Williams Rail Review update 2 - objectives, structure, devolution and the supply chain

In this update, we consider what has happened over the last few weeks including:

• Williams Rail Review  –  call for evidence - objectives and assessment criteria 
• Transport Focus –  structure of the rail industry
• West Yorkshire Combined Authority – devolution and vertical integration
• Railway Industry Association – smooth out 'boom and bust' in work flows, reducing cost of the railway
• Talking Points – a roundup of emerging messages from the Review

Williams Rail Review – call for evidence - objectives and assessment criteria

"Improved focus on customers - the railway must adopt a fully customer-centric view as the basis for decision-making at every level.

Clearer accountability and leadership - A reformed system must make it clear who is taking the decisions that affect passengers and freight customers, so people understand who is in charge."

At Accelerate Rail 2019 on 19 March, Keith Williams announced the next 'Call for evidence – objectives and assessment criteria' (CFE). The CFE seeks views on:

• The objectives of the Review's recommendations.
• Issues already identified which will need to be addressed as part of reforms.
• The high-level assessment criteria which will be used to drive subsequent phases of the Review.

It is recognised that a balance will need to be drawn between these competing objectives and criteria.

Whilst the wider call for evidence remains open until 31 May 2019, interested parties only have until 30 April 2019 to respond to this new CFE on how the proposed assessment criteria should be balanced. Time is short, so now is the time to discuss, consider and collect your evidence to submit to the Review.

We are now at the halfway point of the Review and the CFE sets out a "Summary problem statement" as follows:

• The rail sector too often loses sight of its customers – both passengers and freight.
• Over recent years it has come to lack a single strategic direction.
• It has become fragmented and accountabilities are not always clear.
• The sector is struggling to innovate and adapt.
• The sector needs to be more productive and tackle its long-term costs.

The CFE does not just focus on problems; it identifies a number of objectives for the future of the railway, categorised as:

• Passengers: higher passenger satisfaction and greater public confidence through improved experience and value for money.
• Taxpayers: improving long-term affordability and value for the taxpayer.
• Wider society: growing social, environmental and economic contributions to the country (including through promoting freight traffic).

A number of outcomes are also proposed as the Review develops its recommendations for the future model for the railway. These are categorised by the CFE into:

• Passengers: performance; value for money; public trust; enabling the journeys people want to make – including across modes of transport; and accessible and simple to use.
• Affordability: productivity and efficiency; commercial sustainability; and seizes opportunities.
• Fundamentals: safety and security; the environment; and rail freight.

The Review has quickly picked up on the need to balance objectives. In our first article in this series, we identified the need to consider competing principles as we discussed RDG's submission dealing with fares and ticketing, rather than (nobly) aspiring to do everything for everybody! Trade-offs will inevitably have to be made to achieve a successful railway. To guide the Review on how best to prioritise objectives, the CFE asks for evidence on assessment criteria, objectives, outcomes, their relative priorities and the system changes needed to deliver.

Other messages include:

• Priorities: How do you identify the priorities? We have seen from Transport Focus, RDG – and indeed Williams himself at his Bradshaw Address – that the customer experience needs to be the foundation of the industry. How do you achieve this when different customers expect different things from the industry? Fares and ticketing is perhaps a microcosm of the debate: a simple, transparent method of setting fares and ticketing is clearly desirable – but adding flexibility and other "add-ons" already makes it more complex. This can then affect the level of trust and confidence the passenger, taxpayer and public each has in the rail industry.
• Investment: One of the emerging messages seems to be a call for third party private investment in a variety of areas in the industry and a plea for innovation, not just to use new technology, but to develop it specifically for the pressures and requirements of the rail industry.
• Accessible: Having a railway which is accessible and simple to use for all passengers, including disabled passengers, is not only good for the railway but is plainly the right thing to do for the wider community, for passengers and for potential users of the railway.
• International experience: In reaching this halfway point, the Review has considered lessons which can be learned from other countries. Japan is offered as an example where track and train are operated as a combined single railway company. Of course, as highlighted by Transport Focus (see below) passengers may not actually care whether there is vertical integration or who funds the industry, provided their train turns up on time, they get a seat and there is accountability when things go wrong. Of course, to make sure the trains are reliable and punctual, a clear need for accountability has been identified, with the right incentives to ensure that the passengers (and the taxpayer) get what they want.

Transport Focus – structure of the rail industry

"Notwithstanding many positive experiences of rail, there is significant underlying discontent"

Transport Focus carried out a number of passenger focus groups in London, Birmingham, Manchester, Glasgow and Cardiff covering business, leisure and commuter travel,  where accountability and the social role of the railway were key messages emerging from the research. Transport Focus published 'What do passengers think about the structure of the railway?' on 12 March, in which other important points emerged:

• Investment is noticed: Passengers notice investment in trains, improvements at stations, improved wi-fi and catering. Use of travel time productively is a key differentiator of rail over other modes of transport.
• Passengers or customers?: There is a one-sided relationship (if there is a relationship at all) between users of passenger rail services and their train company. Passengers want a quality output from their service providers – and do not really care about the structure underlying those outputs.
• Accountability is key: Who is in control and who is responsible for making things right when disruption occurs? Too often, we see blame being passed from a train operator to Network Rail (or vice versa) due partly to separation of track and train in the current structure. A simple, understandable, structure is important.
• No one size fits all: There is a need to step back and consider what structures would really work for particular services. Genuine competition and choice between operators was welcomed as a method of ensuring train operators focus on their customers. However, this will not always be possible – urban commuter services with a "captive market" may well benefit from greater public sector involvement and regulation. Yet the social need to keep people and geographic areas connected has to be kept on the agenda when looking at funding and structures, so routes are not closed if they are unprofitable. Here a mixture of public and private intervention and funding may be needed.
• Paying twice: Transport Focus recognises that passengers pay both rail fares and taxes. Taxes also support the rail industry, from HM Treasury and via the Department for Transport, Transport for Wales, Transport Scotland, Passenger Transport Executives and local transport bodies, as well as Network Rail. Yet understanding of how fares are set, where taxes support the industry and, ultimately, accountability of the train operator for these funds, is unclear to the average passenger, and with that we have some sympathy.

These are helpful messages – the social role of the railway and the need for passengers to be valued as "customers" (with a relationship with their train operator) being particularly interesting. There has been talk for some time of "passengers being put at the heart" of the railway: a good soundbite but often difficult to deliver. This, together with the messages of "simplicity" and the need to consider carefully the appropriate model for particular service groups, will no doubt be food for thought as the Review develops its thinking.

West Yorkshire Combined Authority – devolution and vertical integration

"…the current system for operating the railway is not working for our region. Alongside significant investment in infrastructure, we urgently need a rail system that meets the needs of, and is accountable to, the North of England."

• Local accountability is a similar theme emerging from the West Yorkshire Combined Authority (WYCA) submission to the Review, one of the messages being that the railway needs to be accountable to democratically elected national and local government, presumably in a push for further devolution.
• Models: Reiterating the message from Williams at the Bradshaw address (see our previous update), WYCA highlights the need to move away from existing organisational and structural industry models , even away from franchising (which WYCA says is not working for the region), and focus on the needs of users. Integration of track and train is mooted as a potential solution.
• Devolution: Planning and delivery of rail services need to place those users at the heart, with the need to devolve funding and decision making to locally elected representatives close to where the services are being delivered. A devolved industry in the north can support economic rebalancing, changes in the labour markets and can deliver the "Northern Powerhouse" regeneration programme which is already underway. The structure of the railway "should primarily be about providing a service to customers and society, with profit being a second order priority".
• Investment: The industry needs to be welcoming of third party investment, WYCA commenting that "with a planned rail investment portfolio currently worth £250 million, we often find the railway hard to do business with." This mirrors messages elsewhere in the industry that it is currently difficult to facilitate third party investment, although we have seen recent (but rare) examples of this happening.

Click here to read the submission (Part 11, Appendix 2). 

Railway Industry Association – smooth out 'boom and bust' in work flows, reducing cost of the railway

"Government and the industry need to be clear what outcomes they want and this should inform commercial models. That said, there is a need for the Government to withdraw from day-to-day intervention in the railway, which is widespread, and to concentrate on an outcomes-based approach."

• Predictability: A visible enhancements pipeline is essential to the Railway Industry Association (RIA) and this is a message we have heard loudly in recent times, the aspiration being to have a consistent work profile. Having this pipeline allows business to plan and invest in their people, ensuring we keep the right skillsets and experiences within the industry. The Review should not be a catalyst to halt the momentum within the industry: RIA is anxious to ensure that we do not find ourselves in a state of paralysis whilst we await the outcome of the Review.
• Franchising and rolling stock: Leadership and a 'guiding mind' are needed, independent from the DfT, to provide clear accountability for the rail industry which, in RIA's view, seems to be lacking. Franchising policy needs to ensure best use of both new and existing rolling stock solutions, with the "whole life cost" being an important factor: from new build to repair, spares, parts and refurbishment. The introduction of "quality" criteria in franchise evaluation seems to have become closely aligned with new trains which, together with low cost of finance, has resulted in a significant impact on the rolling stock refurbishment market, both of which may have similar passenger outcomes. Investment needs to be encouraged throughout the term of the franchise whilst allowing a return on investment to be realised. With a much longer term strategy and more forward looking objectives, more coherence will be possible.
• Intelligent procurement: Where many within the rail industry supply chain are SMEs, RIA calls for a more transparent and intelligent procurement process, allowing businesses to plan ahead, rather than reacting to several procurement opportunities at once.  Improving visibility of the procurement horizon and the methods of bringing procurement opportunities to market could reduce costs overall by making bids more competitive and ensure more tenders are submitted. This would smooth out the market for the rail supply chain and provide cost efficiencies which can benefit the passenger and taxpayer. Early engagement with the industry is called for to help enhance rail infrastructure, keeping costs down. Procurement also needs to incentivise innovation.
• Innovation: RIA is keen to use technology and skills to achieve efficiencies and new methods of working. It is very much encouraged by the establishment of the UK Rail Research and Innovation Network partnership between academia and industry stimulating innovation. RIA suggests looking across industries (e.g. automotive industry) for transferable skills and concepts which can be used for rail. Franchising, it says, limits innovation – in part, as the life of a franchise encourages short term approaches and evaluation does not support this.
• Value for money:  Value for money is not just a question of price and also takes into account factors such as reliability, punctuality, environmental impact, accountability and comfort. Defining a purpose or objectives for the railway will assist with this – and may mean that different structures suit different areas. RIA is in favour of private investment in the rail industry. In contrast to the position set out by WYCA, RIA is not in favour of devolution simply for the sake of devolution. It needs to drive improvements and a clear articulation of outcomes will impact on the commercial model.

There are some interesting points arising from RIA: the cry from RIA is to keep moving, keep developing and not to put work or procurement on hold waiting for the outcome of the Williams Rail Review. The dilemma of whether to use new build rolling stock or to refurbish existing rolling stock is one which we have seen highly publicised in recent franchise competitions. This is particularly where new rolling stock is sent off lease after just a few years in favour of more new (but cheaper) trains. RIA's points on the seeming lack of coordination from DfT means there will be more new assets and less to refurbish, affecting the rail supply chain. Click here to read the submission.

Talking points

• Speaking to a board meeting of Transport Focus, Keith Williams highlighted the benefits of European legislation on compensation for flight delays in driving behavioural changes within the aviation industry. Drawing parallels, he reiterated the need for compensation mechanisms to be clear in the railway – and he has asked the ORR for its views in this area. How this might interface with the new Rail Ombudsman will no doubt be a consideration for the ORR.
• Hand in hand with accountability comes the cry for devolution in the Northern Powerhouse, with decision-making to be made locally. Could this idea be used elsewhere? Would this help with accountability, or would it add another layer of decision making on top of the structures of governance which the Williams Review is charged with proposing? With many strong voices coming out of the Northern Powerhouse, and with the WYCA being a key investor, it could give some strength to the devolution idea.
• Alliances and more collaborative working, favoured by RIA, can only be beneficial to the industry if a model can be adopted which is transparent with clear accountability which delivers both commercially and for passengers. The rail industry is in competition with other transport sectors and needs to innovate which it is starting to do, yet slowly. We agree innovation should be encouraged and allowed to flourish. 
• Rail Delivery Group Chief Executive Paul Plummer has advocated the establishment of a new independent organisation for the railway. Its role would be to increase accountability, set strategy and targets and enable a long term view of the railway to be taken, stopping the railway being used as a "political football". His view is that political risk typically finds its way into increasingly prescriptive contracts which then stifles innovation.

An unenviable task lies ahead for the Review: to balance a country-wide integrated transport service while allowing some degree of local decision-making; accessing investment and producing a level of return whilst keeping passengers on-side by revamping and modernising ticketing and fares.

Click here to view our previous update. Please let us know if we can assist you in making your submissions.