Eight Billion Pounds and Politics, Some Thoughts on Yesterday's Announcement

Yesterday the government announced that it would invest £8 billion in Britain’s railways. To the naked eye it looks like a cornucopia of spending designed to enhance Britain’s desperately strained railway network. We will get 2000 new carriages, completion of the upgrade to Thameslink, which links Bedford and Brighton through London, and the electrification of Great Western lines to Newbury and Oxford, as well as the Liverpool, Manchester, Preston and Blackpool lines. While undoubtedly good news, in reality I have a few worries about the investments.

Firstly, the figure of around 2000 new carriages certainly seems impressive at first glance. But as everyone has been quick to point out, only 650 will be allocated to augment capacity on existing services. Indeed, the rest will go to Crossrail, which as a completely new line will need new trains, and also the Thameslink fleet will be replaced. Further, while the 650 new carriages will apparently be in service by 2014, the Crossrail and Thameslink carriages will not be operational until 2020 when both these projects will be completed. Thus, for many commuters there will be a lot of waiting around for their nice new trains.

Further, there has been no announcement about where the 650 extra carriages not earmarked to Crossrail or Thameslink will be allocated. Anyone who listened to Radio 4’s ‘file on 4’ programme last week will realise that overcrowding on northern commuter routes is far worse than it is on London’s. Indeed, I have been on rush-hour trains that passed through Leeds, Huddersfield, Liverpool and Manchester, and I can vouch for feeling like a sardine. Conversely, I have been a commuter for many years in London, and can say that while the capacity problems are bad, they have never been anywhere near as stifling as my northern experience. Thus, there is a far more desperate need for the new rolling stock to be allocated to the north of England.

Subsequently, where the new carriages will be going is a crucial question. However, I worry that the process of allocation may be open to abuse for political reasons. Will the ‘not-so-Tory’ north get the carriages, or will they be placed on the London commuter routes to ‘blue’ places like Surrey and Berkshire? Given the high level of control that the Department of Transport currently has over rolling stock procurement and allocation, in that they call all the shots, this abuse may be a possibility. Indeed, the reason for the severe overcrowding in the north can historically be put down to the region consistently getting a raw deal in rolling stock allocation. History may, therefore, repeat itself.

Of course, the DfT stated that as well as the new carriages being introduced the 600 new Thameslink ones will release all the stock that is currently used for northern routes. This particularly includes the ‘to-be-electrified’ Manchester, Liverpool, Preston and Blackpool lines, a project which will be completed in 2016. Yet, given that Thameslink will be completed at the end of the decade, it means that these routes will be electrified without a suitable compliment of rolling stock being available until 4 years after the work is been completed. Further, there is no expectation that nationwide passenger growth will slow. As such, it is highly possible that when those trains arrive in the north they will not solve the capacity problem as it will have worsened. Thus, once again, the north will be getting a raw deal in rolling stock terms. But, there is another political issue that concerns me.

I may just be being cynical, but in 2012 the West Coast Main Line franchise is up for renewal and I it is possible that this factored into the DfT announcing the electrification of the Manchester, Liverpool, Preston and Blackpool lines here and now. A major factor in my theory is that two open access train operators, Alliance Rail and Grand Central, have both applied in the last two weeks to run services to Blackpool as there is no direct link from London to that place.

Could it be possible that the Department for Transport saw these new operators as a threat to the value of West Coast franchise which they are about to start the re-tendering process for? Firstly, both Alliance Rail and Grand Central will run trains out of Euston up the West Coast Main Line, which will potentially remove some of the future franchisees’ traffic along the length of the route. Secondly, the current stock that is run on the West Coast Main Line is the Alstom Pendilino, which is electric and cannot currently reach Blackpool. Yet, both Alliance Rail and Grand Central have plans to service that place using diesel traction.

Therefore, is it possible that the DfT announced the electrification to Blackpool so that they could add this route to the new West Coast franchise in the future, in an attempt to see off regional competitors and raise the value of the franchise? If this is the case, it would mean that in the tendering process they wouldn’t have to consider lower the cost of running the franchise for any future operating company, a move which would subsequently affect the DfT's own income, because of the competition diminishing its revenue-generating potential. Admittedly, this is mere speculation, but there it is a possibility.

Overall, while I support the £8 billion of investment, it isn’t without losers and the political aspect of it must always be scrutinised. At the end of the day, if politics is involved in rail investment there is the potential for it to become highly misguided.

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End Note: Isn’t it interesting that Philip Hammond spent yesterday talking about the delivery of new carriages that would ease overcrowding, yet has recently said that the new Pendilino trains, due to arrive soon, cannot be used by Virgin Trains to ease overcrowding on the West coast Main Line and will be stored. Simply madness.

Is the Department For Transport Trying to Price us off the Railways?

I often get asked by many people why, if railways are a better way to travel, does the government allow the train operating companies to continually put up fares? Indeed, in the last few weeks, as part of the Comprehensive Spending Review (CSR), we have seen the burden of paying for the privatised railway network shift towards the passenger. For three years from 2012 the price of unregulated fares will increase per year by a factor of RPI (a measure of inflation) plus 3%. This is after many years in which the formula was set at RPI+1%.

There are a number of reasons for this fare rise that I am confident that play a role in this decision. Obviously, the first is to reduce the government’s funding of the railway. If fares go up, the Train Operating Companies will earn more money, reducing the government’s need to subsidise their profits. In addition, if more money was coming into the Train Operating Companies’ coffers, Network Rail, also funded by the government, could put up the rail access charges. Thus, they in turn would earn more money, also reducing the financial burden on the public purse. Therefore, the cockamamie way that our railway industry is structured, in that the government essentially pays the private companies to run the trains, but also funds the infrastructure, is a factor in the price rise.

The second reason for the price rises is Philip Hammond, the Secretary of State for Transport, who is universally known for being pro-car, and who I suspect simply sees rail investment as a waste of money. Indeed, while in opposition he stated that road transport was the only thing that could ‘kick-start’ economic growth regionally, and, more damningly, that the railway was soaking “up ever-larger volumes of taxpayer's money” and was a “bottomless pit for public finance.” (See my earlier post on Hammond's pre-election Pro-car, anti-rail parliamentary activities HERE.) After all, through Network Rail, the railways cost the Government a lot of money through renewing rolling stock and investments in infrastructure. Therefore, on entering his post as Secretary of State for Transport, Hammond already had a view that roads were a preferable means of travel, and that railways cost too much. As such, I feel it is unlikely that his attitude has not played a role in trying to reduce the financial burden of the railways on the Department for Transport (DfT).

Considering these factors, I believe that there is a third reason for the fair rise that cannot be divulged to the public. In short, Hammond and the Government don’t want you to use the railways. Rail usage has risen considerably over the last decade, and is still predicted to increase further over the next. However, to accommodate this more investment will be required in infrastructure and rolling stock. But, with the new economic environment, and the attitudes of the Secretary of State for Transport, they’d rather not have to do this.

Thus, I suspect that the DfT may have a secret policy of effectively pricing people off the railways which would reduce the need for further expenditure in the long-term. Indeed, many commentators have commented that the RPI+3% will actually mean fewer people will use the railways. Travellers would be forced onto the roads, where, while congestion is still a problem, modification and maintenance of the infrastructure would be far cheaper for the DfT. Indeed, it is not surprising that in the CSR road projects received much more support numerically that rail ones.

Of course, it is quite possible that within the Department for Transport this is not a stated policy. All I am intimating is that if the fare rises are seen through a prism of the future infrastructure investment that will be required, Hammond’s view of rail transport and given the structure of the industry, it is possible that the DfT is secretly trying engineer how we travel through price rises to reduce their long-term costs.

No Plan and lots of Groping - Rail Policy so far under the Coalition

So, at the moment the Department for Transport (DfT) isn’t really sure what it is doing with regard to investing in important rail projects. Well, that is my impression. On Tuesday, the Secretary of State for Transport, Philip Hammond, stood up in the House of Commons and outlined a many of the department’s plans regarding transport. The railways did not, sadly, receive top-billing. Indeed, the majority of the projects that were announced were concerning investment in the road network.

In four categories, Hammond outlined the level of commitment the government had to various projects. Firstly, those investments that were cast in stone were upgrades to sections of the M1, M60, M6 and M25, as well as 12 other road projects. Yet, languishing in the second tier of projects, which are subject to ‘a best and final submission,’ were the extension to Midland Metro and a new southern entrance to Leeds station. These were guaranteed provisionally, but not with certainty. In a third tier of works, were the Leeds Rail Growth Project, the Rochdale Interchange and new vehicles for Sheffield Supertram. These will have to fight out with other road projects for a share of a £600 million pot of money. Lastly, there were another group of projects that are in a ‘pre-evaluation’ group, such as the Croxly Rail Link (linking the Metropolitan line to Watford Junction). These will be subject to further review.

And everyone went “hmm,” stroked their chins and exclaimed “hang on a minute.” Many planned large railway projects, which did not get a mention in last week’s Comprehensive Spending Review (CSR), were also absent from Hammond’s announcement. The CSR did vaguely outline some funding of big projects, such as Crossrail, the second High Speed Line and Network Rail’s Station Improvement program. However, in the CSR and Hammond’s announcement we did not hear a peep regarding the Intercity Express Programme (IEP), which was to deliver replacements for aging high speed rolling stock; nor was there a croak about the electrification of the Great Western and Midland Main Lines; neither was there any announcement regarding new rolling stock for Thameslink. This was like Hammond saying that everything was fine, when all the while everyone is looking at the house behind him that was on fire. We all could see as plain as day what he was leaving out. Indeed, all he did say about the IEP, in response to a question, was that it was under review.

What this all amounts to, is that investment in Britain’s railways under the coalition is still very uncertain. Firstly, while many projects were confirmed in the CSR, there is no way to know whether they will be developed in line with their planned formats as the announcement was vague. Additionally, this status can also be applied to Hammond’s second tier of project’s that are ‘subject to a best and final submission.’ Further, other large projects that were planned are nowhere to be seen. Lastly, there is no certainty regarding many smaller projects that will have to vie for money.

I would suggest this is because the DfT doesn’t know where they want to go with regard to railway infrastructure projects and investment. Take for example the IEP. This major investment has been mulled over since Sir Andrew Foster’s report on it in July. But, there is another factor that is in play. The progression of the IEP would be heavily dependent on the electrification of the Great Western and Midland Main Lines, and vice versa. This is because the new trains will have to run under the newly electrified lines. Therefore, to cancel one project would imperil the other because they are interlinked. As such, the DfT have to consider the two projects together; but this means that it will take longer to decide on whether they go ahead as planned or in an altered format. Additionally, consider the number of rail projects that are not confirmed, but are still in the ‘provisional’ categories listed above. This evidences a lack of conviction regarding rail investment within the Department, as they are still open to review. HS2 is also not a certainty, as technically we are still in the planning phase and the actual work on the line would not start until after the next election. Thus, as it stands, after 6 months the coalition still has no firm commitments to rail investment.

Overall, it strikes me that the DfT has very little direction regarding investment in major projects on the railways. But this is a severe problem. Railways are different from roads, in that they require vast amounts of planning to make investments because of the high capital costs and the technology involved. Thus, Hammond and the DfT quickly need to develop a plan for major capital projects on Britain’s railway network, that moves them beyond such vague terms as ‘growth’ and ‘efficiency.’ It needs to be long-term and must encompass the wants and desires of all those that demand a modern rail network. Without a plan, they will be groping their way forward for the next 5 years, making one ad hoc decision after the other. This has the potential to lead to erroneous investment, poor management decisions and ultimately higher costs for the taxpayer and the travelling public. This has been a problem for the railways in the past, and it can’t happen again.

The Evasive Philip Hammond

I think I should keep returning to criticism of our new Secretary of State for Transport because at the moment I see little sign that he has anything pro-rail to say. Now of course this is because I am pro-rail and want him to do positive things for the rail industry. Truth be told, I can’t drive, so my view is naturally going to be skewed by my self-interest and I can’t expect every Secretary of State to naturally take the position that I want. This said, Philip Hammond has repeatedly shown himself to be ignorant of rail issues. Christian Wolmar, Britain’s most noted Railway commentator, recently did an interview with Hammond for RAIL magazine and came out with the conclusion that he was a man that saw everything through a car-shaped prism (RAIL 647 pp.44). Indeed, my own Blog entry of the 11th June showed that Hammond has a history of being a pro-car voice in parliament. Therefore, while I do suffer from an obvious bias in my perspective, I think that it is vitally important that railway commentators, journalists and anyone else with an outlet, criticises him and his policies so that he understands that the railways of Britain are not just an expense which has parts that can be cut, chopped and disposed of willy-nilly.

A few days ago I came across comments he gave to the Transport Select Committee on the 26th of July. His appearance in front of the committee was a good thing as it showed us how competent he was with his new responsibilities two and a half month in. I started to read the comments with an open mind, and I suppose I can’t be too harsh when critiquing his development. Before new government was formed he had never held a shadow transport brief and therefore his learning curve was naturally going to be steeper than other individuals who could have taken the job. This said, he does have the full resources of the Department for Transport, and serving under him are the former Liberal Democrat and Conservative shadow transport secretaries. So, it isn’t like he didn’t have any help, and he should, by now, be up to speed on the major and important issues facing the railway industry. I have to be honest; the man just came off as vague and evasive. This was shown particularly in reference to the questions he received regarding the rail industry.

Early in committee the chair asked Hammond ‘One of the commitments [in the coalition agreement] is, "We are committed to fair pricing for rail travel." It is a bit vague, is it not?’ Hammond replied that the government was facing a huge public deficit (yes we know that) and that ‘it is clear that we have to be prepared to look at all possible options in addressing the challenges of tackling fiscal deficit and also sustaining investment in our railways because it is clear that there are important investments in the railway, including investments that are directed at improving passenger comfort and passenger convenience, that it would be very unfortunate if we were to lose...’

So basically Hammond answered the question by not answering the question. So the questioner had another crack at him. ‘Q7 Chair: ....You are committed to fair pricing. Fair to whom?’ Again Philip Hammond did his best to avoid answering the question directly. ‘I think there are two aspects on this. First of all, there is the question of overall fairness policy on the railway and ensuring that any increases in fares can be justified in terms of improvements in the service that passengers receive. [....] It is not just about fares; it is about value for money for passengers. [...] It is about making sure that [passengers] are given proper information about the most advantageous fare available to them, that the information that is published is clear so that passengers can get the best deal that is possible within any given framework of any given fare structure.’ This is ridiculous. He is not only did not answer the question again, but he is also confusing quality of service with fairness.

Indeed, in the context of his recent RAIL magazine conference keynote speech, I think that he was avoiding the question because he has little intention of making rail prices ‘fair.’ He said that “we will face some stark choices, and it would be irresponsible at this point to rule out even considering an increased contribution from the fare payer as part of the solution to protecting investment in the railways.” If we consider that at the moment a large section of the population are priced out of using rail transportation because of the cost, and that the prices currently can in no way be considered ‘fair,’ then it seems that prices can only become more unfair. In the mind of the Hammond, putting fares up is all that can be done with them. Indeed, I think that the concept of ‘fair’ in the conventional sense does not seem to register with him. This was essentially because it was part of the Liberal Democrat manifesto to introduce ‘fair’ rail pricing, and hence why it made into the coalition agreement. For him, a dyed in the wool Conservative, fairness is not the underlying principal, the bottom line is. As such, Hammond avoided the committee’s question as he knows that it is a commitment that it is untenable to maintain. If only he’d have come out and said “yes, sorry, that one was the Lib Dems sticking their awe in…forget it,” then I might have had a bit of respect for him.

He was then asked about the cuts that would inevitably come, ‘The Department of Business, Innovation and Skills said last week that the UK needs to spend £42 billion per annum on infrastructure investment, including transport. How is that going to be achieved in current circumstances?’ Philip Hammond again didn’t answer the question effectively. He stated that there would be no reduction in any capital expenditure that had been pencilled in by the Labour Government. Yet, I think the word ‘pencilled’ is very telling. Combine this with the lack of specifics and there is a case for saying that he did not answer the question in full, again, because he knows that he cannot actually commit to cancelling projects that this point. This is another case where I’d really just appreciate some honesty from the man, yet, he says he will be keeping the investment. In no world is that really a reality and most rail commentators have pointed out the department will have to make cuts in capital expenditure.

Of course there is one area where costs could be reduced effectively, namely at Network Rail. NR does cost between 30 and 50 present more in maintenance per mile than continental railways, and Roy McNulty will report on how the not-for-profit organisation operates and can reduce the debt. At the RAIL conference Hammond said that he had received a ‘scoping study report from Sir Roy. I suspect that this gave him a number of preliminary conclusions about the state of NR’s finances. Yet, at the both the conference and in front of the committee he couldn’t give a cogent response to question as to where the NR may be scaled back. In fact there were no specifics. I’ll just post all of his response to the question here, so that you can get the full force of his evasion.

Q24: “Just thinking on my feet, it is not something that has been talked about actively in the department in the time that I have been there…Clearly, because of what I have already said about the way we will, in every day working terms, think about Network Rail’s debt, we will not be able to take the attitude that the previous administration did to ever rising Network Rail debt. We will have to look again at how we finance the capital investment in the railways. The mere fact that it may be borrowing by Network Rail does not mean we can ignore it. We will want to look at that as capital spending in the same way that we would if it was financed by public capital investment directly. That will mean that we need to look at the model once we have Sir Roy McNulty’s conclusions and hopefully have come to some conclusions before we begin the negotiations around the next control period, control period five.”

Did you read any ideas within that? No, I didn’t either. I find it hard to believe that a man who has been doing the job for nearly three months has no ideas whatsoever about where NR could make savings. I suspect that he is avoiding answering the question of where NR will have to cut back because to do so would reveal changes he wants to introduce that may actually go against the coalition and which would break promises. Either that or he is out of the loop to the point of incompetence.

You can read all of Hammond’s responses to questions HERE, but I suspect it won’t get you far because he never gives an informed response to a question regarding Britain’s railways.The reality is that he hasn't had that decency to tell the travelling public what he is really keen to do, put up fares and cut back services. He comes across as a man who is evasive but has an agenda that he is not keen to reveal. That, I’m afraid, is simply not good enough!

Philip Hammond's full keynote speech at the RAIL conference can be read in the latest issue of RAIL Magazine pp. 34-37.