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2001-06-26 SRA-001
Strategic Rail Authority


Coming out of the Shadow

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Strategic Rail Authority

Coming out of the Shadow

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26 June 2001
source Strategic Rail Authority
type Speech (full)

note Speech by Sir Alastair Morton, Chairman, Strategic Rail Authority, at the IEA Conference “The Future of UK Rail” at One Whitehall Place, London, 26 June 2001

Coming out of the Shadow - the SRA at the heart of the UK rail industry

An IEA conference at the Liberal Club just after a minor political thunderstorm around the Labour Prime Minister's declaration that he wants more private enterprise provision of public services is all very ecumenical. Getting a safer, better and bigger railway system in Britain will be the largest Public Private Partnership seen in Europe - if we do it - and there is no doubt cross-party support will greatly facilitate that massive PPP.

The support was without question available until the latter part of last year. The SRA had made a good start in Shadow form and as at September 2000 had not yet irritated people by deferring publication of a Strategic Plan to tell everyone what to do.

The Government had published a 10 Year Plan in July which seemed to contain a lot of good news for rail - £63 billion to be expended on capital and on supplementing farebox revenue over ten years.

And then in mid-October came Hatfield; and as I said at the time the rail industry had "a nervous breakdown". As I saw it, people inside the industry realised within hours and with horror the awful implications of the rupture between operators and maintenance signalled at Hatfield.

But in truth our hopes for a PPP-driven new dawn for Britain's more or less privatised railways were in trouble before Hatfield ... at least three months before.

In physical, everyday terms the advent of trouble was signalled by the deterioration in operating performance against the summer 2000 timetable. Demand and traffic had been rising for six years and now we were running out of room for growth. From June 2000 the ageing pint pot that is Britain's railway system began to creak and leak under the steadily rising pressure of more trains on the timetable, carrying more passengers and freight per train, where possible at higher speeds. Trouble was developing, resilience was declining, infrastructure and service were deteriorating. At working level trouble showed through in the third quarter of last year.

At the strategic level the timing was the same: trouble began in July, within days of the publication of the 10 Year Plan. Somehow the Whitehall machine made a serious mess of translating to the Treasury what the SSRA and the Rail Regulator were - very separately - telling them needed to be in that Plan for rail. It was a case of "a billion here, a billion there and soon you're talking about real money" as Eurotunnel used to say to bankers.

There was, however, a very important difference. The Regulator is independent: if he says Railtrack needs the money, the Treasury either provides more, or deducts the sum from what the SRA has got for other parts of its Plan, or someone persuades Railtrack to wait for it. The £29 billion earmarked for the SRA over 10 years, modestly supplemented by ministerial contingency or "back pocket" funds, was asked to take the strain - a strain that will not be supportable by any arithmetic if Railtrack does persuade Tom Winsor next year to add another couple of billion over the next five years to the £3.7 billion handed over since the 10 Year Plan in his announcements in late July and late October last year, and in early April this year.

But Hatfield and its monstrous consequences made all that seem tomorrow's problem, not last November's priority. And let's face it, any Strategic Plan handed down from the lofty heights of the SSRA before Hatfield would have been thrown into confusion by the events at and after Hatfield. Better to come back to those longer-term issues tomorrow, or after.

Through the winter, the weather and Railtrack's risk-averse management of risk dominated the railways. The formal establishment of the SRA arrived on 1 February, and we published a Strategic Agenda to launch the run-up to an autumn Plan - knowing that it meant confronting the longer-term issues pushed off to "tomorrow" by Hatfield.

Well, tomorrow has arrived. You will recall that, like birdsong in the predawn in May, I heralded the dawn a few weeks before the election, in response to questioning from Gwyneth Dunwoody's Select Committee on the House of Commons. I said the SRA's funding must be "re-thought and re-shaped to fit the new circumstances." Asked to clarify that, I said "We must have the money. The emperor has no clothes without money." Reflect on that, Cap Gemini, as you tell us to provide robust strategic leadership.

Since the third quarter of last year, since Hatfield, the issues have grown. I believe we must:
• first, convince ourselves Britain's rail industry is structured right and in a correctly balanced partnership with the public purse;
• second, settle down to a generally accepted strategy for achieving the safer, better and bigger public service we want from rail; and
• third, assure ourselves that it is reasonably possible to fund that strategy in all its phases from concepts to commissioning into service over the coming decade, and beyond.

After more than two years' hard labour at the SRA, I am better placed than most to know just how tall an order I have just placed before you and before the parties to that "biggest PPP in Europe".

There are voices in the industry saying we should restructure, whether geographically or vertically, because the present structure - built around Railtrack - cannot deliver. Offering us a choice of evils, they feel it will be more painful to struggle on with an under-performing Railtrack than to reorganise into smaller units. That is strong medicine. Conversely, some say change will bring more uncertainty than we can tolerate. I believe the SRA's task, which is to provide strategic leadership, requires us to assess these choices for the longer term and also to guide Her Majesty's Government towards a stable balance between the public purse and global capital markets which, together, will fund future improvement. The industry seeking our guidance - as Cap Gemini assures us it does - must work with us to consider solutions either confirming or modifying the existing structure of relationships. Yesterday the Rail Industry Group, the forum which brings the industry's leading representatives together with the SRA, met to discuss just that. It was a sombre but positive discussion.

Of course, in the short term there is no choice. Railtrack, its maintenance contractors and the train operators must climb out of the swamps of recent months and deliver a recovery.

We need to settle our way forward but that is, I am afraid, complicated by the tendency for the public sector side of the proposed partnership to splinter into three streams of activity. Those three streams are:
• substance, i.e. what the industry needs to do and pay for if it is to provide a safer, better and bigger public service;
• process, which is the sequence and procedure under which officials in Whitehall are willing to examine propositions; and
• presentation, which is what our political masters stress, hoping it accords better with public aspirations than the facts do.

To illustrate this splintering via the saga of our funding: "Presentation" was Gus Macdonald reacting fiercely to my truthful response to the Select Committee that we need more funds. The facts are, of the £63 billion in his 10 year Plan the SRA's £29 billion is now over-committed without any noteworthy enhancement programme and the private sector's £34 billion sits under big question marks as the main player, Railtrack, shrinks.

"Process" on our funding means being told to wait until June 2002 for the outcome of the next Spending Round negotiations between the Treasury and all the government departments. The Treasury's attitude is understandable, it cannot make ad hoc deals, but ......

That brings us to "Substance", the need to fund the public sector side of the big rail partnership adequately to lever in very large sums from global capital markets to get on with improving Britain's railways via a prioritised approach to a long list of franchises, studies and projects waiting to go ahead. Is it realistic to sit on our hands until next June?

As I have said, the time until then can be spent by the train operators, Railtrack and their contractors in recovering to a pre-Hatfield level of performance, carrying more passengers and freight.

But is that enough?

The SRA is pretty well on top of listing what needs to be done on the ground:
• We have published a freight strategy, building on my Strategic Agenda of March.
• We have published in Birmingham, and then in Manchester, the conclusions of capacity studies undertaken by co-operative working groups, defining what needs to be done in those key hubs, both bottlenecks.
• We will shortly publish the key elements of a strategy for London and the South East, timed to link up with Transport for London's presentation.
• We have taken two key franchises, for the East Coast and TransPennine routes, to a selection of preferred bidders, putting us in a position to design developments over two crucially important segments of the network.

And so on. We can write a Strategic Plan in physical terms: but, without the funding we would just have to sit on it - unable to upgrade either franchised services or infrastructure.
The central issues are first resources, of skills, management and funds, and - just as important - structure. A last word about the latter.

I know two things from experience:
• if we do not structure and fund things right from the outset, we shall fail; and
• we must move forward steadily, with adequate funding over a period of years, realising that this is a long-term, costly and slow-moving programme that will serve Britain for decades.

There is no quick fix. And, since our railways are in trouble, we shall not get it right by putting too much pressure on a structure already in trouble. I always preached that the faulty initial structuring between the parties to the Channel Tunnel project caused huge aggravation and cost over the life of that grand investment programme. We are in danger of doing that here.
I have reflected on all this in the period since Hatfield, and particularly during March and April, as we put a further deal in place to ease the strain on Railtrack, the cracked principal structure supporting our industry. I concluded, very simply, that at 63 1/2 - as I am now - I cannot hope to see the necessary investment programme through.

If that is the case, my successor should ideally be in place to "take ownership", as the saying goes, of the structure of the industry, the balance of the PPP, the long-term funding agreed and thus the SRA's Strategic Plan, once complete. And he or she should be young, fit, wily and ambitious enough to weld together the three streams of presentation, process and substance to serve the purpose of that Plan, appropriately funded. He or she must be here well before next June.

Thus I told John Prescott before the election that I would discuss all this with the incoming Secretary of State responsible for Transport, but I planned to go at an appropriate time, no later than the end of my contract next March. In short, I will neither seek nor accept an extension of my contract.

Meanwhile, I shall bend all my efforts to clarifying the component parts of the SRA's strategy for passengers and freight at and around the strategic hubs of London, Birmingham and Manchester and in between them (and also the ports) on or near the strategic main routes. I will press forward the definition of the resources of skills and money needed and the structure preferred. I am first and last in the "substance" camp, which puts me sometimes at odds with the process and presentation chaps.

Media Enquiries: SRA Press Office 020 7654 6387/6294/6339/6234

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