Speech

National Rail conference

Speech by the Rt Hon Philip Hammond MP, Secretary of State for Transport to the National Rail Conference.

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

The Rt Hon Philip Hammond MP

Introduction

Thank you. It’s a pleasure to be with all of you again today.

It is almost exactly a year since I made my first major rail speech as Transport Secretary here at the 2010 National Rail Conference.

And I’d like to thank Nigel and the team at Rail magazine for all the support - and constructive criticism - they’ve given me over the intervening year. And for the platform you have provided for the debate on the big issues facing the industry.

We have a bold, and, to some, controversial agenda on High Speed Rail and it’s enormously important that the issues can be debated - as they are, with both sides’ views getting an airing, in Rail Magazine.

And we have a huge challenge in securing the sustainability of the railway for the future.

Reading Rail magazine last week, Nigel, I have to say that I’m impressed with the range of your sources.

But surprised by some of the analysis.

In particular, I have been taken aback that any sign of dynamism in the implementation agenda - a willingness to respond to events in a changing situation - is immediately interpreted as a sign of lack of direction.

Where I come from, success depends on having a crystal-clear and unwavering view of the strategy, but a willingness and ability to be agile and tactical in implementing it.

And that is how I intend to work in my department.

Civil servants might not welcome the idea, but I believe I am the best person to spell out my plans for the rail industry, and what I am trying to achieve.

And to deal head-on with any suggestion that the department’s thinking on rail reform is in any way unclear.

Or that it is lacking in commitment to delivering that reform.

So that is what I want to do this afternoon.

Of course, with a new(ish) ministerial team with some very different ideas from its predecessor, there is bound to be some jockeying as officials probe and test and challenge the views of ministers - to ensure their robustness and consistency and fitness for purpose.

I value that process and would expect no less. After all, it is just possible they may have found, in the past, that not all politicians’ ideas are robust, consistent and fit for purpose.

In my private sector past, I have never worked with “yes” people, and in my public sector present, I don’t want to work with ‘yes minister’ people!

We are clear as a department where we are going and what our purpose is.

And we are clear too, that what we are advocating is not a revolution. But it will be a fast evolution.

Clarity of vision

I want to have a robust debate about how best to deliver the agenda.

About the tactics.

But not about the agenda itself - the strategy.

We have made clear our vision:

A transport system that is an engine for economic growth; is cleaner and greener and improves the quality of life in our communities.

A system in which rail has a key role to play.

With a safe, customer-focused, rail system that supports a growing economy, by improving capacity, connectivity, performance, and productivity.

Contributing to our wider climate change objectives, by reducing transport’s carbon emissions, and encouraging modal shift from road and aviation.

And delivering value for the farepayer, the freight customer, and the taxpayer - as well as playing its part in reducing the deficit.

That vision will drive everything we do in the months and years ahead.

Philip Haigh was right to note last week that we face a bulging in-tray:

Winning the argument on HS2; responding to McNulty, and developing our wider agenda for a sustainable railway; constructing the next HLOS; the transformation of Network Rail - and, of course, reletting the raft of franchises up for renewal, under the new franchise approach.

And meeting all these challenges while transforming the style with which the railway is managed.

More collaboration, and less confrontation.

A change to long-term thinking, more accountability and less micromanagement.

And crucially, more strategic leadership from the industry as a whole in reducing costs, and improving productivity - with less interference from Whitehall.

We are not afraid of hard work. But, given the scale of the challenges, this cannot be just a vision for government; it is one that must be embraced by the entire rail industry.

Cost/McNulty

Because there is a burning platform - and it is this, uncomfortable, truth: despite the impressive growth, and the improvements in safety and reliability that we have seen in recent years, there is a less welcome fact - the huge rise and unsustainable rise in the cost of running the railways.

For far too long, the railway has relied on ever-increasing public subsidies the on one hand, and ever-rising rail fares on the other.

It was glaringly obvious to me from the outset that our railways were costing too much to run. And now Sir Roy McNulty’s report has confirmed it.

And put some numbers on the scale of the challenge.

A railway up to 40% more expensive per passenger mile than our European competitors, which Sir Roy has generously interpreted to mean that costs are between 20% and 30% higher than they should be.

This isn’t just hurting passengers, freight operators, and the public purse; it is hurting your industry, and Britain’s economy.

So it needs to be addressed now.

The challenge of building a sustainable and competitive railway cannot be delayed a moment longer.

Franchising

We had already announced our intention, even before Sir Roy’s recommendation, to award longer franchises to stimulate investment and risk taking by operators, with less specification at the outset and less micromanagement and interference from government thereafter.

And we will deliver these changes. But we said something else, even more important, that appears to have received less attention: that all franchises are not equal. West Coast main line is not Greater Anglia; Northern is not C2C.

So we will tailor the solutions to the individual franchises: more radical solutions for some; less radical for others. Horses for courses. And if the first one or two that come up are more suitable for modest innovation, that does not mean we have given up on the radical agenda or ‘U-turned’, or been beaten back by the ‘forces of reaction’ that some detect in the department. It just means we are pragmatic, not dogmatic, in our approach. Recognising that one size will not fit all.

I fully recognise that, with a large number of franchise renewals due over the next few years, customising the reforms to each franchise represents a huge programme of work - both for my department and the industry.

But there should be no doubt about our determination to deliver on this agenda. Or our commitment to deploy the resources that are needed to do it.

The draft specification for the West Coast franchise, which I published last month, does not represent a revolution. The West Coast is too complicated a piece of railway to be a ‘first adopter’ of a more radical iteration of the new franchise model. But it does represent a significant relaxation from the rigid timetable and service specifications of the past.

We retain obligations that protect the key elements of service, such as principal first and last train services and minimum numbers of station stops per week and per day.

But the greater flexibility to organise services and calling patterns, and to respond to peaks and troughs of passenger demand, marks a significant shift from the micro-management that has prevented operators from maximising capacity and reacting to the changing needs of their customers.

And replacing the ‘cap and collar’ revenue support system with a GDP risk-sharing arrangement will cushion train operators against changes in the economy that are beyond their control, without the perverse incentives of the current system. I want to see every train operator incentivised to chase the ticket-money of the marginal customer wherever the system has spare capacity to accommodate him.

I recognise that this new approach to franchises represents a major culture shift in government. And it is a mark of our commitment to openness and transparency that we are consulting fully on the revised draft service requirement that we published last month.

We will build on these changes in future franchise competitions, giving operators greater flexibility to meet passenger demand and to innovate, while protecting key service outcomes on which passengers rely.

To succeed in this endeavour, we need to be working with partners who understand the commercial benefits of collaboration - and the necessity of driving out excess costs.

So, as a matter of policy for all future franchise competitions, bidders and their parent groups will be assessed at the prequalification stage against their track record of success in collaborative working and driving down costs.

In our future world of long-term franchises, there will be no room for short-term players.

The commitment by government to invest in the railway must be matched by an equally firm commitment on the part of the industry to long-term cost reduction and efficiency improvements.

I expect to see the industry - Network Rail, train companies, unions, suppliers, the regulator - demonstrating that they have the ability and appetite to offer their own solutions in place of a centrally-imposed one from my department.

In particular, train operators and Network Rail must collaborate more effectively to build on Network Rail’s decision to devolve managerial responsibility to route directors.

And Network Rail must re-invent its relationships with its supply chain. Driving efficiency and aligning interests at every level.

The need for a new culture of partnership working in the rail industry - with a long-term focus and an unequivocal emphasis on cost reduction - is not an option.

It’s an obligation.

I am pleased that the industry has already accepted Sir Roy’s recommendation to form a Rail Delivery Group, to focus industry leadership and act as a powerful co-ordinating force.

And I am particularly looking forward to the industry’s initial plan for PR 13, which must reflect this new collaboration and the urgent need to tackle costs.

Next steps/wider strategy paper

Over the next few months, we will consider carefully the detailed recommendations that Sir Roy has directed at the government.

But Sir Roy deliberately confined himself to the narrow question of value for money.

I am clear that, if we are to secure an affordable, sustainable, safe and reliable railway, we need to look beyond the scope of his report, to the wider questions of the purpose and objectives of our railway, and the structure, governance, and organisation that will best deliver them.

So in parallel with our response to McNulty, we will develop, over the next few months, a strategy that sets out our wider plan for building a sustainable railway.

This strategy will have at its core the task of delivering better value for passengers and taxpayers, and will clearly set out the roles of central and local government, Network Rail, train operators and others in delivering the outcomes we require.

It will look at how we can devolve more responsibility for commissioning local and regional services from the centre to local bodies - where there is greater accountability to local communities and passengers, and a better understanding about the local consequences of the decisions they take.

And it will ask the hard questions about taxpayer subsidy: how much we can afford; how it should be delivered and what, exactly, are we buying with it?

We can only deliver a better value railway if we can see where money is being well spent - and where it is being wasted. So we need a much more open and transparent view of the whole industry’s finances - and not just those of Network Rail. It is proper to use subsidy to buy desirable outcomes the market would never deliver; it is never proper to use it to mask waste and inefficiency.

In its most recent business plan, my department has made a firm commitment to greater transparency. We have published information on our website about where rail subsidy is allocated, on a franchise-by-franchise basis - both in terms of direct TOC funding from the government and network grant payments made to Network Rail.

Later this year we will go further, publishing high level information on whole industry costs.

I would like all passengers to know in due course the cost of the specific services they are using and the percentage their fares are contributing to them.

Fares review

It fell to me to make the decision to increase fares by 3% above RPI for 3 years to protect rail investment in the face of the fiscal crisis.

It was not a decision I took lightly.

And I sympathise with passengers’ concerns that fares are, quite simply, too expensive.

But I am equally conscious that we must do more to address the shortcomings of a pricing system that many find complex and confusing.

Buying a train ticket should not be an obstacle course.

And it is clear we cannot build a modern, customer-focused rail service without a passenger-friendly approach to fares structure and regulation.

But we also have to be realistic.

Anyone who has tried to board the 7pm service from Euston to Manchester on a Friday evening will know that there are compelling reasons for moving to a more flexible and responsive fare system that spreads demand more efficiently throughout the day.

So over the coming months we will conduct the review of fares policy recommended by Sir Roy, as a first step towards a simpler, fairer and more effective system.

And if we succeed in delivering cost savings on the scale envisaged by Sir Roy, we will also be able to put the era of above-inflation fare rises behind us, as well as reducing taxpayer subsidy, thus creating the opportunity for even greater passenger growth in the future.

Delivering on promises

Twelve months ago, I stood here and declared myself a railway realist.

But I also promised that rail would be at the forefront of the government’s transport strategy - contributing to the coalition’s twin goals of economic growth and carbon reduction.

And after a demanding but productive 12 months, I believe I have kept that promise.

A spending review settlement that far exceeded expectations has allowed us to deliver a very significant programme of investment in our classic rail network.

We’ve announced a substantial electrification programme, given the go-ahead to Crossrail and Thameslink, and confirmed the purchase of over 2,000 new rail vehicles. As well as restoring train-building to the industry’s birthplace in the North East through the IEP programme and a host more of more minor but important investments like Swindon to Kemble redoubling and the Ordsall Curve.

And in February we launched a consultation on our plans for a high speed rail network, that I believe can transform Britain’s economic geography, help us close the north-south gap and send a clear message that we are determined to embrace the future and fight our corner in a globalising economy.

Conclusion

Building a new high speed rail line is among the biggest challenges any Transport Secretary will ever have faced.

But driving cost out of our existing railway, so that it is sustainable, competitive and affordable for future generations, is no less of a priority.

I don’t expect either to win me short-term popularity - even with all of the trade press!

But there’s no doubt in my mind that both are necessary and right - for the rail industry, our economy, and our country as a whole.

So we have a clear choice.

We can work together towards a truly sustainable railway of the future, where all the players in the industry are committed to real change.

Or we can choose the route back to the past, where unsustainable practices, dependent on unaffordable public subsidy, lead, sadly, but inevitably, to a smaller railway and fewer services.

In the coalition, we have made our choice, with our dual commitment to investment and reform.

Now it is up to you, the industry, to back it - with a clear commitment to focused collaboration for lasting change.

So let’s work together to seize this opportunity - and build a railway that is truly fit for the 21st century.

And make my prediction last year of a new ‘golden age of rail’ an affordable reality.

Thank you

Published 28 June 2011