RIA Manifesto Deep Dive 2: Deliver on industry reform

2

Deliver on industry reform

Six years on from the commissioning of the Williams Review, rail reform needs to happen soon, in a planned way, to remove ongoing uncertainty over the future structure of the sector.

To get the best railway, and secure value for both fare payers and taxpayers, it needs to be planned as a whole system and for the long term. A unified approach to overseeing costs and revenues, both today and in the longer-term, is a prerequisite for progress.

Industry structures and incentives need to change to facilitate this, which why reform must be a priority, including through legislation to create Great British Railways.

The context for the railway changed significantly during the Covid pandemic, with unprecedented Government intervention required.

As a result, central government (both the Department for Transport and the Treasury) has been more involved in the detail of running the railway than at any time since privatisation. Detailed decisions on enhancement schemes, train operations and rolling stock now sit within central government, and are separate from decisions on operating, maintaining and renewing infrastructure.

To unlock innovation, operational railway decisions need greater separation from day-to-day government interference. Getting the relationship right between the Department for Transport and Great British Railways will be fundamental for success. Reform is a huge opportunity to reset responsibilities and shift the Department for Transport’s (DfT’s) role back to strategic oversight and holding to account.

It is also urgent to improve incentives to grow industry revenues, which will help support a financially sustainable railway. The focus in recent years on short-term cost management with tight control by central government risks eroding future revenues by failing to grow ridership and deteriorating the future quality of service.

There needs to be a plan to grow revenues sustainably over the longer term which will require strong and aligned incentives across the industry and commercial expertise in serving customers. There is also a need for more pilots and innovation to understand what approaches work best since the mix of passenger journeys has changed following the pandemic.

“Operational railway decisions need greater separation from day-today government interference.”

What is RIA doing?

Since the Williams Rail Review, RIA has pushed for reforms to support a more efficient and dynamic industry. We continue to work with the Great British Railways Transition Team, as we have throughout, representing supplier interests and facilitating engagement with the supply chain.

In 2022 we published Five Tests for Great British Railways (see opposite) and continued to campaign for clarity and progress on reform.

Following a cross-industry letter to the Prime Minister in 2023, coordinated by RIA, we saw a Draft Rail Reform Bill included in the Kings Speech.1 RIA has given evidence at the Transport Select Committee, suggesting practical improvements to the draft legislation, and is ready continue to provide advice on implementing reforms in a way that will get the best value from the supply chain.2

A planned transition in partnership with industry Businesses now need to see a clear and realistic timetable to implement reforms.

Great British Railways must be responsible for planning and delivering the railway in partnership with businesses, devolved and regional governments and authorities. DfT should provide clear objectives and constraints, whilst overseeing and holding Great British Railways to account, supported by independent regulation.

Too much control from either DfT or Great British Railways could stifle innovation and investment.

Businesses will need freedom to try new approaches to help attract passengers, for example, through modernising ticketing or dynamic timetabling.

There will need to be safeguards so that businesses have the confidence to invest for the long-term, and incentives to innovate for the benefit of the railway. To attract investment, either by businesses or other parts of the public sector, there must be trust that decisions will be taken in the interests of the whole system, not just in the short-term financial interests of Great British Railways which will of course be subject to budget constraints.

It is essential that Great British Railways establishes a positive new culture from the outset. However, the proposed designation of Network Rail Infrastructure Limited (NRIL) as the legal basis for creating Great British Railways will help minimise disruption during the transition because it avoids the need for costly and complex transfer of supply chain contracts to another body.

Five tests for Great British Railways In 2022 RIA set out five tests for Great British Railways to ensure the restructure is a success: 1.

2.

3.

4.

5.

No hiatus in current work: The majority of Network Rail’s spend is with the private sector - there cannot be a pause in this work; Transparency: Be clear and transparent with rail suppliers, to allow them to deliver and invest; Partnership: Be an open and accessible client, and partner with the private sector for the best results; Productivity: Ensure the rail industry is able to thrive - financial sustainability will ensure rail delivers for UK plc; and Ambition: Leave a positive legacy, including in safety, decarbonisation, exports and the economy.

Rail suppliers should be consulted on the operating model, which must set out the specific functions that will be devolved to Great British Railways, and what will remain with the DfT. For example, it is important to understand the split of responsibilities on enhancements, rolling stock, and fares and ticketing.

Where significant functions remain with DfT then there will need to be a very clear framework for how those are exercised in coordination with Great British Railway’s own functions, so there are not confused accountabilities.

The importance of the licence Great British Railway’s licence will be a key document, and needs to reflect all of its responsibilities, supporting a whole-system perspective and reinforcing positive behaviours. It is important that amendments to the licence should be subject to consultation, to avoid adhoc changes outside of the five yearly periodic review process.

To encourage business investment and drive down costs, the licence needs to require clarity over the pipeline of future renewals and enhancements to the railway. The licence must also contain a condition to make Great British Railways accountable for promoting a healthy and sustainable supply chain. Making these legal requirements will give businesses confidence that they are enduring accountabilities.

What needs to happen next - Practical steps for success 1. End the uncertainty and delays over rail reform by including the Rail Reform Bill in the King’s Speech: a. As well as establishing Great British Railways, the Rail Reform Bill should include legal commitments to publish a long-term strategy and pipeline of projects. b. Legislation should avoid new powers that allow the Secretary of State to intervene in operational railway decisions.

2. Publish a clear and realistic timescale for reform - businesses need to see the timescale for all the steps necessary to fully establish Great British Railways.

3. Begin open and comprehensive engagement with the industry on a draft licence, operating model and transition plan to establish Great British Railways. These proposals should meet RIA’s Five Tests for Great British Railways and provide complete clarity on the remaining roles that central government will play.

4. In parallel with taking legislation through Parliament, immediately progress those reforms which do not require legislation, moving the whole industry to focus on top-line growth, not just bottom-line cost efficiency: a. Incentivise Train Operating Companies to grow revenues through their contracts, and ensure commercial skills are retained within the industry. b. Immediately roll-out innovative pilots of new approaches to ticketing. c. Commit to fares reform, with a clear timeline to simplify ticketing and grow ridership.

5. Unlock innovation by empowering industry leaders to take whole system, whole life decisions and avoiding micromanagement of industry decisions. Spending decisions should be evaluated on the basis of the long-term value and sustainability of the rail network and not short-term costs. The Office of Rail and Road needs to play a role in checking this is the case.

Footnotes 1.

https://www.riagb.org.uk/RIA/RIA/Newsroom/Publications%20Folder/Five_Tests.aspx

2.

https://www.riagb.org.uk/RIA/RIA/Newsroom/Publications%20Folder/RIA_submission_to_the_Transport_Select_Committee_on_the_ draft_Rail_Reform_Bill.aspx and https://committees.parliament.uk/event/21115/formal-meeting-oral-evidence-session/