Williams-Shapps Plan for Rail - Ten Key Impacts

Review Proposals:

• The Review introduces a new rail body Great British Railways (GBR), to be created by statute, merging the main rail Infrastructure Manager (IM), Network Rail, with the rail franchise services procuring authority. This means that train operators need deal simply with one entity for the right to run services and the right to access the track. GBR is to let the new Passenger Service Contacts (PSCs) to operators, set fares, the timetable and service levels, apply performance incentives, take revenue risk and manage cost and revenue decisions, and be accountable for the "passenger offer", including punctuality, quality, efficiency, safety and other goals. GBR will have "powerful" regional divisions.
• GBR will allocate access to the network to passenger and freight operators, and be subject to new statutory obligations and a "rules based access system" to plan the use of network and "balance priorities" for "overall public benefit", subject to strengthened statutory ORR appeals powers.
• Non Network Rail infrastructure, such as HS1, Crossrail and the CVL, will remain as is, although the Infrastructure Managers of such infrastructure will need to interact with the new GBR body.
• GBR will develop a 30 year strategy and a five yearly business plan.

Questions/comment:

• Ever since the demise of Railtrack and the main rail IM falling into public hands, the original rail privatisation contractual matrix between NR and the TOCs have seen track access charges as something of a money go round, with DfT requiring operators to secure and pay for paths from, and to an extent manage the performance by an IM (NR) funded and overseen by DfT itself. The new structure helpfully appears to streamline this significantly, with revenue and track access costs all channelled through GBR, which simply pays a fee to the operators.
• This relationship between operator and IM is fundamental to the risk allocation for operators, and the detail here will therefore be critical for the provision of rail services under the new regime – no track, no train service. Operators will wish to understand this aspect of the new contractual arrangements and what risk they are expected to take in relation to the infrastructure provision. There is potential that this new regime could herald the start of a more collaborative relationship. GBR provides access that fits with the TOC's PSC new service obligations, providing relief where access is not provided in accordance with the specification (whether through disruption, other TOC action or engineering works), with TOCs removed from the equation of impact of infrastructure upgrades, bearing no responsibility for ensuing service disruption. The detail of the planned "toolkit" of PSC performance incentives will be relevant here.
• Whilst risk transfer for infrastructure performance and access from TOCs to GBR might very well be welcomed, any resulting loss of influence by operators on infrastructure works, upgrades and possessions from that which exists in the Track Access Contracts now, will reduce a TOC's ability to manage the service for its customers. The Review's acceptance by GBR of accountability to passengers may be part in recognition of this.
• We have little clarity at this stage as to how GBR will be set up, the legal nature of the new body, and its actual relationship with DfT. Whilst GBR is the "guiding mind" accountable for rail performance, how will this be affected by DfT strategy? We will need to see the detail and the legislation required to set up GBR for this. There is also little detail on how the regional divisions will interact with the centre, and quite what elements of different PSCs will be led by the centre, and which by the regions – one would hope this does not lead to complication.
• With one body awarding PSCs and also providing access to the track, open access operators (including freight) will be keen to understand whether they can expect the same degree of access to the track, and a fair hearing. The Review refers to many safeguards, and the GBR obligation to act fairly. The proposed changes to the ORR role as independent arbiter for access to track will be critical. Most importantly, freight operators will need to know that their position and access rights are sufficiently protected, where access rights are decided by the body accountable to the passenger for performance.
• Whilst it seems that operators will still be involved in rolling stock procurements going forward (albeit through detailed GBR PSC specifications), with one body, GBR, both specifying the trains, and managing the infrastructure on to which those trains will be accepted, the classic operator role (and obligations/risks) for new train procurement and introduction might change. Train specifications will have a direct impact on the customer experience, and again the Review's acceptance by GBR of accountability to passengers may be part in recognition of this.

Source: Williams-Shapps Plan for Rail 20 May 2021

Review Proposals:

• The new PSCs will allocate revenue risk and collection to GBR, with TOCs subject to a variety of controls and performance incentives, including revenue protection mechanisms, in a similar fashion to TfL concessions (and experienced in the recent/current EMAs and ERMAs too). All TOCs will operate under a common "one network" brand, incorporating an updated version of the classic "double arrow" logo, with regional variations.
• What are current Franchise Agreement obligations are pared back – PSC operators are paid a fee to provide a service to a GBR specification (timetable, branding, most fares and other aspects), taking some cost risk (but not revenue risk), and must be efficient. GBR will use a "toolkit" of performance measures to incentivise operators, who must also be collaborative, and integrate with bus and cycling strategies. Station management moves to GBR.

Source: Williams-Shapps Plan for Rail 20 May 2021

Questions/comments:

• The PSC model proposed will dramatically change the risk allocation from old style franchise agreements and, it is assumed, the associated "reward" (through the margin available to operators to earn) will change. Operators and GBR alike will be keen to ensure that the reward is in keeping with that new risk allocation. The Review recognises the need to reinvigorate competition for PSCs and to achieve this the proposition will need to be sufficiently tempting to the bidding market with an appropriate balance of risk and reward. The Review references the example of the TfL concession model which has seen some success in both providing a stable operating model for TfL and providing an attractive proposition for the bidding market. The simplification of the proposition and the reduced role of the operator might be seen as the route to reducing barriers to entry which is another of the Review's stated goals.
• Just how much of what were other TOC obligations under the classic pre-covid Franchise Agreement, such specific TOC committed obligations, remains to be seen. It will be interesting to see the approach to the knock on impacts of these obligation changes to "usual" KPIs and operational performance, and owning groups will no doubt take a keen interest in the level of any performance bonds, particularly where revenue collections and projections may in effect bypass the TOC altogether. Despite GBR controls and prescriptive PSCs, the Review still anticipates operator innovation; and states that the length and nature of PSCs will vary, and some long distance TOCs may have more commercial freedom, with the ability to set fares and take some revenue risk. We can therefore expect some variety in the PSC model(s).
• It seems that GBR will allocate responsibility for train environment and quality to the operator, which suggests that operators will still procure, lease and manage rolling stock, and this is backed up by the expectation that there will be no "direct" change to the current industry train procurement and maintenance practice, within the GBR PSC specification.
• The Review states that GBR will "not operate most trains directly", which raises the question as to whether it will operate some trains, and the impact this might have on the regime generally. There is no specific mention of GBR becoming an operator, other than an operator of last resort (OLR), and whilst again this is not specifically mentioned (this would also require new legislation), we would assume that those franchises that are currently operated by OLR would be subject to a PSC competition, as for the rest.

Review Proposals:

• The Review introduces flexible carnet style season tickets (8 journeys in a 28 day period), an end to paper tickets, extension of PAYG, and a standard compensation claims process. GBR will have significant control of setting (most) fares, and will sell via a central website, (which will look to integrate with bus and other public transport tickets) although independent retailers may also sell tickets (query whether operators can do so too?).
• The Review also signposts a more detailed review of fares and ticketing, opening the door to more technology and flexibility.

Questions/comments:

• Calls for a review of the complex rail fares system and somewhat impenetrable Ticketing and Settlement Agreement (and related National Rail Conditions of Travel) have been increasing in number for some time, for a variety of reasons. However in recent times, and in the current covid recovery world, it seems clear that the rigid system put in place at rail privatisation needs an overhaul, at the least to reflect (i) current expectations with regard to smart and modern ticketing and payment systems; (ii) new and flexible travel patterns; and (ii) critically, the flexibility to attract both business and leisure travellers back to the railway post covid. These aspects of the Review are likely to be welcomed, and this will move to be much more the public sector domain with the transfer of revenue risk. The regime needs to enable the ingenuity and innovation of the private sector to be harnessed here, alongside restrictive PSCs and GBR fares control.
• The price of tickets will not go unnoticed by the travelling public, and here, with passenger numbers still at 35% of pre covid levels, the more fundamental question as to the value and therefore level of subsidy that we choose as a nation to ascribe to our railways as a utility service, and how we drive taxpayer required efficiencies, comes to the fore.

Review Proposals:

• The Review makes it clear that the Government is determined to maintain private sector investment to supplement state money. There are promises of contracts being "modernised", infrastructure projects being carried out more flexibly and efficiently than NR has done so in the past (utilising recent SPEED and PACE initiatives), and a helpful recognition that the current NR approach has to change.
• The Review refers to bringing forward the upgrading and possible replacement of trains, in the context of ensuring seats are comfortable enough. Whilst there is to be no "direct" change to current industry model for train procurement and maintenance by independent train leasing companies, the Government will assess other options going forward to ensure reliable delivery and value for money.
• Ambitious cost savings of £1.5 bn pa (15% of pre covid fare revenue) are predicted after five years (it is noted that it cost Government £12 bn over the last 15 months to keep railways running).

Questions/comments:

• The cost of rail to the taxpayer during the covid period is clearly not sustainable. The challenge of the Review is to get the balance right between retaining private sector interest so as to enable service delivery to entice customers back to rail, efficiencies and innovation which, given the right incentives, the private sector can do so well on the one hand, and meeting taxpayer value for money requirement of the initial Williams terms of reference on the other. The travelling public can hope that manageable and realistic performance requirements, coupled with a fair and steady margin should provide this. Whilst the Review sets the scene for this to be the case, the devil will inevitably be in the detail. The key to ensuring that Government contributions reduce and become more manageable is to get the public back to the railways, making the post covid experience safe, reliable, and, essentially a pleasure rather than a chore.
• Whilst the Review refers to harnessing investment under single guiding mind of the public sector, and new forms of competition, there is little detail as to how this might be brought about, or what delivery and funding models might be adopted.
• It remains to be seen whether the Review reference to assessing future rolling stock options for reliability and value for money should give ROSCOs cause for concern.

Review Proposals:

• The Review draws together a number of important strands in terms of the decarbonisation agenda, such as full network decarbonisation costed options, hydrogen and battery trials, digital signalling, electrification (recognising the requirement for no diesel only trains from 2040), along with a requirement for a comprehensive environment plan for rail to be published by GBR in 2022, as part of the 30 year strategy. GBR is to have a duty to consider environmental principles in all its operations.
• Government notes that the 30 year plan will enable GBR to take long term decisions for the resilience of the railway based on climate predictions, to protect biodiversity, reduce energy consumption and guard against landslips and flooding, utilising technological innovation, and availability of data (embodying a transparent "open by default" approach to data.

Questions/comments:

• For Paris targets, NR decarbonisation targets and to link with the Green Industrial Revolution, the Review is a well-timed and critical vehicle for encouraging/mandating net zero initiatives, and we will need to see actual implementation of these in the short term.
• Private sector initiatives such as trialling of hydrogen trains, investment in battery technology and the like need the benefit of strategy, direction and clear regulation to move forward within the timescales required to meet the Paris Targets; GBR and Government need to make the most of this opportunity to apply a "guiding mind" to such initiatives, as well as link into other Government initiatives and strategies eg for hydrogen more generally.
• There is no specific reference to managing desire for social distancing when passenger numbers increase, or related operator PSC obligations.
• The stated focus on resilience of our rail infrastructure and services for the variety of climate, social and environmental challenges that we will inevitably face going forward, is timely, and this should include flood, terrorism, cyber security and such like.

Review Proposals:

• GBR will allocate access to the track, and is to have more extensive statutory powers to plan the use of network and "balance priorities" for "overall public benefit", under a new rules based access system, underpinned by legislation. The ORR is to have more extensive statutory powers for appeals to GBR decisions.
• There are to be "modern" track access contracts, and new safeguards to ensure freight operators have fair access to the network, with a GBR statutory duty to promote freight, achieve a freight growth target, set up a national freight coordination team, embed freight into the 30 year strategy, and comply with guidance on access priorities.

Questions/comments:

• The merging of the IM with the PSC awarding authority can only increase the importance of protecting freight's share of the timetable for the freight sector, increasingly important as the UK aims to meet transport's decarbonising agenda for the movement of goods, and reducing diesel HGVs from the road. If GBR is to effectively control each TOC's timetable through the PSC and award process, this may enable a more ordered approach to allocation of freight paths. The freight safeguards announced will be critical circumstances where GBR is also accountable for the passenger experience.
• We can perhaps also hope that the newly announced regime will point to enabling signalling infrastructure upgrade and the digital railway to go ahead, alongside the current NR Project Reach fibre upgrade, as well as implementation of the NR decarbonisation plan, so as to open up railway paths that can incorporate new low carbon technologies where electrification remains uneconomic and ensure more freight movement in an environmentally friendly manner.

Review Proposals:

• The Review provides that GBR will allocate access to (NR legacy) track/infrastructure for passenger and freight and to set the timetable, safeguards will be introduced for fair allocation, and additional ORR regulation for access decisions will be strengthened. Stations will be managed by GBR regional divisions (with community partnership and other local input) rather than operators.
• Licensing, safety and depot regulation does not appear to have been changed, and the IMs of other non-NR infrastructure will retain their current roles.

Questions/comments:

• As noted above, the merging of the current NR and PSC awarding authority roles means that ORR's role in terms of access regulation becomes even more critical for freight and open access operators, as well as for passenger TOCs more generally.
• It appears from the Review that ORR will no longer play a traditional economic regulator role in respect of the rail infrastructure and GBR, assuming instead more of a performance monitoring and reporting role and focus.. The Review notes that the new legislation to set up GBR will include duties around accountability, transparency and efficiency, as well as monitoring and reporting, enabling scrutiny of GBR.
• The change to the management structure of stations will end the somewhat anomalous and arbitrary current split of maintenance, repair and renewal obligations that exists in station leases and access arrangements now, but will also take away the important station environment from the TOC, and all opportunity for the TOC to implement station proposals. This will have a further effect for those franchises where operators were given enhanced station development rights, such as Greater Anglia and C2C. However, since development of stations has been discussed for many years without a successful outcome on any scale, perhaps a new approach of local devolution with a strategic guiding mind might unlock further station potential, social value and economic growth (although where the funding will come from remains to be seen).

Review Proposals:

• The Review recognises that there will be impact on employees where established rail bodies change focus and obligations move. Employees could transfer to GBR from NR, RDG and TOCs, and skill sets may need to change. GBR will have a different focus and approach to that of NR, and whilst there may be some streamlining, there will be new roles too (and it is noted that non-NR people will be brought into GBR).
• The Review focusses on skills, training and leadership, with a virtual leadership academy, coordinated driver training, and a sector wide work force plan and strategy to attract diverse talent.

Questions/comments:

• Workforce issues are important and will need to be handled sensitively and carefully including who takes responsibility for any related risks. Unions have been calling for full rail nationalisation, and will inevitably be concerned about any perceived streamlining and cost cutting.
• Pensions issues are not referred to in the review in any detail.

Review Proposals:

There is a significant regional and local focus in the Review, with GBR to have "powerful" regional divisions with their own budgets, and an implication they may manage local stations and PSCs (with freight and cross-country PSCs managed centrally), and involve local bodies, including community rail partnerships, in their decision making (although it is made clear that GBR will have the final say over the PSCs).

Existing devolved authorities of Scotland, Wales, London, Tyne &Wear and Merseyside will continue to exercise their current powers, and GBR will own the NR infrastructure in Scotland and Wales. There is the possibility of further joint working arrangements with GBR and each of the Scottish Ministers, Welsh Ministers and TfL to assist timetabling, investments, local collaboration and the passenger experience.

GBR is to take over most of the RDG's current functions.

Questions/comments:

• Other IMs (such as for Crossrail, HS1 and the CVL) will need to consider new arrangements with GBR carefully, since their access regimes need to dovetail with that of NR/GBR, in terms of timetabling and delay attribution. It is not immediately clear how access arrangements to this other infrastructure are to be controlled, and how operators whose journeys span the infrastructure of another IM as well as NR will manage the contractual differences between the two.
• There is no reference to the further devolution agenda, and how this might play into the new regime.

• Challenging timetable: whilst timescales are not given for all initiatives, the Review states that the first PSCs will be launched in 2022; and notes that there are seven "immediate benefits". A DfT Rail Transformation Programme is to be set up now, to enable the industry to establish a common vision and understanding of the new regime; and Williams will chair an SoS advisory group. Andrew Haines is to develop interim arrangements plans, and the new GBR chair is to be recruited. It is acknowledged that current access contracts might transfer to GBR, before being amended.
• Immediate benefits: the Review notes the following as bringing immediate benefits (i) contactless digital ticketing, flexible season tickets and PAYG commitments; (ii) freight sector engagement; (iii) consideration of short electrification schemes to support freeports; nao (iv) focus on punctuality though ERMAs and NRCs; and (v) clearer communication. Further pilot schemes will follow.
• New legislation: the Review states that new legislation will be required to create GBR as awarding authority, to change the law on track access, and to change the role of the ORR (although we have not yet seen any draft bills), and this will need to be factored into the timetable. No period of industry consultation has been proposed.