Office of Rail Regulation PR13 launch

Covering topics of rail reform, investment and practices at the Office of Rail Regulation PR13 launch.

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

The Rt Hon Theresa Villiers

Thank you for that introduction.

It’s now almost 4 years since David Cameron moved me from the Treasury to the transport brief. Short by comparison with the timescales associated with most normal jobs… 4 years amounts to a remarkable degree of continuity given the average life span of transport front benchers. And back in 2007, the first task I faced in my new role was to respond to Ruth Kelly’s HLOS and SoFA statement for the current railway control period. So I’m delighted to be able to take part in this important opportunity to reflect on the priorities for PR13 and the CP5 control period.

The periodic review process is a vital component of the wide-ranging debate about the future of the railways we must have if we are to deliver the cost savings needed to give a better deal to both taxpayers and farepayers. With its forensic focus on the big issues confronting the industry PR13 is an important mechanism for delivering real and lasting change in our railways. It’s clear that delivering the change we need will mean that all elements of the rail industry have to be ready to adapt and evolve.

But it’s equally clear that the government too must play its part. Helping to map out a post 2014 future through the development of the next HLOS and SoFA is an important step.

But so too is setting out a transport vision that is credible and deliverable. The coalition government wants a transport system that is a cleaner, greener gateway to a better quality of life…

… one that generates growth, spreads prosperity and empowers local communities. We see rail playing a crucial part in delivering that goal.

Investing in Britain by investing in rail

In testing times like these we could have opted to do what governments usually do when spending needs to be reined in - take the axe to transport projects.

We chose a different path. In spite of intense pressure on the public finances from a deficit as bad as any in this nation’s peacetime history the CSR saw funding secured for what is probably the biggest programme of rail upgrades since the Victorian era.

These include a green-light for Crossrail, Thameslink and the HLOS programme of additional carriages for our most crowded lines. The IEP Programme is going ahead, alongside electrification in the North West and to South Wales.

Light rail extensions have been confirmed in Newcastle and Manchester and funding’s been secured for the much-needed tube upgrades… Swindon - Kemble redoubling finally got the go ahead too, despite not quite making it on to the ORR’s list last time round.

And the Ordsall Curve has now been added to the programme which will deliver major improvements to the rail connections in the north of England. Add to that list, a milestone consultation on our plans for a high speed rail network that could permanently transform our economic geography and you have an idea of the scale of what we have embarked on. These are some of the ways the coalition is investing in Britain by investing in rail.

Value for money and McNulty

And there’s no doubt that the years since privatisation have seen a railway renaissance with better services, improvements in safety and reliability and, most strikingly of all, massive growth in passenger numbers. More people are travelling by train in this country than at any time since the 1920s. But we also need to confront an inconvenient truth.

With that success in recent years has come a creeping reliance on ever-increasing public subsidy and ever-rising fares.

End result: this country’s railways are among the most expensive in Europe - expensive to build, expensive to operate and expensive to use.

Even after allowing for unavoidable differences… the McNulty report concluded that UK rail costs are 20 to 30% higher than they should be.

Little wonder that Sir Roy concluded there was immense scope to eliminate waste and reduce costs without the need to cut services.

A part to play, a difference to make

So there’s a simple rail equation to strive for - efficient and affordable equals successful and sustainable. That’s what tomorrow’s railways must look like, and we all have a part to play and a difference to make in ensuring that they do. If we are to achieve this goal it is vital that there is a strong cross-industry focus on getting costs down.

That needs to include a resolute and determined approach to reforming working practices and addressing industrial relations issues. These are essential building blocks for delivering the savings we need.

It’s now widely agreed that we need a much greater alignment of incentives between train operators and Network Rail to reduce costs at the route level. We therefore welcome the ORR’s emphasis on this issue in their PR13 consultation proposals. We also welcome Network Rail’s commitment to devolve responsibility and accountability down to the route level.

Decentralisation, localism, devolution. This approach is at the heart of the government’s overall policy approach - and the transport sector is no exception. Under previous governments more and more decisions about our railways were centralised in Whitehall.

Well we want to see an end to those days of excessive micro-management and we have already made a start on that with our programme of franchise reform. Transparency also has a vital contribution to make and the ORR are in a strong position to lead on providing a more open and transparent view of the industry’s finances. We have a far better chance of delivering better value for money if we have a clearer picture of where money is being well spent, and where it’s not.

In its most recent business plan, the DfT has therefore made a commitment to greater transparency. We have published information on our website about where rail subsidy is allocated, on a franchise-by-franchise basis. This includes government funding support given to train operators as well as to Network Rail through track access charges.

Later this year we plan to go further by publishing high level information on whole industry costs.In due course, we want passengers to have a much better understanding of the cost of the specific services they are using and the percentage their fares are contributing to them.

Franchise reform, fares review rail, strategy paper

None of us here can walk away from the immense task facing the rail industry over the next few years. In particular, the government has a responsibility to construct a supportive policy framework. So we are reforming rail franchising to give operators greater flexibility to respond to passenger demand.

And over the coming months, we will conduct the review of fares policy recommended in the McNulty report. Our aspiration is a more rational and efficient system - one that seeks to address the anomalies which have crept in and also tackles the sort of ‘cliff edge’ problems which have sometimes led to perverse results and intensified crowding problems.

We also want to deliver a fairer, more transparent and more user-friendly system. I believe that the McNulty report was a watershed moment for the rail industry.

But Sir Roy deliberately confined himself to the narrow question of value for money. If we’re to secure a successful and sustainable future for rail, we need to look beyond the scope of the report, to the broader questions of the purpose and objectives of our railway… and to the governance and organisation that will best deliver them.

For that reason, over the next few months we will be preparing a strategy that sets out our wider plans. It will look at how we deliver better outcomes for passengers, including value for money. But we will also seek to set out more clearly the roles of central and local government, Network Rail, train operators and others in delivering the outcomes we require. And it will ask the hard questions about taxpayer subsidy. How much we can afford? How should it be delivered? And what do taxpayers get for their hard-earned investment?


Ladies and gentlemen, the task we face is fraught with difficulty. It will require a huge effort from both industry and government to deliver the cost savings we need. But, as the PR13 consultation acknowledges, this is also a time of opportunity for all of us who care about Britain’s railways. An opportunity to build a better future for our rail network…

An opportunity to deliver a successful and sustainable future for an industry that is vital to our national well-being - socially, economically and environmentally. And, perhaps most important off all, an opportunity to deliver better value for money to the hard-pressed passenger and to put the era of above inflation fare rises behind us.

I believe that’s a prize worth striving for.

Thank you.

Published 18 July 2011