A Railway for The Common Good
A Response to the Government’s Rail Review
From The Rail Reform Group
January 14th 2019
A Response to the Government’s Rail Review:
From The Rail Reform Group
- Analysis of the Underlying Problems
- Industry Operational Structure
- Costs: access agreements, timetable bidding, network change, planning long and short
- Infrastructure constraints and challenges
- Franchising and Franchising costs
- Franchises are an inefficient method of providing train services
- Applying a new approach to The North’s Railways
- Learning from elsewhere
- Rail in the North
- Some history
- The North’s Railways Today
- What does the North need?
- Railways in the UK today
- A modern equivalent of the Lancashire and Yorkshire Railway
- A new model for British business – a mission-led railway for the common good
- Operations and Infrastructure
- A bigger role for ‘Community Rail’
- The Importance of Freight
- Management and Direction
- Ownership and Organisation
- Ticketing and Passenger Information
- An expanding network
- Entrepreneurial and socially responsible
- Passenger focussed
- Offering Value for Money
- A mission for the new railway
- The shape of the proposed network
- National and regional agencies and the need for a ‘guiding mind’
Appendix 1: Possible shape of the Lancashire and Yorkshire Railways network
Appendix 2: Members of the Rail Reform Group
Appendix 3: Objects of The Rail Reform Group
This paper, from The Rail Reform Group, is intended to make a positive and constructive contribution to the Government’s Rail Review.
The group brings together a wealth of experience, from a number of well-known rail industry managers who come from a range of different backgrounds. The Rail Reform Group is completely independent, and has no affiliation with any other bodies (See Appendix 2 for a list of members). The members have different political views but share a view which doesn’t want to see centralised state control with the railways starved of investment, but one which combines public accountability and social value, with efficiency.
We believe that Britain’s railways could be run in a way that makes less call on the public purse; takes pressure off Government to ‘micro-manage’ the industry; and offers high quality, reliable services to passengers
This means a modern, dynamic and entrepreneurial railway which supports the economic regeneration of the regions and offers a top quality service to passengers. A railway for the Common Good.
We don’t believe a return to the old BR would achieve that, but neither do we think the current system will. It has become apparent that the modern rail industry, the structure of which was conceived over 25 years ago, is no longer providing the quality of service or value for money that is required for passengers and funders. This has recently been shown by the third collapse of the East Coast franchise, the timetable problems in May 2018 and the huge overrun to budget and time of Great Western electrification.
We need a ‘new model’ of modern enterprise which is dynamic, socially responsible and inclusive, customer-focussed and there for the long-term. We recognise that it must not cost any more than the current railway; if our approach is right, over time it will bring the call on subsidy down.
The North of England is an ideal location to develop new and better ways of delivering rail services. Historically, it has been starved of investment and passengers have had to endure poor quality services. This reached its nadir in 2018. However, it doesn’t have to be like this. The Northern ‘knowledge economy’, supported by a flourishing university sector linked by a dynamic rail network, together with a still-vibrant manufacturing sector, offers great opportunities, as well as the potential of rail to help regenerate smaller towns and more rural communities across the North whilst conserving the environment.
The Government review is timely and necessary. The DfT says that “the review will analyse all aspects of the industry, alongside the country’s changing travel and work patterns. It will make recommendations to improve the current franchising model in terms of reliability, delivering better services and value for money for passengers, commercial sustainability and innovation”. (DfT Website)
Its terms of reference are that its recommendations should support delivery of:
- commercial models for the provision of rail services that prioritise the interests of passengers and taxpayers
- rail industry structures that promote clear accountability and effective joint-working for both passengers and the freight sector
- a system that is financially sustainable and able to address long-term cost pressures
- a railway that is able to offer good value fares for passengers, while keeping costs down for taxpayers
- improved metropolitan relations, to reduce disruption and improve reliability for passengers
- a rail sector with the agility to respond to future challenges and opportunities
The review has a wide scope and will focus on:
- leveraging the commercial model to ensure improved services for passengers and taxpayers, and more effectively balance public and private sector involvement
- the roles and structures of all parts of the industry, looking at how they can work together more effectively to reduce fragmentation, improve passenger services and increase accountability
- how the railway can support a fares system that delivers value for money for passengers and taxpayers; and improved metropolitan relations to maintain performance for passengers
What this paper aims to achieve
This paper aims to address each of these issues, based on pragmatic but – we hope – visionary ideas of how our railways could be run in the future, in the interests of passengers, employees, manufacturers and the wider community and economy. It uses the densely populated ‘metropolitan belt’ of the North of England as an example of what could be achieved across the UK.
This paper seeks to offer both an analysis of the underlying issues and offers a solution, which is based on the North of England but which we consider is adaptable for many other parts of the country.
We are happy to discuss the proposals in this paper with members of the Review team and other organisations concerned about the future of Britain’s railways.
January 14th 2019
Britain’s railways need a change of direction which builds on some of the positive achievements of the last 25 years whilst moving on from a structure that is not fit for purpose.
This paper argues for a new approach to how railways in the UK are managed, based on a re-integration of railway operations and infrastructure. This requires having a clear focus on markets served by rail, regionally and UK-wide.
We use the example of the North of England, particularly the ‘metropolitan belt’ from the Mersey to the Humber – as a prototype for a vertically-integrated regional railway; big enough to achieve economies of scale but focussed on key regional markets which have suffered historic neglect but are experiencing (in part) regeneration.
The issue is less about ownership and more about having the right management structure – with incentives and accountability – which avoid the current high costs and dysfunctionality caused by too many interfaces.
Whilst our focus is on the North of England, a similar approach could work in other parts of the UK, including East Anglia, the South-West and East/West Midlands.
The current system, based on separation of infrastructure from operations, with relatively short-term franchises, has not worked. There is a need for a fresh approach that combines a strong degree of commercial freedom and initiative whilst maintaining public sector support and accountability.
Current regional franchises (e.g. Northern, GTR) are too complex; they need to be reduced in size focusing on clear markets whilst maintaining demonstrable benefits of scale. We focus on the North of England, proposing a single business which covers the core ‘metropolitan belt’ from Merseyside to Humberside (but excluding Merseyrail). This would include much of the current TransPennine Express (TPE) services as well as those local and regional trains provided by Northern. Freight services, provided by existing and new freight operators, would be offered paths on an ‘open access’ basis.
We strongly support the re-integration of infrastructure and train operations. We want to see a return to a vertically-integrated railway, with reciprocal ‘running rights’ to operate over other routes. This is essential to bring simplicity and a clear focus to the railway, within a long-term perspective that brings down costs.
We argue that franchising is an inefficient method for developing the rail network; it is expensive both in the competitions to award the franchise then in their ongoing operation. It de-motivates staff who have little or no encouragement to offer long-term commitment to an employer who is likely to change every few years. For passengers, the frequent changes of ownership are often confusing. Their needs are often neglected in the pursuit of perverse goals e.g. around connections.
Our vision is for a new, vertically-integrated regional railway business – Lancashire and Yorkshire Railways (LYR) – which is owned and controlled by the people of the North of England – not by the state and not by corporate private interests, often based abroad.
Future rail operations should combine greater commercial freedom and long-term stability with clear accountability to regional institutions (and national government in the case of inter-city services). For the North of England, the most appropriate body to partner with should be Transport for the North, but we want to see positive relationships with the combined authorities/elected mayors, and also local enterprise partnerships.
We outline the case for a new kind of railway company which is there for the long term; with a progressive business culture which is inclusive, diverse and entrepreneurial. We advocate a ‘mission-led’ railway which is part of the wider fabric of society which builds positive commercial relationships with business and education across the region it serves.
Whilst there are several business models available for the proposed Lancashire and Yorkshire Railways, the Rail Reform Group believes that the optimal solution is a social enterprise which is structurally separate from public sector bodies. Any profits made from providing the service (broadly specified by the public sector) would be recycled back into the business, not into shareholder dividends, whether UK-based or not. This is not based on ideological prejudice but on a recognition that neither the central state nor the private sector is appropriate to provide long-term stability, value for money, wider social value and passenger benefit.
There are several options for financing a vertically-integrated railway. We recognise that many passenger services across the North require a high level of public support, and will continue to do so. However, a combination of investment, growth, reduction in interfaces and recycling profit back into the business will progressively reduce the call in subsidy. Further revenue can be generated through property income and appropriate diversification. Whilst we don’t propose the railway company should operate complementary bus and coach services, there is a need for much more collaborative working with bus and coach.
Whilst we want to see more and development of good quality services financed internally, we recognise that major infrastructure enhancement would require a strong public sector input (e.g. many new stations, rail re-openings). However, we believe that major enhancements should be managed by the railway company itself, ensuring strong control on costs and delivery.
Within this business model, employees and passengers should be much more fully engaged, including encouragement to invest and participate whilst ensuring sufficient commercial and managerial elbow room for senior management. Whilst a ‘co-operative’ model is a possible option, a not-for-dividend ‘company limited by guarantee’ may be the most appropriate form. Whatever model, we would wish to see a ‘stakeholder board’ providing oversight and guidance to the operational board of LYR. The board would include a range of talent and expertise, from people with experience as users, employees, business leaders, local authority and voluntary sector.
We would encourage further development of ‘community rail’ including piloting locally-managed operations in Cumbria and the North-east, working collaboratively with Lancashire and Yorkshire Railways and other rail businesses.
Our proposals relate to ‘the passenger railway’. However, we want to see rail freight develop in a complementary way to the passenger network, working collaboratively with the passenger business. Our proposals for vertically-integrated regional railways can harmonise with the needs for access to the network by freight operators, providing there is constructive dialogue.
Britain’s railways have a long and proud history. Very often, in the past, that has bolstered a strong sense of regional identity. Reviving respected names such as the Lancashire and Yorkshire Railway would play well with many employees as well as passengers and wider communities
We propose a very different way of developing the national railway network, based on collaboration and consensus, rather than central diktat. Clearly there is a need for common standards and procedures, and the model of bodies such as the Railway Safety and Standards Board (RSSB) and Rail Delivery Group (RDG) shows that the industry is eminently capable of working together positively and collaboratively.
We suggest creating a new body ‘UK Rail Group’ (which differentiates it from the former SRA) and suggests a more collaborative rather than top-down way of working. Some of its responsibilities could include the primary but admittedly vague objectives of the original SRA established under the Transport Act 2000: e.g. (a) to promote the use of the railway network for the carriage of passengers and goods, (b) to secure the development of the railway network, and (c) to contribute to the development of an integrated system of transport of passengers and goods.
Additional responsibilities of the Group could include a) promoting and supporting research into all aspects of railways b) ensuring synergies and best use of other transport modes c) encouraging the sharing of best practice between all parts of the railway industry, d) lobbying for rail and promoting its positive role in society e) promoting accessibility and connectivity f) working with other transport operators and agencies to promote integrated transport.
There would be a continuing need for an independent regulator, for access to the network and for safety inspection and accreditation. However, The Railway Safety and Standards Board should become part of the proposed UK Rail Group.
However, at the regional level, the proposed vertically-integrated rail company should provide the single ‘guiding mind’ which manages and develops the network. At UK level, there should continue to be pan-industry structures with representation from the rail industry and from national and regional government and promoting UK-wide standards and best practice, without ‘micro-managing’.
- Analysis of the underlying problems
This section looks at some of the key underlying issues which affect the railways across the UK including its current structure; costs, projects and project delivery; and franchising.
- The Rail Industry’s Operational Structure
Railway privatisation in the early 1990s was based on a model which required the operation of the trains to be separated from the management of the infrastructure, broadly in line with the way in which roads function. The underlying desire was the creation of on-rail competition between train operators. The reality is that, with the exception of a small handful of cases, this has not happened.
Yet the structure of Track Access Contracts, independent bidding for paths by train operators and all the other aspects of the contractual interface which are enshrined in Track Access Contracts, Station Access Contracts, Network Code, Licenses, Network and Station Change and Codes of Practise were designed to facilitate this concept of on-rail competition resulting in multiple users.
The original intention of on-rail competition was suppressed to facilitate franchising of the BR-owned train companies, with the recognition that competitive market ‘cherry picking’ of lucrative business undermined the ability to let the franchises for as lower cost as possible – or potentially even at all. The Office of Rail and Road (ORR) introduced their Moderation of Competition policy to limit the scope for what became known as ‘Open Access’ (OA) train companies to start up.
Subsequently the ORR’s Moderation of Competition policy has evolved into one designed to protect the DfT’s monopoly of control over the rail industry, with a general (and somewhat narrowly interpreted) remit to protect public funds.
The issue that we consider is at the heart of the problems of the current rail industry is that it is trying to perform in a way that is contrary to the model for which it was designed. It says something about the general resilience of the railway industry that it has managed to get this far.
Added to that has been the slow but inexorable loss of expertise – the reduction in the number of managers and technicians who have had wide experience across the industry, which has now reached the stage in some areas where operation of the railway is significantly weakened.
- Costs: access agreements, timetable bidding, network change, planning long and short
The premise that competition develops good quality and efficient services (a generalisation) over time may be a sound one in the abstract. However what is completely overlooked in the theoretical analysis in the railway context is the huge cost of the contractual interfaces, of which the industry has dozens. This equates to both money and also time. Making decisions, and implementing them, is slow and expensive. Project management is poor and sometimes abysmal (see below – 3.3)
One of the consequences of the vertical separation model is that there are (at least) two people doing every task – as an example there are train company train planners who prepare train plans and bid for paths, which are then assessed (‘validated’) by Network Rail train planners who return the data for alteration. This is both an expensive and slow process which has spread the timetable development timescale over a period of in excess of twelve months, which means that the industry is not responsive to market changes and, as has been shown in May 2018, makes it difficult to take into use major infrastructure changes at the time they become available for use.
The inefficiencies in the timetabling process are the most obvious manifestation of this double handling/double cost impact, but it happens everywhere.
Even the smallest changes to station facilities have to go through a protracted ‘station change’ process whereby they are proposed by the proposer and agreed by other station access rights holders (or not) which all takes interminable time, especially if the other rights holders are not particularly interested so do not give consideration, or even administration, of the proposal any priority. Whilst Network Rail off-charge all their costs against projects the train operators have no such charge-off mechanism so these costs remain hidden, but are built into the general costs of running a franchise. Not only are the costs hidden but getting the right people into the discussions can prove challenging, with most operators having managers whose primary task is the management of these interfaces. Whilst essential in the current structure, these jobs should not be necessary.
- Infrastructure constraints and challenges
These issues arise right across all the interfaces so any track, signalling, or station projects have multiple people involved in their development, all with their own priorities and agendas.
It is clear after 25 years of privatised operation that there are limits to the number of train operating companies which are able to operate profitably whilst still paying their share of fixed infrastructure costs. These are generally the long distance London-based InterCity operators, but a few London commuter networks approach this level of contribution.
For these InterCity operators it is still conceivable that a rail-on-rail competition model could operate, but as there are relatively few paths and the design of the train services can have a huge impact on the use of the infrastructure even in this environment considerable regulatory oversight is required to deliver value for money and efficient use of infrastructure. We note that even HS2 is not intended to operate as open access infrastructure, but that the train paths will effectively be under DfT control.
On dense suburban networks (London or elsewhere) the need to secure efficient use of the constrained infrastructure is such that there is a strong need for a single ‘controlling mind’. In this case there is little merit in providing for rail-on-rail competition, which is unlikely to be profitable anyway. In these circumstances a model more akin to urban metros, where track and train are still run as a vertically integrated operation, is the model that is also suited for heavy rail operation in metropolitan areas.
In all cases when infrastructure starts to approach a significant level of use (which ideally it should to deliver value for the cost of providing it) then the interaction of trains on each other prevents their unfettered planning by the train operators. In the present regime the network provider, or someone, has to start to prioritise or otherwise modify the desires of the train operators. This has the effect of taking the decision making away from the customer-facing part of the rail industry (the train companies) into the infrastructure controller and provider (Network Rail). This cannot be right and needs to change. It’s bad for passengers and costs more than it need to.
- Franchising and franchising costs
The other key part of the provision of train services for passengers arose through the concept of franchising, where the rights to operate train services were granted to an operator for a fixed period, with relatively strong protection against competitive entry. These franchises have evolved over time to become more proscriptive and controlled to the extent that at one extreme some are now ‘concessions’ with the funder defining the service to be operated, monitoring delivery against standards and taking the revenue risk.
Franchises have become very expensive to bid for and many of the winners may now be regretting winning the competitions as they have proved to be loss-making. This could be considered as the private sector (or foreign governments) subsidising the rail network, but it is not sustainable in the long term, resulting in fewer bidders (e.g. National Express, once a big player in rail, now not in the UK rail market at all) and fewer bidders for franchises reducing the degree of competition.
On the assumption that there will be about 15/20 franchises, each with an average 7 year life, two franchise competitions require to be completed each year. Assuming an average of three bidders, each spending around £7.5m on a bid this represents £45m a year cost to the transport companies each year for bidding costs, to which will need to be added the DfT costs, Network Rail costs, ORR, ROSCOs etc. If it is assumed that the DfT spend the same as a bidder that is an additional £15m a year, with perhaps £5m from the other parties. So a total of around £65m a year is being paid, largely to consultants in one shape or form.
Thereafter there are ongoing costs of monitoring (by the funder) and compliance (by the franchisee) which will be significant as primary costs, but will also drive further costs in a host of ways across the franchisee’s business as it impacts on staff behaviours and actions, not all of which will be what was intended originally. The franchise requirement on Arriva Rail North to move towards ‘driver controlled operation’ on some of its services has led to hugely damaging on-going metropolitan action by RMT.
- Franchises are an inefficient method of providing train services
The bidders have a relatively short period in which to formulate their bids, typically about 6 months for a 7 – 10 year franchise. But of that time, only a much shorter period is available for the detailed design work, which really only starts with the issue of the ITT and needs to finish before the final costings and collating takes place.
So in contrast to the extended WebTAG and GRIP processes that are used to justify, develop and often de-scope infrastructure projects, which may only cost in many cases single or tens of millions of pounds to deliver, fundamental franchise decisions such as whole fleets of new trains or changes to services costing over their life time hundreds of £ millions are effectively just accepted with very little analysis and often little evidence of strategic thinking. Moreover it is unlikely that any one bidder has all the best ideas; so that many good ideas, whilst they have been substantially developed by bidders, will be lost.
Franchises are only short life operations, typically seven to ten years which is only a fraction of the asset life of rolling stock and infrastructure. This distorts longer term strategic planning, which defaults to either Network Rail or the DfT. The idea that Network Rail as the infrastructure provider should be deciding a large part of the product offer to the passenger, as is the case now, is plainly wrong, if translated into a consumer good example where the concept of a factory decided what was going to be made for sale, using its own criteria, disappeared with the demise of the Soviet Union.
Furthermore it reduces staff loyalty as few railway employees feel affinity with the owning groups, which are predominantly UK bus companies and foreign national rail operators. This does not help encourage co-operation with management, who may be quite different in their approach to the previous incumbent and in many cases the management philosophy has not transferred well into UK rail.
Overall, franchising is an inefficient method for developing the rail network and is expensive both in the competitions to award the franchise and then in their ongoing operation.
The conclusion from this simple analysis is that for urban and regional networks, where there is a clear primary purpose of serving the local economy effectively and efficiently, both franchising and vertical separation are adding costs and not adding any value.
The rational outcome must be to remove these aspects and move to a vertically integrated, locally focussed, operation. This is the accepted method of operation urban transport networks including Manchester Metrolink, the Tyne & Wear Metro system and London Underground. There is no fundamental reason why it should not the accepted method of operation of urban and regional heavy rail networks.
The removal of these two aspects of the current rail industry (franchising and vertical separation)in urban areas would greatly free up financial resources, management time and expertise to focus on the primary purpose of running cost effective, locally relevant and customer- focused transport operations.
- Applying a new approach to The North’s Railways
This section of the paper proposes a new kind of enterprise for railways in the North which is a) there for the long-term, b) vertically-integrated (track and train together under one management) and c) whilst being a commercial organisation takes its social and environmental responsibilities seriously, with an understanding that ‘doing the right thing’ as a socially responsible enterprise is good business sense.
- Learning from elsewhere
The experience of Japan’s railways has relevance, though it shouldn’t be followed slavishly. Japanese National Railway (JNR) was privatised in 1987. In contrast to the British system, the Japanese Government opted for a regional approach, with ‘vertical integration’ between operations and infrastructure. Six passenger railway companies were established (three on the main island of Honshu, one on each of the other islands), together with a joint passenger information company, a research institute and a nationwide freight operator. This latter does not own any routes, but instead has running powers over lines owned by the passenger companies. Four of the six passenger companies are now listed on the Tokyo stock exchange; the remaining two plus the freight company are owned by an independent state holding company, which funds unprofitable operations from interest payable on a lump sum granted at the time of privatisation. JNR’s residual debt, plus several thousand ex-JNR employees who would not be needed by the privatised companies, were transferred to the government’s ‘JNR Settlement Co.’ The ex-JNR companies together form the ‘JR-Group’, to coordinate matters such as technical standards and through running.
Fares are regulated by the national government. In addition to the large companies, some ex-JNR lines were spun off to ‘Third Sector’ companies, set up and owned by a mixture of local government and private interests to operate vertically-integrated local lines. Intermediate in scale between the JR-Group and the ‘Third Sector Railways’ are a number of substantial ‘private’ railway companies. These typically operate busy suburban and inter-urban networks, analogous perhaps to the one-time Metropolitan Railway in the UK. They often have significant property, retail and leisure subsidiaries, in a symbiotic relationship where the railway bring footfall to the non-railway business, and these in turn feed traffic to the railway. Broadly, Japanese railway restructuring has been a success, but the picture is complex. In many parts of rural Japan, population decline has exacerbated the problems of local rail services, especially on the JR Hokkaido network.
The larger ‘private’ (i.e. not ex JNR) lines are again big companies, and often the railway is integrated into their other commercial activities such as retailing and property development (just like the old Metropolitan Railway). The smaller private lines, which are often discarded ex-JNR branches, use local funding, often via local banks.
Clearly, business and political cultures in the UK and Japan are very different. But valuable lessons can be learned from Japan’s experience, as well, as from other countries across the world. Of these, vertical integration and a long-term approach are perhaps the most important. It is perhaps notable that where railways remain privately owned, e.g. the traditional ‘private’ passenger railways in Japan, or the very successful freight railroads in the USA and Canada, management has not chosen vertical separation; this suggests that where separation has been enforced it is mostly for political rather than operational or business reasons.
At the same time, the British experience has much that is positive to offer, particularly where franchises have been for a long-term period (Chiltern, Merseyrail) and where there has been strong integration between infrastructure and operation (ScotRail). The success of ‘community rail’ demonstrates the potential of this approach on a wider scale. There is evidence that within the UK there is a move away from the fixation with vertical separation. The new East West Railway Co., established by the Government to promote and ultimately operate the new Oxford – Cambridge corridor, will be vertically integrated.
- Rail in the North: time for a new approach
At a time when many of the traditional railway ‘brands’ are being re-established (LNER, LNWR, Great Western Railway) perhaps the time for the Lancashire and Yorkshire Railway, or a modern variant, has come, a new approach to regional enterprise which is at the leading edge of business, but recognises the importance of ethics, social purpose, heritage and identity. Many people still have a soft spot for the Lancashire and Yorkshire Railway – or ‘Lanky’ as railway people and many of its customers called it.
But this isn’t an exercise in nostalgia. The Government’s Rail Review offers an exciting opportunity to make a fundamental review of how our railway is managed and services delivered. There is growing interest in both greater vertical integration and opportunities for more regionally-based networks.
We propose that the densely-populated ‘metropolitan belt’ of Northern England – primarily Lancashire and Yorkshire – to look at a different approach. It could work in other regions of England, but as each has its own geography and characteristic, we would caution against a ‘one size fits all’ approach.
What would a modern ‘Lancashire and Yorkshire’ operation could look like, justified not by nostalgia but by economics, politics (yes, a dirty word in railway circles but we can’t escape it) and modern organisation.
The essence of the argument is this. The current structure of the industry doesn’t work, as demonstrated in Part 3 of this paper. Even those of us opposed to traditional nationalisation have to admit it. The long and winding road of rail privatisation introduced by the 1993 Railways Act reached its nadir in May 2018 with the virtual collapse of the rail network in many parts of the North of England and in the South-east. The reasons for this are complex, and systemic. The ORR interim report confirms that but fights shy of making any radical recommendations, perhaps understandably.
It’s time that someone speaks for ‘The North’ – which quite a big place, with some 15 million people, who feel highly aggrieved at the lack of a decent transport network, and – not unrelated – lack of democratic governance, such as is the norm in London, Scotland and Wales.
This paper makes some radical but deliverable suggestions which could potentially offer a top-class railway for the North which is part of the fabric of the region’s economy, which is owned and run on behalf of the people of the North of England who have a real stake in it. It has big implications for the rest of the rail network, but it’s time for the North to be given priority in terms of reform, instead of being treated as a backwater, with its representatives having to go to London with a begging bowl asking for ‘more’.
The core argument is for a vertically-integrated business – with a social mission – serving the core metropolitan belt’ of the North of England, funded from a range of sources, including its employees and customers, operating as a social enterprise – Lancashire and Yorkshire Railways – which is there for the long-term, with an entrepreneurial ethos combined with social responsibility.
The two should go together, not be in conflict. We are proposing a ‘social enterprise’ but with a clear commercial remit – with a social ethos or ‘mission’, there for the long-term. This makes good business sense, as bodies like Business in the Community stress. We want to see a railway company which makes a positive contribution to the economic and social regeneration of the North, and plays a key role in truly sustainable development.
- Some history
It is worth outlining a bit of the history. The Lancashire and Yorkshire Railway was formed in 1847 from the merger of several smaller companies based in the two shires. Its empire extended from Liverpool, Southport and Blackpool eastwards to Bradford, Leeds, York, Goole and Hull. It didn’t go very far north, or south. But it had a dense network across that hugely important ‘central belt’ of metropolitan Lancashire and Yorkshire, in those days the nation’s real economic powerhouse. Of course, it was ‘vertically integrated’. The L&Y managers would have struggled to conceive of a railway that wasn’t. It was highly entrepreneurial, and innovative.
The railway merged with its traditional rival, the London and North Western Railway, in 1922, just a year before the LNWR itself became part of the giant London Midland and Scottish Railway. Arguably, the LMS was both too big and in the wrong economic climate to succeed.
The L&Y itself had become a great railway towards the end of the 19th century under a very progressive management. Its routes formed the arteries of the great metropolitan belt stretching from the Mersey to the Humber. Its intensive freight operation was matched by a passenger service which was second to none for speed and comfort on its ‘premier’ routes, whilst its suburban routes provided access to employment for the workforce of the great Northern cities.
The L&Y was way ahead of its time in so many ways, but perhaps we should highlight its suburban electrification programme, introduced as early as 1904, as a particularly outstanding achievement. Whilst its Euston rival was offering Northern cities nothing better than small steam-powered ‘coal tanks’ for intensive suburban operations, the L&Y was busy electrifying its Liverpool-Southport/Ormskirk and Manchester-Bury routes. If The First World War had not intervened, there’s no doubt it would have done far more, giving Liverpool, Manchester and probably Bradford and Leeds an electrified network every bit as efficient as the Southern’s was to become under Herbert Walker.
It operated a fleet of passenger steamers, linking the North of England with both Ireland and continental Europe. It was ahead of its time in marketing, promoting access to the Northern countryside as well as longer distance opportunities with partner railways. It believed in ‘integrated transport’ before the term was invented, running a fleet of motor buses linking the railway with more rural locations off the rail network.
One more thing stands out with the L&Y. It was a genuinely Northern railway. It had no headquarters in London and never entertained fantasies of its own route to the capital, sensibly preferring to run its trains to London (from Bradford and from Colne) in partnership with other companies. The headquarters were in Manchester, its engineering centre in Horwich. It was financed out of Northern pockets. It was never seen as a purely ‘Lancashire’ railway, and Yorkshire businessmen and politicians were just as proud of ‘their’ railway as their Lancashire brethren. It wasn’t called ‘The Business Line’ for nothing. Its directors, management and workforce were of the North, and proud of it.
Many of its most senior officers started at the bottom and worked their way to the top through hard work and dedication. After its short-lived merger into the London and North Western Railway in 1922, followed by creation of the huge London Midland and Scottish Railway (LMS) in 1923, the loss of focus and momentum was inevitable. A constant theme of this paper is that railway companies (and probably most enterprises) need to be of the right scale, not too big, not too small. The LMS was too big, BR obviously even bigger (though the regional business units it created helped to redress that). The L&Y was really ‘just right’.
- The North’s railways today
Some good things are happening. Today’s ‘L&Y’ network is undergoing major investment, with electrification and new trains. These add up to the biggest changes since 1922. Electrification of much of the North-West rail network is taking place or being planned and hopefully a momentum will build up to complete some of the more obvious ‘missing links’, above all the Calder Valley Line as well as Bolton – Wigan, and the Atherton Line.
However, decision-making is highly fragmented, with DfT, Network Rail, Transport for the North and the combined authorities rubbing up against each other, with the train operators having little influence in terms of long-term strategy. The delays in electrifying the Bolton Route (over 2 years and still counting) are inexcusable. Growth risks being choked off through a combination of unreliability, crowded and inadequate trains (notwithstanding the new trains trickling in) and poor quality passenger facilities. The current strikes waged by RMT obviously don’t help, whatever their rights and wrongs. Staff morale is low, and little wonder.
What might have been a slightly more positive overview was blown out of the water by the meltdown of Northern services, particularly in the North-West, following the timetable change in Mat 2018. It is optimistic to say that the problems have been resolved; they haven’t. The reasons behind it are far from straightforward but point towards a systemic failure which is certainly not the fault of any individual or management team, or for that matter ‘privatisation’ per se, but which point towards a major failure in the privatisation model ushered in by the 1993 Railway Act, as we argue in Section 3.
The provisions of the Act for developing ‘open access’ services alongside franchised operations have hardly been realised, despite the success and popularity of the few surviving examples – Hull Trains, Grand Central and Heathrow Express. It’s interesting that these operations enjoy very high levels of customer satisfaction. Why? We would suggest that it is a combination of being there for the long-term, judged by the success or failure of its own ‘product’, as well as being small and regionally-focused.
- What does the North need?
Rail has become a popular mode of transport and people want to use the railways. This has been reflected in rising usage over the last 25 years. In the North, this has been despite poor quality rolling stock, patchy reliability and a franchise let on the premise that there would not be any growth. The causes are complex and new investment in rolling stock and electrification is welcome. But it isn’t enough. Existing and potential users of rail want to see a good quality, growing railway with excellent passenger facilities at stations, reliable trains which are not regularly overcrowded, and good access to and from stations. These are the basics, and we’re a long way from achieving them.
There is a bigger picture, with rail playing a positive and catalytic role in the regional economy, as an employer of choice and a business which buys locally or regionally. Rail companies should be thought leaders, playing strong roles in the wider business and political community. Yet far too many senior managers remain within their railway comfort zones, fearing to venture out. It isn’t about just going along to the occasional rail user meetings to ‘talk trains’, it’s about engagement with chambers of commerce, universities, local government and other strategic networks on how rail can play its part in the economic and social development of the North. And the unions should be positive partners, not adversaries.
- Railways in the UK: the need for long-termism and ‘elbow-room’
As we have argued, railways need a long-term planning horizon which the current structure doesn’t give. Taking the L&Y as an example, it had full control of operations and infrastructure and made intelligent long-term investment decisions, on things like electrification, new lines and new stations based on simple (and for today, probably too narrow) commercial criteria. Yes, we’ll electrify the Bury line and we’ll design and build our own trains. And they did it in months not years.
But there’s another, even more important point. The L&Y, and other regional companies like the Furness, Midland and the North Eastern were enterprises that were there for the long term. Staff had a sense of pride in being part of a business rooted in their region and part of their communities. As vertically-integrated railway businesses they were able to develop schemes like electrification on the basis that it was a long-term investment. A franchise, however long it might be, is always going to be temporary. Railways are long-term, the current arrangements fly in the face of this obvious truth and act as a brake on progress.
A further point, which needs stressing: you can’t run a growing, dynamic business within a tightly-specified government contract. There’s little incentive to invest and grow the business, you simply deliver what the contract says and that’s that. It’s a recipe for stagnation. What a tribute to Northern’s first MD, Heidi Mottram, that despite the ‘no growth’ franchise she took on, she actually managed to expand the operation. But it was in the face of a very challenging and unsupportive framework.
A return to BR isn’t the solution, and nobody is actually saying that. A nationalised railway, in the old sense of a centralised state corporation, would have to compete, in a harsh post-Brexit world, with other priorities. We may think it’s a self-evident truth that investing in rail is a good idea, but Treasury civil servants might take a slightly different view. The building of HS2 will not help, drawing substantial funds away from the core railway for a decade or more. We also need to accept that the political landscape is changing and devolution, however, unsatisfactory it is in the English regions, has a momentum which will take more power out of Whitehall and Westminster. The days of monolithic state-owned utilities controlled from headquarters in London are gone, and let’s not mourn their passing.
We are in a very different world to that which would have been recognisable to the L&Y’s big-hitters Ashton Davies and Aspinall. Railways cannot stand alone as commercial enterprises but need strong public support for good economic, social and environmental reasons, though it should be possible to develop business models which mean railways become more efficient and so are less dependent on the public purse. They need to have room to breathe commercially and operationally. This is fundamental.
- A modern equivalent of the Lancashire and Yorkshire Railway (L&Y)
A modern-day equivalent of the L&Y, serving towns and cities from the Humber to the Mersey, would be a logical development from the current temporary and disjointed structure. It would need support (but not control) from bodies like Transport for the North, the combined authorities, local authorities and investors, including pension funds and Northern-based property companies, LEPs and others.
There could be potential in developing a new kind of enterprise which, whilst in the ‘private’ (or not ‘state’) sector, had a large degree of employee and passenger involvement through both shareholdings and board representation. Our favoured option is a social enterprise whose profits are recycled within the business to improve services and facilities. This could be structured as a co-operative, or as a community benefit society.
Crucially, it would need to have long-term stability, not subject to franchise changes every few years, or to the vagaries of the changing political landscape. This may imply a contract with the public sector but one with much more commercial freedom than is normally implied by the term. The contract should be for an indefinite period, but evolving to meet future needs, regulated through periodic reviews, giving the company a long time horizon which would help justify investment in both infrastructure and rolling stock. At the same time, funds could be sought (e.g. through share issues or bonds) for enhancements.
This is a very different from the tightly-specified concession such as London Overground. It should be a vertically-integrated regional railway that is owned by a combination of partners including staff/passengers, with some similarities to the Japanese companies. There could be some public sector involvement, e.g. through Network Rail having an interest, or successor infrastructure owners outside the L&YR region. TfN should also have an input, but the company should work as a private enterprise with a social mission. To repeat, the two are not incompatible and each would strengthen the other.
The current structure is not doing anyone any good, neither passengers, staff nor the wider community. But a return to state control of the post-war kind wouldn’t either. A free-standing operation within a framework that ensures that the unprofitable parts of the network get an agreed level of service (no worse than now), but allowing the company to develop (with investor partners in the public and private sectors) long-term projects such as re-openings, electrification, new stations, rolling stock acquisition – could work in everyone’s interest.
The assumption of a commercial, regionally-based and vertically integrated organisation is that other parts of the fragmented rail operation would be brought back under one owner. This would include rolling stock, with new trains being owned and maintained by LYR, not a leasing company. However, some services could be supplied by local social enterprises (e.g. catering, cleaning and other services).
- A new model for British business – a mission-led railway for the common good
So let’s think big, or at least ‘regional’. Forget going back to BR, and let’s ditch the short-termism of the current franchising system. One of the very interesting things about the original L&Y was how closely it aligned to the economic geography of the metropolitan North. It made instinctive sense to link the great cities and towns of Lancashire and Yorkshire, as well as the major metropolitan centres. It still makes sense today, even though the mines, mills and engineering centres have gone. That central belt, stretching from the Mersey to the Humber, is still a tremendously powerful geo-economic entity, with great untapped potential. The emergence of the Northern ‘knowledge economy’ involving many great universities and research centres, is forming the new metropolitan revolution in the North. The railway links them.
A new vertically-integrated railway that bolstered those links – Lancashire and Yorkshire Railways – makes lots of sense, even if it flies in the face of current, all too conventional, wisdom. But given that conventional wisdom in the shape of rail privatisation imposed on us by the architects of the 1993 Act has failed so badly, why not think of something quite different?
We need to rethink what the modern enterprise should look like. The railways would be a great place to test this out. What we are proposing ought not to be anathema to many thinking politicians of both right and left-wing persuasions – a mission-led business which is commercially-driven with a social purpose to aid the regeneration of the North.
The Government-supported report on ‘Mission-led Business’ makes the point that: “Across the UK, there is an emerging movement of mission-led businesses: profit-driven businesses that make a powerful commitment to social impact. They commit to contribute positively to society through their operations, goods and services and are transparent about how they do it. Mission-led businesses are part of an overall change in the responsible business agenda. There is growing evidence to suggest that businesses that take this approach have a competitive advantage in the form of improved business performance, increased employee retention, and greater customer loyalty and advocacy. (On a Mission in the UK Economy – Current state of play, vision and recommendations from the advisory panel to the Mission-led Business Review 2016)
So it should go without saying that the modern enterprise, using LYR as a model, should really mean what it says on diversity and social inclusion, employee engagement and responsiveness to customer needs. As a regional enterprise, LYR should be at the forefront of Northern business culture, involved in a wide range of business and social networks, supporting and sponsoring regional cultural initiatives in many different ways.
It should prioritise local procurement for all goods and services, as far as it possibly can, instead of relying on ‘easy’ but often less than ideal central suppliers who often ‘export’ profit outside the region or the UK.
- Operations and Infrastructure: greater integration required
Greater integration between operations and infrastructure is vital. However, there will be many instances where other operators will need to run over LYR tracks – for freight, for through passenger services to other parts of the country, and for open-access (unless the law is changed). Likewise, LYR trains will have to run over other tracks (Network Rail or successors).
The current TOC-Network Rail access agreements are hopelessly over-complicated. A far better bet for passenger operations would be to revive the Victorian concept of ‘running powers’, or use of ‘open access’ rights. At Chiltern Railways the Aylesbury services run over LUL tracks and make use of the old MSLR/Met Rly agreement from the 1890s, and this has worked very well for both parties – not least because problems could be directly resolved between the appropriate managers/engineers in both companies, rather than resorting to bureaucrats and lawyers.
These proposals have obvious implications for the sort of organisation that Network Rail should be. Should it be purely a supplier of central services and equipment/expertise? That’s one approach but a more flexible approach in which it uses its considerable resources to be a partner in regional companies might be preferable, and bring stability. Our concern would be that its involvement could ‘drag down’ initiative and innovation. Much depends on a cultural shift within Network Rail.
We acknowledge that full line-of-route vertical integration will not correspond with existing signalling control areas. Rail operating centres (ROCs) e.g. York and Manchester, control sections of the main intercity routes as well as lines which would become part of LYR. There are a number of ways in which this might be overcome, from simple contracting between the parties to re-configuring control areas as part of future re-signalling. This did not prove an obstacle to the setting up of vertically-integrated ‘sectors’ in the latter days of British Rail. The important thing is that signalling should be regarded as an issue to be addressed, rather than a barrier to vertical integration. That way the greatest benefit of vertical integration – that there is a direct and causal link between revenue generation, day-to-day operations, train service planning and infrastructure investment – would be retained.
For freight, a blanket access agreement for all freight operators would be needed, which is very similar to the situation in Japan where JR Freight has automatic rights over any of the ex JNR passenger railways. These running powers and access agreements could be monitored and enforced by a remodelled (and slimmed down) ORR. Track usage would of course have to be paid for, which would make the other passenger and freight operators valued customers of LYR, and thus give the vertically-integrated company a positive incentive to welcome them. The approach we favour would have different regional rail companies acting as buyers and sellers of access rights. So in theory there would be no reason why LYR couldn’t run a through service from, say, Huddersfield to St Pancras, buying paths from the ‘East Midlands’ rail company south of Chesterfield to Derby, or the service could be operated jointly with the two operators working in an agreed partnership.
- A bigger role for ‘Community Rail’
The North has a good network of community rail partnership and ‘station friends’ groups. Under a new, dynamic socially-responsible business support for community rail initiatives would continue and increase. The benefits of community engagement with the railway are manifold and well documented by ACoRP and DfT.
Further encouragement should be given to community enterprises wanting to have a presence at stations and do business with the railway. The proposed business model should not be afraid of taking risks and trying out different models of local community enterprise, e.g. staff and local social enterprises running booking offices or other supply services. Larger stations should develop with associated local markets, with a range of different local businesses selling their wares, adding value and interest to both passengers and others, making the station a hub that people want to visit and spend time at.
We would favour some pilot projects for ‘microfranchising’ in which some discrete parts of the network (e.g. Cumbrian Coast, Leeds- Settle-Carlisle/Lancaster) could be developed as pilots for local control, with devolved management within the parent franchise. The degree of autonomy should grow gradually rather than happen in ‘one big bang’.
At present it is not as easy as it should be. Having a vertically-integrated company running the railways of the North, it would be easier to progress station projects which benefit passengers and the wider community, as well as facilitate experiments in local control for more rural parts of the network.
Lancashire and Yorkshire Railways should have a high profile in the community, promoting itself as a potential employer, and a partner in community, cultural and economic initiatives at the local level.
- The importance of Freight and the role of collaborative train planning
Rail freight is (or should be) an important part of any regional economy. The regional train company should view rail freight in a positive light as part of supporting local economies. In the North, with the large ports on the Humber and Mersey and links to the Tees and the Tyne freight should play an important part on several some routes. Regional agencies including bodies such as Transport for the North, and Local Enterprise Partnerships, should be able to access funds to support rail freight development through a revived form of Freight Facilities Grant which did so much to encourage modal shift from road to rail. There needs to be a positive environment to encourage rail freight across the UK and to foreign destinations. Extending electrification, particularly to the major ports, with complementary infrastructure development (including gauge clearance to W10 standard for maritime containers) is essential for any positive strategy for rail as a whole.
However it is recognised that our proposed model, which brings many benefits and efficiencies, does create potential challenges for network-wide operators such as rail freight. One possible solution is to require the vertically integrated networks and any residual infrastructure-only networks to co-operate to provide network wide access and train planning capabilities, possibly using the well-tried models from the passenger business – railcards, third party retailing etc., where ATOC/RDG provide the means whereby train companies can discharge their licence obligations to participate in national schemes.
To work effectively any planning and timetabling organisation has to work on behalf of the whole industry and be under collective control. It is not envisaged that it would undertake the detailed planning – which would be left to the local companies, but ensure common interfaces and standards, assist with the interface arrangements at boundaries and if necessary be part of the disputes resolution process.
Modern technology should permit access to future train plans to properly authorised users so that rail freight companies could find their own paths, understand the consequences of changes that they may desire to secure efficient paths, and take away some of the rigidity that currently exists because franchisees have to show that they have protected their train paths to meet the DfT’s requirements as defined in the Passenger Service Requirement.
The concept of an all-powerful ‘System Operator’ is not compatible with the concept of strong vertically- integrated regional train companies, because it creates strong tensions when it is important that the network should be working co-operatively for mutual benefit. Network benefits are best provided co-operatively and the rail industry has good examples of cooperation – such as the passenger network benefits, RSSB and BTP. The imposition of an over-arching body also makes accountability more difficult to define and leads to protracted decision making, whereas this proposal makes it crystal clear where accountability lies and should facilitate rapid decision making.
- Management and direction
A major problem with the railway today is that strategic management and control is exercised by civil servants at the DfT. Very few of these have any experience in railway management, and Whitehall’s ignorance of wider commercial and engineering matters is all too obvious. The new LYR must be managed by experienced railway professionals with commercial nous and a social mission – replacing Whitehall bureaucrats with local/regional ones, just moves the problem around without solving it.
Lancashire and Yorkshire Railways should be a company limited by guarantee which encourages passengers and employees to invest in, as well as attracting investment for larger institutional investors who want a long-term return not a quick short-term profit. Encouraging community investment for specific local capital projects, e.g. a new station or improvements to existing facilities, should be encouraged.
We would favour a structure in which public bodies (e.g. TfN, combined authorities) have an input into top-level strategy and investment, but where everything else is the responsibility of the railway company.
There is no reason why places on the board should not be reserved for employee and passenger representation, but it mustn’t become an exercise in participatory democracy for its own sake. Railway employees are a neglected source of talent and ideas and it would be important to nurture and exploit that to positive ends.
The best management structure would include an executive board comprising a range of talents in rail operations and complementary business, infrastructure, HR and finance, working with a supervisory board drawn from a range of experienced regional stakeholders with a presumption that they are rail travellers.
Whilst the proposed LYR would cover a tighter geographical area than the current Northern, there would still be a need for devolved management structures to ensure operational effectiveness and stakeholder engagement. There are two options – a geographical devolution based on the North-West and Yorkshire, or a ‘product’, or ‘sector’ based devolution which could include ‘premier’ services (e.g. most of the former TPE services and Northern Connect), urban (particularly Merseyside, Greater Manchester and West Yorkshire, and rural. Train crew should have route and traction knowledge to be able to operate a wide range of services with no rigid demarcation between LYR services.
It has been argued that the DfT and the Treasury would like nothing better than to devolve responsibility for some/all regional rail funding to local taxpayers, whilst continuing to fund South-Eastern suburban services out of national taxation. Let’s see. Can Government take the risk in supporting something different for the English regions? A robust funding structure is needed, not least whilst the Northern economy (and other regions) continues to underperform, and thus raise much less tax revenue. We consider the following to be essential, assuming an integrated regional railway that is there for the long-term:
- A central government commitment to provide an annual ring-fenced payment equal to the present Northern/TPE subsidy plus Network Rail expenditure on LYR routes, for at least 10 years. The ring-fencing is essential; we clearly want to avoid the situation where cash-strapped local bodies are told “care for the elderly or local train services?- it’s your choice….”. (When JNR was privatised the Japanese government made a big down-payment to each of the new JR-group railways, the interest on which then provided the annual operating support going forward.)
- Central government should provide a substantial ‘dowry’ of investment funding to enable the LYR network to be brought up to the standards enjoyed in the southeast. Again, this was done in Japan.
- An ability to call on local and regional institutions and businesses to provide funding, especially for projects which would benefit them. This could be helped by a) redirecting the local business rates paid, which despite the name currently go direct to the Treasury; b) allowing businesses to offset any such support against tax (otherwise local interest would be funding LYR through local payments and London & SE rail services through taxation). Development gain is an under-used source of funding for rail projects.
- Major investors in the business could include regional entrepreneurs (including developers) with a long-term stake in the region.
- Ownership and Organisation
Railways of any kind are big businesses which require the marshalling of substantial resources. John Lewis and the Nationwide are obvious and very successful models of ‘mutual’ organisations. The problem is how we move from the traditional forms of ownership, private or public, to the new; unlike the Japanese companies or the old L&Y, the new LYR wouldn’t be growing organically from some small business in the past.
A model of a new regional social enterprise, with a social mission which recycles profits within the business seems the most appropriate and politically acceptable solution. A co-operative model may well be the most appropriate form, structured as a community benefit society. There are existing examples within the railway industry of such a model, notably Vintage Trains which is now a licensed train operating company.
We envisage LYR being set up as a ‘statutory company’ (as was the original LYR, and all other British railway companies, with rights and responsibilities clearly set out and extending beyond those of a normal PLC. In particular, the company’s Articles of Association should be specifically drafted so as to protect the public interest. Responsibilities might include such areas as, e.g., safety, fares regulation, co-operation with other rail companies and operation of unprofitable services. Rights might include permitted development rights for new developments such as electrification, and (crucially) a requirement for public bodies would not be able to order any extra services, fares freezes, etc. without due recompense. Measures should be built in to the legal structure to prevent hostile takeovers. A co-operative model ensures this, but there is also the option of a public body having a ‘golden share’.
- Ticketing and passenger information
One of the unsung successes of UK rail privatisation is the availability of through tickets and journey information, irrespective of train operating company. It would be essential that LYR continues to be part of the national ticketing and information systems. The complexity of the rail network, both nationally and locally, is such that an operator-specific approach would be hugely disadvantageous to many passengers.
- An expanding network
We want to see an expanding rail network and LYR should recognise some early wins, including (for illustrative purposes) Skipton – Colne, the former ‘Peak’ main line from Manchester via Chinley to Derby, Bradford Crossrail and York – Beverley (for Hull). These may well be in part public-funded but delivered by LYR and its contractors. By having a more integrated approach the opportunities for cost-savings would be considerable. The example of the Stafford improvement project, focused around the grade separated junction at Norton Bridge, demonstrates that strongly integrated project management can deliver outstanding results at sensible prices.
At the same time the network should not be frozen and there may be some isolated cases where re-structuring is needed, through changing service patterns to reflect emerging needs to possibly closing an existing asset for whatever reason. That means that TfN or whoever cannot be judge, jury and executioner. Any closure applications should thus be dealt with through established national channels, and using the same procedures with the ORR.
- Entrepreneurial and socially responsible
LYR should have the commercial freedom to go for new business opportunities that add value to the core proposition. This could include hotels and catering and other complementary transport services including feeder buses and demand-responsive operations, possibly delivered through third parties. However, these are not highly profitable businesses. Perhaps the most exciting possibilities would lie in the area of property development, learning from Japan’s example. The point is, the company should be incentivised to look for new commercial opportunities which support and strengthen its core business. Commercial rents and house prices are often driven by access to a good rail service, so let the railway take the profit from the benefits it has provided. The link with property has been the foundation for much of the success of the Japanese private railways.
A key issue for a more ‘commercialised’ approach to railway operations is the question of risk. In a ‘normal’ private business risk is accepted as a fact of life. Within rail franchising, there is very little risk, with most of it borne by the public sector, and much of the risk that the franchise bears, such as revenue risk is to a large extend unmanageable.
A more commercially independent railway company, whether ‘for profit’ or a social enterprise, should shoulder a degree of risk in exchange for the possibility of making commercial gains. But that needs to be balanced by the importance of protecting the basics of a network delivering services that are essential for the nation’s economic, social and environmental well-being. So there must be a fall-back (back-stop?) in the event of any business failing, with reversion to state control being the obvious short-term solution.
Many rail companies claim to be ‘customer-focussed’ (or to use the more traditional term ‘passenger-centred’). We don’t think they are. They are focused above all on their own profitability, followed by a need to keep within the terms of their franchise. The ‘customer’ comes a poor third. Operational decisions are made not on the basis of passenger need but operational convenience which would avoid penalty payments – so trains don’t connect, they miss stops when late and are terminated short of their final destination.
The implementation of major projects likewise fails to take account of passenger interests. It is all too easy for Network Rail to institute a complete blockade for remodelling or relaying – with compensation payments going to the train operators, but not to the passengers who have to endure slow and uncomfortable substitute buses. A vertically- integrated railway responsible for passenger revenue as well as infrastructure would be far less likely to adopt this approach.
A modern passenger-focused railway should actively involve passengers – this should include as shareholders and as members of decision-making bodies. We don’t believe this should be confined to ‘rail user’ bodies, which too often are not representative of the diversity of the rail passenger market.
If a railway company was less constrained by franchise requirements which can often give perverse incentives (e.g. punctuality targets which mean connections are routinely missed) the passenger would get a better service. Punctuality and reliability are key – but so too are trains that are not routinely over-crowded and stations which offer a positive and welcoming customer environment (and provide retail facilities which add to the commercial viability of the business as a whole). There is no one single way of achieving this, but embedding a customer-focussed culture within the business is a vital starting point.
- Offering ‘value for money’
A lot of public money is already going into the railways of the UK. We are not asking for more. We want to see the funding currently invested into the UK’s railways being put to better use, in effect higher productivity, with better control over projects (large and small) and generation of new sources of revenue, both from core ‘fare box’ and also from peripheral sources which could include property development, engineering services, catering and hospitality services etc. We firmly believe that by having a much more integrated operation that significant savings can be saved from both the day-to-day working of the railway and the development and delivery of projects. Reducing the plethora of unhelpful interfaces across the railway and getting away from an corrosive ‘blame culture’ is essential for both operational efficiency and reducing costs.
Taking away the periodic, and monumentally un-helpful, re-franchising process would offer an immediate financial benefit. The average cost of a franchise bid is in the region of (at least – see Section 3) £50m if costs to DfT as well as bidders are taken into account. This money does not come from an illusory railway money tree, but out of investment which could otherwise go into the railway itself.
- A ‘mission’ for the new railway
We have stressed the importance of Lancashire and Yorkshire Railways being a commercial, profit-oriented business with a ‘social mission’. What does that mean? Our suggestions (based on the Government-sponsored report On a Mission in the UK Economy, 2016) would include the following:
- A strong commitment to the economic and social prosperity of the North of England
- A clear commitment to transparently delivering a positive social and environmental impact.
This would go beyond current ‘corporate social responsibility’ and embed best practice in everything the business does, documented in an annual review to all stakeholders.
- An understanding that parties beyond shareholders have a legitimate interest in outcomes of the business.
- Working with employees and passengers, communities, local authorities and the wider business community would be a vital part of the business, helping develop company pride, commercial relationships as well as community engagement
- A recognition that value can be delivered sustainably by moving from contractual stakeholder management to broader engagement.
- Shape of the proposed network (see Appendix 1)
Organisationally, it would involve the merger of Northern and TransPennine Express, with some of TPE’s longer-distance services (such as the Manchester Airport – Scotland) possibly (but not necessarily) being transferred to another InterCity operator. The assumption is that the East and West Coast Main Lines would be separate bodies, responsible for their own infrastructure with LYR having running powers/access rights where appropriate (e.g. Euxton Junction – Carnforth).
Merseyrail is a successful railway and we would not advocate merging it into LYR. There are strong arguments to extend the Merseyrail network e.g. Ormskirk – Preston; Kirkby – Wigan; Bidston – Wrexham.
Obviously restructuring the current (and very large) Northern franchise has implications for other parts of the network. There should be a willingness to look at other, smaller units which make geographical, economic and political sense.
A new ‘Northern Railway’ could cover north of the LYR’s operational area, covering the North-East region, westwards to Carlisle and down the Cumbrian Coast, north to Edinburgh and as far south as York. An alternative would be to have a small but compact North eastern Railway and a Dales and Cumbria Railways (Carlisle – Barrow; Oxenholme – Windermere; Leeds-Settle-Carlisle).This needs discussion.
The proposals in this paper would apply to many other parts of the network, particularly the West Midlands; the East Midlands, including the present long-distance services ; East Anglia; South-West; and South-East. Freight should remain ‘as is’ with a regulator to protect access rights. The current geographical shape of ScotRail and the new Wales and Borders franchise make sense, and both offer examples of greater integration between operations and infrastructure – though our proposals would take this further.
- National and regional agencies and the need for a ‘guiding mind’
The proposals in this paper fit with the growing momentum towards regional devolution. However, the railways are a Britain-wide network covering the nations of England, Scotland and Wales and there will be a continuing need for a degree of central control, where necessary (e.g. standards, safety, research, cross-border services). Too much devolution could cut across the need for a clear UK network in which strong links between the three nations are developed, together with regional networks and the domestic Scottish and Welsh networks. It could also add to costs and duplication of effort in some areas.
Following privatisation, the Government created the ‘Strategic Rail Authority’ out of the framework of the Office of Passenger Rail Franchising (OPRAF), providing an overall focus for the development of the rail network and to act as the franchising body for most rail services. The SRA was, however, abolished under the 2005 Railways Act.
The need for a UK-wide ‘guiding mind’ remains, though it should have a different role to the previous SRA, providing a framework for the development of the network without ‘micro-managing’ it. Its composition should reflect the changing nature of the UK, with representation from DfT, the Welsh and Scottish Governments as well as the devolved structures in England (e.g. Transport for the North, West Midlands Rail).
However, it should bring together the rail industry itself with government partners to shape a long-term future for rail. It should be an organic development of the current Railway Development Group (RDG) with some new responsibilities including some of those currently exercised by the Railway Safety and Standards Board (RSSB). Regulation (and rail operations and access and engineering/safety oversight) would remain separate.
We would suggest calling the new body ‘UK Rail Group’ which differentiates it from the former SRA and suggests a more collaborative rather than top-down way of working. Some of its responsibilities could include the primary but admittedly vague objectives of the original SRA established under the Transport Act 2000: e.g. (a) to promote the use of the railway network for the carriage of passengers and goods, (b) to secure the development of the railway network, and (c) to contribute to the development of an integrated system of transport of passengers and goods.
Additional responsibilities of the Group could include a) promoting and supporting research into all aspects of railways b) ensuring synergies and best use of other transport modes c) encouraging the sharing of best practice between all parts of the railway industry, d) lobbying for rail and promoting its positive role in society e) promoting accessibility and connectivity
There would be a continuing need for an independent regulator, though The Railway Safety and Standards Board should become part of the UK Rail Group.
The body should be based outside London, e.g. Derby or York, but with areas of expertise spread across the UK, working closely with academic institutions which may host some of UK Rail Group’s functions.
The terms of reference of the Rail Review asks the right questions. We believe the outline proposals offered in this paper answer each of them, in ways that are achievable and realistic. It offers a “commercial model for the provision of rail services that prioritise the interests of passengers and taxpayers”, which is there for the long-term, not short-term economic gain and convenience.
It offers a structure “that promotes clear accountability and effective joint-working for both passengers and the freight sector” by providing strong integrated management. Potentially, given greater commercial freedom and a long-term, stable environment, it offers “a system that is financially sustainable and able to address long-term cost pressures”.
By developing a strong commercial impetus, it will be able to offer “good value fares for passengers, while keeping costs down for taxpayers”. By being there for the long-term, managed by experienced railway professionals, it will help to ensure “improved metropolitan relations, to reduce disruption and improve reliability for passengers.”
By having commercial freedom, long-term focus and clear responsibilities over all aspects of operations and infrastructure, it would “have the agility to respond to future challenges and opportunities.” More than that, it would set an agenda for business growth in the English regions.
We welcome views on our ideas.
January 10th 2019
Appendix 1: What area would ‘Lancashire and Yorkshire Railways’ cover?
Essentially LYR would include much of the current Northern and TransPennine Express franchises with a southern/western limit of Cleethorpes, Nottingham, Stoke-on-Trent, Crewe and Chester. To the North, LYR would operate to York/Scarborough/Tees Valley and Barrow/Windermere.
The Settle-Carlisle Line could be part of LYR, or the proposed ‘Northern Railway’ (see below) or a semi-autonomous business unit (including Leeds – Lancaster/Morecambe).
Current TPE services would form the core of a LYR ‘Premier’ network which could either include all current services, or cede its Manchester/Liverpool to Scotland services to an inter-city operator. There are arguments to be made on both sides, or possibly to be a joint operation between LYR and ScotRail reflecting its importance to both groups.
The suggested ‘Northern Railway’ would include all local and regional services in the North-East, across to Carlisle and down the Cumbrian Coast to Barrow.
Appendix 2: Members of the Rail Reform Group
Allan Dare (Former Strategic Development Manager, Chiltern Railways)
Dr. Nicola Forsdyke (Former Marketing Manager Northern, Former senior consultant Halcrow)
John Kitchen (former Manager, Community Rail Cumbria)
David Prescott (Former Rail Manager, Transport Scotland and BR regional Railways)
Prof. Paul Salveson (Former General Manager ACoRP, Former Group Advisor Arriva UK Trains)
Adrian Shooter (Former MD Chiltern Railways, MD Vivarail)
Michael Whitehouse, Chairman, Vintage Trains
Mark Barker, Former senior manager, Northern Rail
Appendix 3: Objects of the Rail Reform Group
- To promote innovative thinking and practice in all aspects of rail policy, so that the railway may better contribute to economic development, sustainability and social inclusion, and offer good value to rail users, communities and the taxpayer.”
- To organise events and other activities which promote the aims of the Group
- To undertake research in relevant areas and provide appropriate services
- To work with the rail industry, government and other relevant agencies in a collaborative way
- To be non-party political