Rail Regulator accuses rail industry of short-changing the passenger

9 July 1999
ORR/99/26

Making his first major speech at the Railway Forum's "Towards 2000" conference in London, Tom Winsor, the Rail Regulator, accused the railway industry of short-changing the passenger.

Tom Winsor said "It is essential that everyone in the railway industry realises that the public have been patient for long enough. The industry has had to respond to a new set of commercial and public interest imperatives, and everyone accepted that this would take time. But at the rate at which the industry is maturing is far too slow, and is simply unacceptable to the public.

"We want trains which are reliable and punctual. We want them to be clean. We want stations in the right places, with the right facilities. We want network benefits, with through ticketing and accurate, impartial selling of tickets. We want adequate connections and the benefits of a single network. We want information for passengers which is timely, comprehensible and right. We want more freight on the railway. We want better track quality and better signalling systems. We want the existing capacity of the railway to be managed as efficiently as possible, and we want the capacity of the railway to be expanded to cope with the growth in demand in time for the demand to be satisfied. And we want it all for a fair and affordable price. This is not a wish list. These are requirements that must be met. I have got the powers to make things happen and I will use them.

"The regulatory agenda has changed. And I want the public to know that I am on their side. To date the public has been short-changed. My task is to redress that balance."

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The text of the speech appears below

THE RAILWAY FORUM ANNUAL CONFERENCE

THE NEW REGULATORY AGENDA

1. This is my first speech as Rail Regulator, and it's entirelyappropriate that it's to the Railway Forum. The Railway Forum plays a vitally important role in ensuring effective communication between the key players in the railway industry. I believe that it is right that as Regulator I should support and,where I can, help it in its work. I am delighted to join you for your Conference this afternoon, at a moment when the railway industry is emerging from a period of regulatory uncertainty while the Government has been completing its railway Spring clean, and preparing to publish the SRA Bill.

2. As most of you know, however, I am hardly a newcomer to the railway industry. Many of you have encountered me in the last six years since the beginning of privatisation, whether as the first Chief Legal Adviser at the Office of the Rail Regulator or later as a private practice lawyer, advising on and negotiating deals, and helping people navigate the regulatory and legal maze which privatisation created. Perhaps some of you will also know me from my former extremely modest role as a part-time unpaid hack journalist for a certain railway industry magazine. However, after a long period of speculation and uncertainty about the future, I have been appointed as Regulator. Ambition's debt has been paid, and it is now up to me to put into practice the things which for so long I have been encouraging others to do and, it must be said, frustrated when they did not.

3. I should like to use this opportunity to set out some of the fundamental principles which I intend to follow in doing this job, and to say what my early priorities will be.

4. I begin with the Government's commitment to tougher and more effective regulation. The railway industry has had plenty of well-deserved public criticism since privatisation. However, it is probably also true to say that it has, to a certain extent, been short-changed in terms of credit for some of the things which it has committed to do. Rolling stock manufacturers have competed hard to win new orders. The rail freight industry has invested in the rolling stock and in developing its markets. And I should like to pause to pay my own tribute to the Herculean efforts of Ed Burkhardt in revitalising rail freight in this country. Passenger train operators have been improving stations, planning new ones, ordering new rolling stock and trying to run new services. Other companies are trying to build new freight terminals. And so it goes on.

5. But some of the failings are frankly lamentable. Why do railway companies so often treat their customers with something approaching ill-disguised contempt? Is it so difficult to give accurate and informative explanations to passengers when trains are delayed or cancelled? Is it so difficult to ensure that station and on-train facilities and services meet decent standards? And even if you are the monopoly supplier of a service, what is so extraordinary about expecting you to deal with your dependent customers in an efficient and acceptable way?

6. These are things which do not require millions of pounds of investment or years of planning and implementation. They are changes which could and should be made tomorrow. It is about time the management of the companies in question woke up to the legitimate expectations of those with whom they do business and the people they serve.

7. But of course there are even more serious problems - far more difficult to solve and where it will take much longer for people to experience improvements. I am talking about investment in new physical facilities: trains, stations, maintenance facilities and of course the network itself.

8. It is essential that everyone in the railway industry realises that the public have been patient for long enough. The industry has had to respond to a new set of commercial and public interest imperatives, and everyone accepted that this would take time. But the rate at which the industry is maturing is far too slow, and simply unacceptable to the public. The public is paying good money for railway services, and in many cases it is simply not getting what it is paying for.

9. Britain's railway assets exist to serve passengers and freight users. They have no other purpose. And so the railway companies must realise, if they do not already, that the operation of railway assets must be consistent with, facilitate and promote the public interest.

10. Let me take the example of Railtrack. It is of course the legal owner of the national railway infrastructure. No one questions that the assets belong to Railtrack - that their name is on the title deeds. But theirs is a special kind of ownership. It is an ownership which carries with it important responsibilities not only to shareholders but also to dependent users and to the public interest. That is because these assets are of strategic national importance. Millions of people and businesses depend on these assets and the way in which they are operated. And so they need to be operated in a way which goes beyond the narrow commercial interests of their owners. Of course companies in the private sector have a duty to act in the best interests of the shareholders. Railtrack has that duty just like any other. But Parliament, through the Railways Act 1993, has given it additional duties which reflect the special public interest obligations which Railtrack has. That is why Railtrack is subject to independent regulation in the public interest.

11. Take investment as a single example of what kind of obligations have been added to the company's ordinary obligations to its shareholders. Under its network licence, Railtrack is to maintain, renew, replace, improve, enhance and develop its network. It must do this in accordance with best practice. It must do it in a timely, economic and efficient manner. And this must be done to satisfy the reasonable requirements of passenger and freight train operators and the people who are putting money into the industry, including to a very large extent the taxpayer. It must do all these things to the greatest extent reasonably practicable having regard to all relevant circumstances, including its ability to finance its activities.

12. These investment expectations are not matters of discretion. They are matters of obligation. These are not voluntary commitments which can be disregarded at will. They are obligations which are enforceable in the public interest by the Regulator.

13. There's nothing revolutionary or remarkable about this. Since the last Conservative government began privatising monopoly infrastructure operators, regulatory obligations in relation to the quality of the network and compulsory third-party access for users of that network have been imposed. Railtrack is simply the latest in a long line of network operators who have been subject to regulatory obligations of this kind, beginning with telecommunications in 1984 and continuing through the gas and electricity industries.

14. When the regulatory regime for railways was being designed, its architects had a close look at the regulatory arrangements for these other industries. When there was something that could be borrowed or adapted, that was considered, although I have to say that for certain reasons best practice was not always taken and some significant shortcomings were built into the regulatory system for railways which I regarded - and continue to regard - as unacceptable. Luckily, the system has a lot of potential for these flaws to be put right, and I will be using my powers to do that.

15. It's not so much to ask, is it? That companies with obligations honour them? The public takes these obligations seriously and I take them seriously. And I am not meekly asking. I am demanding. That is my job and I am going to do it.

16. So what do we want out of the railway? That is a crucial question,because it is important that everyone involved concentrates on the results of their decisions and their actions, rather than adopting a rather old-fashioned approach that the inputs justify the outputs.

17. Above all, we want a safe railway. We want trains which are reliable and punctual. We want them to be clean. We want stations in the right places,with the right facilitates. We want network benefits, with through-ticketing and accurate and impartial selling of tickets. We want adequate connections and the benefits of a single network. We want information for passengers which is timely, comprehensible and right. We want more freight on the railway. We want better track quality and better signalling systems. We want the existing capacity of the railway to be managed as efficiently as possible. And we want the capacity of the railway to be expanded to cope with the growth in demand in time for the demand to be satisfied. And we want it all for a fair and affordable price. It is not a wish list; these are requirements to be met.

18. I intend to make regulation more proactive and less reactive. And even before the new legislation (which the Deputy Prime Minister announced on Wednesday) is enacted, I possess considerable powers which I am prepared to use.

19. The regulatory agenda has changed. And I want the public to know that I am on their side. To date the public has been short-changed. My task is to redress that balance.

20. As I said before, some of these things could be done in a matter of days or weeks. Others will take years to come through. But we must build on the efforts which have been started, increase the momentum and give the public what they are entitled to expect.

21. The new Railways Bill - when it is enacted and brought into force - (as well as giving the SRA legal form and its own powers) will improve my powers, particularly in relation to enforcement of licence obligations. Those improvements are needed to put right some of the weaknesses which were built into the legislation in 1993. But as things stand at the moment I am very far from helpless.

22. I already have powers of enforcement of licence conditions, powers to amend existing licences and to add new licence conditions, powers in relation to the approval of new access arrangements (including the power to compel an unwilling facility owner to grant access on reasonable terms), powers to revise the central commercial codes for the railway industry, and, from March 2000, powers under the Competition Act 1998 concerning abuse of a dominant position and anti-competitive practices. In July 2000 I will be announcing my final conclusions in relation to the structure and level of Railtrack's access charges, and the new arrangements for incentivising good performance and penalising bad performance in the Railtrack relationship with its train operator customers.

23. I would like to help achieve the public interest objectives for the railway industry with the willing co-operation and, if possible, the agreement of Railtrack and others. But having said that, there is no point in having powers if they are not used. If the railway companies give grounds for the use of these powers, I can assure you they will be used. At the same time, I do not want anyone to feel that what I do may harm the industry. It is part of my task to ensure that the conditions are in place which facilitate strong investment on a fair and sustainable basis. I will be making my decisions on the financial structure of the industry for the next control period with that very high in my mind.

24. And in doing all this, I should like to tell you that I have already established a very close working relationship with Sir Alastair Morton and Mike Grant in the shadow Strategic Rail Authority. We are operating according to the public interest criteria, and we want the same things. Under the Railways Bill, when it has been enacted, I will have a new statutory duty in relation to facilitating the SRA's achievement of its objectives. And the SRA has an extremely important role in drawing up a strategic plan for the industry and stating what it, as the major funder of the industry, wants out of the network. That is a key input into my decisions in relation to Railtrack's stewardship of the network and also the review of Railtrack's access charges. So you see we will be working far closer together, with joined-up regulation, not only because we want to, but also because we need to.

25. I have several important decisions to make about a number of things in the near future. I am considering what to do about Railtrack's failure to meet last year's 7.5% target for reducing delays and cancellations on the network. I am considering the results of the work done by Booz Allen & Hamilton on Railtrack's network performance to date. I am also considering the matter of Railtrack's undertakings to my predecessor concerning the provision of specified amounts of third-party capacity on the West Coast main line. I will shortly be making decisions on the sufficiency of Railtrack's Network Management Statement for 1999. And of course the periodic review access charges work is continuing (although I have said that I do not regard myself bound by the preliminary conclusions made by my predecessor and announced in December 1998).

26. So those are the headline things which are on my desk. But as many of you know, I've been in the trenches too, and I know a lot of other things matter. Let me tell you about some of the other things we plan to do.

27. I shall also be taking a very hard look at Railtrack's relationship and dealings with its dependent customers and seeing how they can be improved. I am not satisfied that the arrangements which Railtrack has for vehicle and route acceptance for new rolling stock are adequate. I will be considering how to improve the quality and extent of information which is available to users and others about Railtrack's network, so that they can make key investment decisions based on accurate and reliable information concerning things like the gauge of the railway. I will belooking at the quality of data which is used when delay attribution decisions are made. I will be reviewing the central commercial codes for the industry, which are sketchy in some places and may give the wrong incentives in others. I will be considering how to improve the arrangements for the development of rail freight and rail freight terminals. I will be looking at the sufficiency of the controls in relation to Railtrack's disposal of land. I will be seeing how we can simplify some of the more complex procedures for changing railway facilities, including stations and maintenance depots. I have to make decisions on a case-by-case basis on Stage 2 of moderation of competition. I must consider whether the Group Standards Code is sufficient for its purpose and whether Railtrack and others are operating according to sensible and clear rules in this important area. I will review the institutional structure and workings of the industry's arrangements for the resolution of disputes. I will be starting work on the establishment of standard-form access contracts, including their improvement and simplification which may very well include the use of concepts such as the commercial purpose, and encouragement of output standards (especially in relation to track quality and the operation and maintenance of the network), sensible liability regimes, appropriate specifications of standards of conduct, adequate assurances about the provision of available capacity, and intelligibility.

28. But there is one other aspect of the way in which the railway industry is operating which causes me considerable concern. It was mentioned by Sir Alastair Morton in his speech to the Chartered Institute of Transport last week. He said that he had a serious unease at the relatively feeble posture of the train operating companies towards Railtrack, the ROSCOs and other suppliers. He said there seems to be a tendency to abdicate rights as customers of a supplier who is regulated.

29. I entirely agree with that, as many of you already know. Why is it that railway companies refuse to stick up for themselves? Why do they not insist that their contractual rights are honoured by their suppliers? Do not their duties to their own shareholders require at least as much? Has fear or weakness overcome them? Certainly, if there is any suggestion that anyone is being in any way pressured by a monopoly supplier, that is something I shall treat seriously. I will not hesitate to act if ever I find there is evidence of any abuse.

30. Or do they expect the Regulator to turn himself into a free legal advice and assistance service, with a no-cost dispute resolution one-stop corner shop? I have to tell you that I gave up doing free legal advice and assistance as a law student at Edinburgh University well over 20 years ago, and my clients then were far worse off than you are, even those of you with heroic subsidy reduction profiles! I'm not going to turn the Office of the Rail Regulator into such a place.

31. But let me be very clear. We will not slam the door in the face of applications or approaches for regulatory assistance where we have the power or authority to act, and where the applicant has a properly-developed, reasoned and properly presented case for assistance. We will give guidance where we properly can. We will provide remedies against unreasonable behaviour when it is within our jurisdiction to do so. If the facility owner with whom you are negotiating thinks that you will not invoke regulatory protections and try to exploit that, tell him to think again. I am tired of hearing stories of lost opportunities and unnecessary watering down of commercial aspirations - and even the abandonment of perfectly sound paid-for contractual rights -simply because of a perception of regulatory weakness or the fear of being sent away empty-handed. Do not come to us as a first resort. But do not either think that we are only the last resort, or worse, the never resort.

32. Train operators and others should stick up for themselves. Be aware of the strength of your bargaining position with your suppliers, in full and certain knowledge of the regulatory protections which are available to you if your case justifies it. The Regulator will help those who try to help themselves.

33. The railway industry has a strong and highly commendable desire to do things by co-operation and not confrontation. I entirely endorse and support that. Nothing I have said diminishes that. But railway companies must also respect the strengths and positions of one another. That is the way that mature private sector companies work together in their markets to improve the services which they provide to their customers. The railway industry should do the same. You will reap the benefit and there will be a dividend for the passenger also. The public has been patient long enough.

34. I look forward to working with you all towards a much-needed improvement in services. We can do this together the easy way or the hard way. It's your choice, but we are going to do it.