in North London to West Croydon in South London and providing a direct connection from Surrey Quays to Clapham Junction;
delivering the Ordsall Chord project in Manchester and (subject to the agreement of an appropriate local funding contribution) a new rail link between Oxford and Bedford, and Milton Keynes and Aylesbury; and
completing the Intercity Express Programme, improving reliability, comfort and journey times on the East Coast and Great Western Main Lines.
A more cost-efficient, lower carbon railway
carrying out electrification on the Great Western Main Line, in the North West of England and on the Manchester–Leeds–York TransPennine route.
More reliable journeys and a better passenger experience
increased capacity and improved passenger experience through major redevelopments of London King’s Cross and Birmingham New Street stations;
a national programme of station improvements (NSIP), focused on stations with high footfall and low passenger satisfaction;
enhancing access to stations through the Access for All programme;
improving the resilience of the rail network to winter weather; and
establishing a dedicated taskforce to target metal theft and the disruption to rail services that it causes.
1.18 Collectively, these projects will deliver huge benefits to the UK, but even this extensive programme will not be enough to meet the long-term transport needs of our economy. The key strategic investment for the national transport network over the medium to long term is a national high speed (HS) rail network. The Government has recently announced its plans for HS2 – a network stretching from London to Birmingham, Manchester and Leeds, including stations in the East Midlands and South Yorkshire, as well as connections to Heathrow and HS1.
1.19 HS2 will deliver the connectivity and capacity on Britain’s major north–south lines that our economy will need for sustainable growth. It will also form the basis of a potential wider network to other parts of Britain. Further public consultations on several aspects of HS2 will be undertaken over the coming months. These will include consultation on property and blight provisions and on route and station options for the lines from the West Midlands to Leeds and Manchester.
1.20 Central to the case for HS2 is the impending capacity challenge faced on our railways. For example, Network Rail has forecast that by the mid-2020s all capacity for additional or lengthened services on the recently modernised West Coast Main Line will have been exhausted. The new national high speed rail network will deliver a substantial increase in rail capacity to meet rising demand not just for long-distance rail travel, but also for commuters, releasing capacity and easing overcrowding on the existing railway. Attempts to upgrade existing lines further would be extremely disruptive to passengers and freight and yield only a fraction of the benefits of HS2.
1.21 HS2 will create employment, spread prosperity and transform the way that our businesses work and compete. It could reshape our economic geography, regenerate our urban centres and support economic growth in the major cities of the Midlands and the North. By significantly reducing journey times between Britain’s major cities, it will address long-standing connectivity gaps: for example, it is currently as quick to travel from London to Brussels as it is from Birmingham to Leeds.
1.22 HS2 has a vital role in addressing the capacity challenge faced on the railway over the coming decades, as well as in meeting Government’s broader objectives for the railway as set out in this Command Paper. By supporting our rail network to deliver the necessary capacity and connectivity, HS2 helps to ensure the long-term sustainability of the railway and strength of the UK’s economy.
2. A better deal for passengers