Government, Regulation and the Railways – a personal view

1. Government, Regulation and the Railways – a personal view Jonathan Pugh, MA FCILT FRSA Chairman of Council, Railway Study Association March 2014

2. 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?

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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…

16. 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!