Government, Regulation and the Railways – a personal view

Jonathan Pugh, MA FCILT FRSA Chairman of Council, Railway Study Association March 2014

The fundamental issues

• • • • • • Politicians, officials and wider interest groups have always had a view of the railways Transport is not an isolated activity within public administration Theories and practice of government evolve over time – as do the means by which services are delivered Rail people need to be effective at understanding what drives the overall agenda What is seen as good changes over time Is the railway its own worst enemy?

Two centuries and counting

• • • • Government, public policy and the railways have interacted even before the Stockton and Darlington Railway opened in 1825 Decisions affecting all aspects of the industry: ▫ Safety ▫ Physical location ▫ Operations and access ▫ Commercial and train service provision Stockton and Darlington was the first vertically separated railway Delivering the policy context for railways involves a number of different groups with diverse priorities, motivations and working methods

Politicians

• • • • • Transport is not a top political priority – health, education and defence always trump it Since 1919 there have been over 50 Ministers with lead responsibility for railways at a GB level ▫ Transport often either stepping-stone or demotion rather than aspirational portfolio ▫ Politicians motivated by electoral cycle and competitive advantage Devolution brings further challenges to political dynamics Political cycles much shorter than railway investment and asset life Politicians often reliant on external advice and requirement to respond to pressures not foreseen when they have been elected

Officials

• • • British civil service has tended to prize generalists over specialists ▫ Strong in wider policy context but discourages identification with specific sectors ▫ “Yes, Minister” caricature but often necessary to put wider implications of policy to politicians ▫ Often relatively rapid turnover of officials Changes in public administration models from state corporations to regulated utilities ▫ Regulatory bodies need to be seen to be independent from implementing ministries Quality of decision-making and continuity an issue, particularly where transport has not been seen as desirable assignment

Wider interest groups

• • • • Railways always in the public eye ▫ Media commentators ▫ Academics ▫ User groups – even the RSA Increasing recognition of the relationship between railways, economic development and the environment Changes in perception of desirability and requirement for the rail sector over time Issues with engagement where: ▫ Unwillingness to identify and resolve the consequences from conflicting stakeholder needs and aspirations ▫ Focus on structures and ownership rather than overall outcomes ▫ Individual agendas often pursued without reference to wider requirements

The railway culture

• • • • • Railways have a strong industry identity built up over two centuries ▫ Rooted in safety and delivery ▫ Sense of community and common interest irrespective of organisational structures Tends to be defensive in the light of criticism and highly publicised incidents – and introverted Strong leadership required working with government and regulators Need for much better understanding of how to motivate, influence and interact with outside bodies Often own worst enemy – backward-looking, internally critical and tendency to dispute in public

In context: the road to nationalisation

• • • • Early railways promoted through Act of Parliament Enforcing legislation around safety, common carrier and tariffs/timetables throughout Victorian period Government-directed amalgamation in 1921 through Railways Act to provide financially-stable companies ▫ Great Depression required government backing for investments – rail companies on their own could not raise capital ▫ Outdated common carrier obligations were not relaxed State control in two world wars created nationalisation precedent ▫ By 1945 significant damage and depletion of capital stock occurred ▫ Post-war financial position made repair and renewal problematic

Towards a public corporation

• • 1948 nationalisation of transport extended beyond rail ▫ British Transport Commission given strategic leadership and policy role ▫ Railways delivering within BTC context under Railway Executive ▫ Similar approach to other 1945-51 nationalisations – highly bureaucratic and effectively run as adjunct of Whitehall Disbandment of Railway Executive in 1953 but still limited in ability to raise capital ▫ No parallel relaxation in obligations ▫ Slow pace of modernisation and rationalisation ▫ Ongoing deterioration in operating results

Defining a British railway

• • • • 1955 Modernisation Plan major public commitment but flawed – too much improvement to existing practices without fundamental review of rail’s role and capabilities Appointment of Beeching as Chairman and establishment of public corporation British Railways Board (1963) created much stronger financial focus ▫ Beeching reports much more subtle than popular image  Identification of wider benefits to society from rail services  Development of the Major Trunk Routes key strategic document Did not resolve long-term financial deterioration – debt finances could not go on indefinitely 1968 and 1974 Transport Acts created recognition of subsidy, Public Service Obligations and mandate on BRB to provide “broadly comparable” services going forward

A reformed monopoly

• • • • • Post-1974 BRB became much more politically astute ▫ Chairman able to act as effective lobbyist to government ▫ Change in political and social climate to be more supportive of rail Still capital-constrained and managed on an annual cash limit basis – and still making the case for continued role of rail in overall transport provision Sectorisation after 1983 combined with much clearer direction from government on subsidy and efficiency Commercial focus on passengers and freight delivered improved results with significant investment ▫ Replacement rolling stock, electrification, improvements to stations ▫ Disposals of non-core business (hotels, shipping) Stronger relationships between rail sector, government and stakeholders

The challenges of privatisation

• • • • 1993 Railways Act established vertical separation ▫ Strategic direction from government, with OPRAF as procurement and management agency ▫ Establishment of independent economic regulation through ORR ▫ Presumption that rail’s relative decline would continue so no major projects would be required Public and stakeholder concerns during passage of Railways Act resulted in significant public interest protections Raised level of concern and scrutiny of government policy towards rail – as well as producing period of rapid structural change Administration of Railtrack and management contracts for some first-round franchises demonstrated that the market had not matured effectively – so more control and revision of policy required

Establishing a new model

• • • Growth has been very strong since privatisation – driven by changes in demand patterns, competition and modal shift as well as improved marketing and more train service provision ▫ Both passenger and freight growth stronger than previous industry forecasts would have predicted ▫ Need for significant capacity improvements, new rolling stock and improved services Establishment of Strategic Rail Authority in 2000 intended to provide focus for strategic development of the network SRA’s strategic functions continued through government and funders after Railways Act 2005 ▫ Parellel devolution and more focus on strategic planning ▫ No fundamental challenge to principles of 1993 Act but focusing on evolutionary change

Success and its consequences

• • • • Establishment of Network Rail in 2002 and funder specification responsibilities in Railways Act 2005 created much firmer strategic direction Devolution and role of independent economic regulation create additional interfaces between industry and government ▫ Functional government / regulatory relationships important for service delivery ▫ Need to ensure that there is clarity and alignment between political and industry priorities Much infrastructure has been funded through government backed debt Historic network now nearly fully-utilised – where there is no capacity there is a requirement for large-scale interventions such as HS2, Crossrail and Thameslink

A new golden age?

• • • • • Sustained funding to the industry has been provided through the regulatory settlement for Network Rail and committed through franchise agreements – a protracted period of financial stability The three big projects identified by the 1989 Central London Rail Study are nearly delivered New capacity, rolling stock and more trains running than in any period support more use of the network than at any time since the 1930s Commitment by politicians to long-term investment, including strategic electrification Yet quite often this seems hard to reconcile with the industry’s own image – let alone how it is perceived by users and government…

Moving into maturity…

• • Government and railways will always need to evolve ▫ Trust and maturity in the relationship  Confidence in motivation and planning   Continued stability in funding and required outputs Who is best-placed to manage the railway?

▫ Clarity as to how railways support wider strategic priorities Industry as a whole needs to reflect on how it behaves ▫ Better understanding of political and government priorities and behaviours ▫ Standing still and being defensive is not credible or authoritative ▫ We are where we are – don’t waste time eulogising or trying to create an imaginary golden era!