Local Government and Transport Committee, 20 Jan 2004

Meeting date: Tuesday, January 20, 2004

Official Report 202KB pdf

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Rail Industry

For agenda item 2, I welcome to the committee John Armitt, who is the chief executive of Network Rail, and Ron McAulay, who is the regional director for Network Rail in Scotland. As part of our work on the rail industry, we are considering the rail regulator's recent decisions on track access charges and how they impact on Network Rail and other parts of the railway industry. I invite John Armitt to make some opening remarks on behalf of Network Rail.

Thank you very much. It is a pleasure to be here today and to have the opportunity to explain to the committee our responsibilities and the challenges that we face and to answer members' questions.

Network Rail's primary remit is the operation, maintenance and renewal of the existing rail network. In addition, we can support—directly and indirectly—enhancements of the network. Our focus on safety leads all our activity; it is the key factor that we must always bear in mind above all others.

Network Rail acquired Railtrack on 3 October 2002. It is a not-for-dividend company without normal shareholders; any financial surpluses are reinvested in the infrastructure. We took a long and hard look at the organisation and concluded that it was poorly structured and somewhat dysfunctional. We inherited a highly neglected asset—maintenance contracts were inadequate for our needs and there was a backlog of renewals of some 4,000 miles across the network. Costs in the industry have risen dramatically in recent years and we are taking radical steps to try to get them under control.

We have a huge task over the next five years. At a time when we all accept that the railway has been a victim of decades of underinvestment, it is essential that we improve efficiency and reduce delays. To help us to achieve that, we announced recently that we would restructure the company. We are creating a functional organisation, which will deliver direct reporting lines for the business's main functions of operations, maintenance and renewals. The restructuring combines the changes that are necessary to accommodate the transfer of maintenance in-house and the templating of all the roles that are necessary for the new functional structure.

We will be moving from a regional, geographic organisation to a route-based organisation; one of those routes will be Scotland. We have established a number of asset management territories; again, Scotland will have its own. The proposals are being developed in full detail, but the structure will be based on the existing 18 area units, which we established last year. General managers will be responsible for performance in each area; Scotland is divided into two areas—east and west.

By bringing maintenance in-house, we intend to have consistently applied standards and, obviously, more direct control. We estimate that we can also save between £200 million and £300 million per annum on maintenance. The move, which we hope to complete this summer, will involve the transfer of some 18,500 employees across Network Rail.

The rail industry works relatively well in Scotland. I think that we have good relationships with our industry partners. Scotland's high level of investment, together with the commitment of Network Rail and all its personnel, will continue to deliver the best performance in the UK. We appreciate the Scottish Executive's aspirations to deliver some significant enhancement projects. We are working closely with the Executive to help to deliver those priorities and to make available the necessary resources and expertise.

One of our biggest pieces of infrastructure is the Forth rail bridge, which is undergoing a lot of maintenance work. If committee members wished to come and have a look at that work on site, they would be more than welcome. Also, we recently acquired a high-speed measurement train that roars around the country; it is quite a sophisticated train that is used for measuring infrastructure. A number of people in London spent half a day or so on the train to see how it operates. Again, committee members would be welcome to do that.

Thank you for those introductory remarks and for the invitation to witness some of the infrastructure issues that face Network Rail. I am sure that we will pursue that issue in the future.

I will start with the rail regulator's interim review of track access charges. The committee recently heard from the Strategic Rail Authority and, following your evidence today, we will speak to the regulator. What is Network Rail's assessment of the review? Has Network Rail decided whether it will accept the findings of the review or does it intend to appeal to the Competition Commission?

The first thing to say about the review is that it was held in a constructive way with the rail regulator, over some nine months, with some to-ing and fro-ing of information. Network Rail and the rail regulator appointed joint consultants so that, in trying to reach conclusions, we were both able to look at the same information.

It is no secret that the rail regulator's conclusion that the amount that could be raised through track access charges—just over £22 billion—was somewhat less than we had indicated we thought was necessary. The rail regulator continues to seek most of the outputs that we have discussed with him. To that extent, the review is undoubtedly challenging.

We have a board meeting tomorrow afternoon at which the board will have to decide whether to accept the review or to go to the Competition Commission. The board papers contain a fairly lengthy paper that sets out for members, particularly non-executive members, the background to the review. The paper also contains a recommendation from ourselves, as the executive of Network Rail, on what to do. It would be slightly presumptuous of me to pre-empt the decision of my board by telling you what will happen. Clearly, it is in everybody's interests to get the matter resolved quickly so that the railway can move on and we know what resources we have to spend.

Perhaps you could set out what the proposed resources will mean in terms of the revenue that will be made available to Network Rail over the forthcoming years. You could cover the levels of revenue that have existed to date; the levels of revenue that the regulator has proposed; and the levels of revenue that you believe are necessary.

Broadly speaking, at the moment we spend about £1.3 billion a year on maintenance and about £1.2 billion on operations. The renewals expenditure will be about £2.6 billion this year, which includes the renewals on the west coast. In addition, there are sums for specific projects and enhancements.

The rail regulator has set us a target of about 30 per cent improvement in efficiency over the next five years, which means that we expect maintenance to come down to about £1 billion per year; equally, we expect operations to come down to about £1 billion. That leaves us with a balance and we must consider the amount that is available for renewals. To a large extent, when the amount of money changes, we have an opportunity to spend more on renewals—depending on whether the amount goes up or down.

The level of expenditure is significantly greater than that which the rail regulator allowed prior to Hatfield. The regulator would say that the understanding that followed Hatfield has enabled him to increase the level of expenditure by about £6.7 billion—I think that that is the figure he gives—which represents an increase of about 40 per cent on the amount that was allowed in the previous review. The level of expenditure is high, but it is not dissimilar to the amount that we have been spending during the past couple of years. There is clearly a decline in expenditure going forward; however, there is a recognition that more needs to be spent in the short term.

Much of the debate is about ensuring that the spend is efficient. The rail regulator would argue that rather than spend too much too quickly, it is better to spend slightly less but to ensure that we do so efficiently. The amount represents a very significant improvement on what was allowed in the previous review and it is similar in the short term to what we have been spending over the past couple of years.

What has been the profile of investment in track renewals during the period from Railtrack's existence until now? Can you give us that information in terms either of expenditure or of the amount of track that has been renewed?

The figure for track miles renewed per annum dropped to as low as 250 miles per annum in the worst year, just prior to privatisation—the fact that privatisation was coming meant that there was a slowdown. During the early years of Railtrack, there was a relatively slow period in relation to expenditure, with up to about 400 miles being renewed per year. During the past couple of years, we have been renewing at the rate of about 800 miles per year. To recover the backlog, we would need to renew more than 1,000 miles per year. At the moment, we expect to renew about 800 or 850 miles, which is a big increase on what was happening eight or 10 years ago.

When we consider the past 50 years, we can see that levels of renewal have been relatively low compared with what they should have been. Theoretically, if we assume—roughly—that the infrastructure has an average life of 30 years, about 3 per cent should be renewed per annum. However, for quite a long time the renewal rate has been as low as 1 per cent.

Is the renewal rate of about 800 miles per year the rate at which the situation does not deteriorate, whereas a rate of 1,000 miles per year would start to eat into the backlog?

Yes. To eat into the backlog, we would need to renew at a rate close to 1,000 miles per annum. The levels of expenditure that have come out of the review will not enable us to eat into the backlog as quickly as we would have liked to do. That is not to say that we will not eat into it, but I think that it will take at least 10 years to recover at that rate.

Given that we cannot renew at the preferred rate, more heavy maintenance has to take place. To a certain extent, the need to strike the right balance is a consequence of the review. The rail regulator does not insist that the money must be spent here or there; it is our duty to consider what we have to do and to allocate funds appropriately.

One of the problems that the Parliament's Transport and the Environment Committee discovered during its major investigation into the rail industry in session 1 was the transparency of the spending figures for the industry in Scotland, particularly in relating the figures for track access charges to those for track maintenance and renewals. Is it now possible to get more of a breakdown of the amount of money that is raised from track access charges in Scotland, and of how much of that sum is reinvested in maintenance, renewals and enhancements in Scotland?

Yes. Track access charges generate around £220 million.

The total income in Scotland is £222 million.

This year, we are spending about £360 million. That excess over the pure track access charges comes through grants, fundamentally.

To clarify, the £222 million consists of about £183 million of track access charges, plus other income from various sources.

I am very interested in the cost profile. You might not have the figures to hand, although you seem to have quite a few notes in front of you. Do you have a comparison for us in relation to the public inquiry into the six years prior to privatisation compared with the six years post-privatisation? What has been the level of public expenditure on the railways in Britain?

That would be quite difficult to say, particularly for the six years post-privatisation, which was at the time of Railtrack. Railtrack raised a lot of its funds outside the public sector, through the market. There would have been public money going through as grant, on top of the track access charges. However, one would not be comparing like with like if one took the six years post-privatisation together with the six years pre-privatisation, when funding was essentially 100 per cent public, as British Rail was provided with funds through the Treasury.

I am sure that we could dig up some figures, but you would not get a like-for-like comparison. The level of public expenditure would obviously be much smaller post-privatisation.

I would really appreciate it if you could provide the committee with those figures. My interest is in trying to evaluate whether the percentage of public investment in the railways fell as it was supposed to do, post-privatisation. My understanding of the figures that I have seen is that the amount of public subsidy was still huge; it is just that we started to subsidise private companies instead of investing in a public industry. I would be interested to see those figures.

You gave us the figure of £1.3 billion a year for track maintenance. I was interested to hear that. I am pleased that, at long last, the decision has been taken to bring maintenance in-house. You have spoken about the potential for savings of £200 million to £300 million a year. Is that correct?

Yes.

How many companies do you employ on rail renewals?

We employ six primary companies.

Do you have any idea how many subcontractors they use?

No, but it is a lot. All sorts of numbers are bandied around in relation to how many companies work on the infrastructure of the railway in one way or another. The six main contractors would typically use specialist subcontractors for welding activity, for example. Signal testing is totally subcontracted. The big signalling contractors no longer have very many people in their employ who test and commission signals; nearly all the people involved in that work are freelance testers or small companies. Telecoms maintenance is subcontracted.

I would be guessing, but I would say that the substantial contractors working for the six primary companies could number between 50 and 100.

How deeply has Network Rail investigated the prospect of bringing rail renewals in-house?

We considered it. As you can imagine, when consideration was being given to whether to take maintenance in-house, the question of what to do about renewals arose during the same discussion. We saw maintenance as the priority that we wanted to take control of.

Renewals are more akin to project activity. We can create discrete packages of work and put them out to competitive tender. Given the discontinuity in renewals, there are peaks and troughs of demand for labour. One would not, therefore, be surprised to find that the different renewal contractors employ the same people at times during the year, because there is a finite labour resource that might not all be employed by the same contractor at the same time. Taking renewals in-house would give us that set of issues to deal with.

On balance, we believed that we were biting off a lot by taking maintenance in-house. As I said, we had to bring 18,500 people into the company and manage them properly, while taking into account the Transfer of Undertakings (Protection of Employment) Regulations. Renewals activity is fairly plant intensive and there are continued benefits and efficiency gains to be had from keeping it in a competitive environment. Our plan is to leave renewals work in the private sector and to contract it out. We will shortly announce the contract awards for the next five years.

Did your discussions take place prior to Mr Darling's announcement yesterday? The thrust of that announcement was that decision making in the railway network should be streamlined and that fewer people should be making decisions. You are talking about hundreds of companies working on rail renewals. You are also talking about public money, and saying that double the amount of money that we spend on rail maintenance will go into rail renewals. That money is being spent with private companies. Could economies of scale be gained? If you can save £200 million to £300 million by bringing maintenance in-house, surely savings could be made by bringing rail renewals in-house?

I will put the £200 million to £300 million in context. If maintenance had stayed with the contractors, we would still have sought that saving through them doing the work more efficiently. It is not just because we are bringing the work in-house that we believe we will make savings; we believe that there are opportunities for better efficiency and 20 per cent to 30 per cent improvement, whether we do the work or whether contractors do it.

For renewals, the bulk of the materials are purchased by Network Rail and the contractors provide labour and plant. As you can imagine, we purchase sleepers, rail and major signalling equipment to get the benefits of the bulk purchase. We then pre-issue the materials to the contractors, who compete primarily on labour, plant and overheads.

In answer to your first question, clearly we made the decision before yesterday's announcement. I do not believe that the announcement changes anything.

I am a bit puzzled, because you are making the point that regardless of whether the contracts are brought in-house, you are looking for a 20 to 30 per cent saving. That makes me wonder what those private companies were doing for the past six years, if the level that they were charging will allow you to make savings of 20 or 30 per cent in a short space of time.

The savings will come from several areas, one of which—possession planning and access to the network—is particularly highlighted and is as much our responsibility as it is the contractors' responsibility. In the past year, you will have seen that on the west coast we have taken some pretty large blockades for renewals activity. The benefit that we get from taking a blockade can be cost savings of 30 to 40 per cent.

Maintenance is a difficult area. Probably 50 per cent of the time is spent on maintenance that is reactive, in that the track circuit has failed or a broken rail has been spotted and the maintenance crews have to go out to fix it. The other 50 per cent of the time is spent on planned and proactive maintenance. We want to change that balance. We want to get as much proactive preventive maintenance as possible for the money that we spend, so that we need less reactive maintenance to deal with the failure that probably causes delays on the network.

As with all such things, we need to look at all areas, including what people pay for the materials that they buy, the overheads that we employ and the number of interfaces that we have. We also need to examine people's efficiency on the ground and find out how many hours out of an eight-hour shift are actually spent at the work face as opposed to travelling there.

We need to look at our efficiency when we gain possession. One of our biggest targets is to improve the amount that we get out of a four-hour, six-hour or eight-hour possession. We know that the longer the possession, the more efficient our work is. In other words, weekend possessions that allow us access for perhaps 27 hours provide more than three times the benefit of a short possession.

Do you hope, therefore, to make savings through a combination of in-house maintenance and better management of that maintenance?

Yes.

On a related point, you talked about a route-based approach to the railways. Many people feel that Scotland should have its own railway control organisation. In evidence to the Scottish Executive's consultation on transport, the Convention of Scottish Local Authorities, which represents local government in Scotland, said that rail provision in Scotland should be controlled by a Scottish body. Are you confident that Network Rail in Scotland is that body?

Network Rail in Scotland is that body. The bulk of ScotRail's movement is within Scotland but, as well as cross-country activities, Great North Eastern Railway and Virgin have cross-border activities such as those on the west coast line and there are also the freight operators. Scotland cannot be put in its own bubble, cocooned from the rest of the network, because there are cross-flows and interchanges.

As I said in my introduction, under our reorganisation we consciously retained Scotland as a route, with its own director. We also have two areas of maintenance and renewal activity in Scotland. Looking at the way in which the network throughout the United Kingdom is organised, I would say that Scotland is probably one of the most discrete parts of the network and that it is managed in that way.

I am relatively new both to the industry and to this role within Network Rail, so it is perhaps worth highlighting one thing that has come across to me strongly, which is that performance in Scotland is good. I believe that performance is good because there are good relationships between ScotRail and Network Rail and with the officials in the Scottish Executive. A lot of effort goes into those relationships to ensure that the network is operated to the best effect for customers.

I believe that having the backing of a national company in the form of Network Rail brings benefits. I could cite an example of that in the work that was done last year at Dolphinstone, where a long section of the east coast main line had to be rerouted because of subsidence—which, if I remember rightly, was due to mine workings. To fix that cost something like £56 million. That is a lot of money to find, but it was made readily available by the company to help deliver the improvement to resolve that problem.

Having been in the industry for only 10 weeks or so, I can say from a relatively objective viewpoint that Network Rail is working well in Scotland. I believe that it is going forward.

Tommy Sheridan will ask one last question before I bring in other members.

I may get the chance to ask later why Scotland is a route instead of a country—we tend to think of ourselves as a country—but I shall ask my last question. Does Network Rail have any plans to discuss the process whereby we might remove a further tier of management by bringing the train operators under one roof? Obviously, there is a growing argument that if we did not have 25 separate train operating companies efficiency would improve.

The quick answer to that is no.

Sorry?

I said that the quick answer was no.

Sorry, I was busy having a discussion with a colleague.

That was too quick an answer.

Yes.

I will allow John Armitt to expand on that answer, because I am interested to know whether he sees vertical integration as a practical suggestion. In addition, even if it were practical to implement it, what benefit could it bring?

The primary benefit that people point to when talking about vertical integration is, in a sense, single control of train operation and its interface with maintenance activities—what was described in the newspapers last week as a single "fat controller". We and the train operators believe that we can find ways to deliver that benefit without putting both areas of activity into the same company. Network Rail has been having discussions with the train operating companies for some months, through a body called the national task force, about how to get better virtual integration between the two areas.

In February we will establish a single controller at Waterloo station, employed by Network Rail and overseeing—in that instance—the Network Rail and South West Trains control room. Elsewhere, we have already put ourselves and train operators under common control but still with separate authority. To be fair, it is fairly rare for someone to turn round and say, "There is a decision to be made: who is the person to make it?"

Most of the time, the discussion that takes place between us and the train operators is about the impact on operations that we can see through the network, the signalling systems and so on. The issue for the train operators is whether the extent to which the controller changes things means that they will have trains in the wrong place at the end of the day or whether drivers will be shifted in the right way. Every time that the controller decides to turn a train back or cancel a train, that has an impact on the train operator's activities for the rest of that day and, if it happens in the evening, the following morning. The controller has a series of judgments to make about what to do, and as a link between us, as his employer, and the operator of those trains, he is the best person to do that. He interfaces with our people and, as I said, nine times out of 10 there will be a consensus as to the right thing to do to try to recover the service following an incident.

We see it as beneficial to work more closely with the train operators, but I do not think that either we or the train operators see vertical integration as being on the agenda—the Government would certainly say that, politically, it is not on the agenda. Any vertical integration would be very difficult unless a single unit was created, and then we would be back to British Rail.

If the train operating companies were to take responsibility for maintenance and infrastructure, they would require massive financial resources, which most of them do not have. Network Rail is essentially the vehicle for a very high level of debt, which most companies would not want on their balance sheet. We and the train operators are looking at working much more closely together to achieve the best management opportunity on the ground.

On Mr Darling's talk of streamlining in his statement yesterday, who will be streamlined, if not you or the train operating companies?

One section of his statement was devoted to the safety regulatory regime. In that respect, we have Her Majesty's railway inspectorate, which oversees our implementation of safety on the railway, the Rail Safety and Standards Board and the rail accident investigation board, which means that immediately there are at least three regulators. In addition, we have the rail regulator himself and the SRA. I would have thought it more likely that the Government will seek views across those areas when it is carrying out its review to find out whether there is some opportunity to streamline the number of bodies that regulate and supervise the railway.

But that review will not examine the day-to-day operation of the railways.

No. However, I know that, as far as day-to-day operation is concerned, the Government wants the sort of improvements that we are going live with in connection with South West Trains at Waterloo. We are also seeking to introduce more such improvements with other train operators. I should point out that it is easiest to make such improvements where there is a prime operator. There are a few routes around the country that are essentially dominated by a single operator. However, with other routes such as the west coast main line, which has 20 different train operators going across and up and down it, it would be much more difficult for people to believe that a single operator would act in everyone's best interests. To a certain extent, it is horses for courses.

Although its exact meaning is not clear, there is a suggestion in Mr Darling's statement of devolving further responsibilities to the Scottish Executive. Do you have any idea what those responsibilities might be? In any event, would such a move help your activities?

I probably hold different views on that, depending on which day of the week it is. No matter whether we are talking about the Scottish Executive or passenger transport executives, it is clear that local people are far more constructive when they are involved in formulating solutions and activities than they are when something is done to them by someone at the centre 500 miles away. As a result, there are real benefits in seeking local involvement in necessary changes and improvements to the railway.

At the same time, we seek to retain the benefits of a national network in which key strategic decisions are made across the network and are not too focused on a local perspective. Again, the issue depends on the scale of any decision or changes and the impact of such a decision on other parts of the network. For example, one could make changes to local stations without impacting on areas outwith the local community. On the other hand, major infrastructure changes can have wider impacts on the network.

I would have thought that, with its short lines of communication, Scotland would have been an ideal unit in that respect. Did you check whether your schemes work? It would be seen quite quickly in Scotland whether they did or not. What did you mean when you said that vertical integration was politically not on the agenda for Scotland?

I did not say that vertical integration for Scotland was not on the political agenda; I said that, overall, it was not on the agenda for the UK. I know that many people in Scotland would like vertical integration.

Hear, hear.

At the moment, we are close to the end of the process for the extension of the ScotRail franchise, which will set the scene for a number of years. As I have said, we certainly wish to retain a network-wide view of the track infrastructure. I would not particularly like to have a curtain across the border, because that would be disadvantageous. That said, I understand the desire in Scotland for vertical integration.

As I said, I would have thought that the results of your planning—that is, whether it was successful or not—would be seen quite quickly in Scotland. You have mentioned better efficiency and expertise, enhancement projects, proactive maintenance, longer shifts and so on. However, is your planned investment standing still or does it mean real progress for Scotland?

As I said earlier, we are making quite a significant investment in Scotland. For example, about £360 million will be allocated this year and, as our September budget made clear, we plan to invest about £1.6 billion over the next five years in Scotland. We must consider that September budget against the background of the final review by the regulator and ascertain a budget with which to go forward. At the moment, we are preparing detailed budgets for 2004-05 and 2005-06, but beyond that things tend to be more difficult.

In your earlier statements, you seemed to put a great stress on reorganisation to free up investment money. However, if I understood you correctly, you also said that, given the massive backlog, £22 billion in track access charges is not enough. How can the investment in Scotland that you have just mentioned match up to Scotland's existing problems?

Scotland is no different from any other part of the network. It is a bottom-up process; the guys in Scotland, Yorkshire or wherever say to us, "This is what we believe that we need to do to get our chunk of infrastructure into the state that we would like it to be in." At the end of the day, we have to say, "Sorry, but you cannot have everything that you want, whatever part of the country you are in." It is a question of prioritisation; at the least, we examine the most important routes in an area and maximise the opportunity to improve them. It is no different from any other budget process—we are invariably constrained by the budget, so we decide on the most sensible way in which to spend it to get the maximum bang for our buck.

In looking at past and existing problems, we in Scotland also hope to be able to look to the future. Has Network Rail been asked to operate the Stirling-Alloa-Kincardine line and does it intend to do so?

We expect to continue to operate all parts of the network. We do not see any great benefits in parts of the network being separated off and run by someone else—that would not be in anyone's interests. There are private railways that do not interface with the main network, but that is an entirely different situation.

The most significant recent example is the channel tunnel rail link. It is owned by London and Continental Railways, but we operate the line and integrate it with the rest of the network under contract to that company.

You mentioned the fact that managers have to make decisions about prioritising routes and about maintenance. How do you categorise routes in Scotland and how do you prioritise expenditure on them?

Like everywhere else, Scotland has primary routes, secondary routes and freight routes. We consider those routes and what needs to be done to them. The primary focus is on keeping the routes safe; we get the maximum outputs that we can while operating in a safe manner. The number of passengers carried on individual routes is also a factor. There cannot be a simple formula—we cannot say, "We will only spend this amount on that." We have to consider each individual set of circumstances and judge them on their merits.

In Scotland, like everywhere else in the UK, we inspect our track at regular intervals. Those intervals depend on the usage of the line and on the number of journeys over each set of rails. That information is fed into the asset registers that are used to determine the required levels of maintenance. They tell us the condition of the track and whether there are problems that we need to go out and fix. We might need to go out to react to a problem and we also undertake preventive maintenance. That is how we establish whether maintenance is required and how we carry it out.

Is it deemed acceptable that the level of maintenance on certain routes might be such that it requires a deterioration in service—for example, speed restrictions that result in longer train journeys?

That is never desirable. However, as you say, if a piece of infrastructure is not up to standard, temporary speed restrictions are the basic solution. The line speed might be reduced from 90mph to 60mph, or even to 20mph if the track is extremely bad. In those circumstances, you would generally try to fix the track as soon as possible; if not, the speed restriction will become permanent. In Scotland, there are 43 temporary speed restrictions across the network, which is a considerable improvement on last year. Just as one could never say that there will be no broken rails in a year, it would be unrealistic to set a target of zero temporary speed restrictions.

At the end of the day, one has to say that, even though a section of track is in need of renewal, it is not a high priority because, for example, only two sprinters a day use it. The money would be better spent on the tracks around the major conurbations than on ensuring that the sprinters can travel at 60mph rather than 40mph on that stretch of track.

"The SRA's Specification of Network Outputs", which is a consultation document, says that the Strathclyde Passenger Transport Executive's network has been deemed a secondary route. Therefore, do you envisage that a deterioration in the level of service in that area would be acceptable?

The network outputs statement was a piece of work that was done to inform the rail regulator, who will have taken it into account when determining the interim review. However, the NOS does not have any impact on us, as such. We have a series of contractual commercial relationships with the train operators and have to do our best to fulfil those obligations—we will be subject to contractual penalties if we do not. Again, as I said, we have a certain amount of money that we have to work out how to spend in a way that will enable us to meet all our contractual obligations.

Is it your aim to ensure that there is no further deterioration in the rail network in Scotland over the next five years? Do you think that the financial resources that the regulator is making available to you will allow you to fulfil that objective?

The resources that we will have over the next five years will enable us to improve the infrastructure generally in Scotland and elsewhere. Performance in Scotland is significantly better than it was last year. As I said in my introduction, the Scottish team is delivering better delay minutes figures than any other team in the country. That is a demonstration partly of good management and partly of improving infrastructure.

You said that your task is to meet all your contractual obligations, and you stressed matters relating to the track. However, the track leads to places. I notice that the rail regulator is talking about a draft stations code that will deliver

"a better environment for passengers—by reducing the excessive burden of paperwork."

However, more than a reduction in paperwork is required to enable us to meet the problems that we face. Who will fund the investment in better station facilities that are being asked for? Surely that comes under your obligations.

Improving a station by adding to its facilities would count as an enhancement. Enhancements are funded by the SRA or a third party and are not funded through maintenance or renewals activity, which is there to support existing infrastructure or station facilities. In the past year or two, the SRA has cut back its modern facilities at stations programme—MFAS—because it does not have the funds available to do all the things that it wanted to do. Having said that, if a third party or a train operator said, "I want to put some money into these stations. I want to fund it," there is nothing to stop him doing so.

If we are to get the improvements that passengers deserve after everything that has gone on, you will have to enter into obligations and operate leasing arrangements, but who will pay for them?

Fundamentally, enhancements can come only through grant funding or private initiatives where the person funding them can see a return. At the extreme, a hotel company might decide to build a hotel alongside a station and, because it would probably be built on railway land, we would say, "We want some enhancements to the station as part of the deal for the return you are going to make out of your hotel." That is one way of trying to bring money into stations, although it is not an easy one.

The fundamental lease responsibility of the train operating companies is the maintenance of stations. They do not, by and large, have an obligation to change the overall facilities at stations during the period of the lease. The rail regulator simply refers to having one standard form of lease between us and all the train operators, rather than the myriad that built up during the early years of privatisation. If you want significant enhancements, they will come either from a third-party source of funding or from grant funding.

What is Network Rail's role in encouraging such improvements?

There are 2,500 stations, of which we operate 17 and the rest are operated and maintained by the train operators. Our role is clear at the 17 major stations that we operate. In terms of the visibility of work that is required, the train operators have the primary opportunity and the advantage of understanding what their passengers would like to see and what they can do to meet that demand. At its simplest, some of the train operators will make a small amount of space available at the end of the station and lease it to a guy who produces bacon sandwiches and coffee. That is probably one of the most popular things that a train operator can do on his station first thing in the morning, and it does not cost him much money.

However, average expenditure under the modern facilities at stations programme, which added to the infrastructure and covered information systems, toilets, waiting rooms and so on, was something like £600,000 per station. That was a high level of expenditure across the whole network and, given the constraints that the SRA is under at the moment, it has had to cut back on that work.

I take it that we need not hold our breath.

You will accept that safety is the number 1 priority. I seek your views on the cause of the recent incident at Dunblane.

I am sorry that I missed what you said initially—I was at another committee meeting—but could you describe the impact of your next year's funding on passenger services and freight?

As a regular train user between Edinburgh and Stirling, I have been relegated to platform 21 at Waverley station. I ask you urgently to examine some way in which we can have hot coffee at least on that platform, because it is very far away from services. There must be something that you can do about that. I ask you to come down there some time and get the half-past 5 to see what the conditions are like.

In the am or the pm?

In the pm.

Thankfully, the incident at Dunblane involved an empty train. There was no one on it other than the driver, and a slow-speed derailment took place when the train was passing over some switches. As members can imagine, we are investigating the cause of the derailment. It would be a little premature for me to say exactly what the cause of the accident was, but we have a fairly good initial indication that will be thoroughly investigated. We will be happy to share the information with the committee when the investigation is concluded.

Unfortunately, although the train was slow moving, it did a fair bit of damage to the track at the location. I am pleased to say that, with an awful lot of effort from our contractors, First Engineering Ltd, and our own people, and with ScotRail's co-operation, we managed to resolve the issue and get the track back into service by, I think, 20 past 6 the following morning, which meant that the disruption to the following day's services was kept to a minimum. We talked earlier about temporary speed restrictions. Because we had to reset some of the track at the site, a temporary speed restriction was applied for a short period. The restriction has probably been lifted by now, but that safety measure was taken to ensure that any work that we had done settled and that the track was properly supported.

I must say that although I use Waverley station a fair bit, I had not noticed that platform 21 was missing out on services. I am happy to take that issue away and speak to our major stations people to see what can be done, although I am not making any promises.

Can you project for the next year or two what effect maintenance and renewals will have on passenger and freight services in Scotland?

The general point that I have been making is that the level of expenditure that is available to us will continue at the level of the past two years. Everyone has criticised that level of expenditure as being too much rather than too little; it is significantly more than has been spent for a long time. Given the volume of expenditure that is going into the network I would expect an improving infrastructure—certainly that is what the rail regulator expects. That improvement will lead to less of everything in terms of the measurements: the rail regulator holds us to a whole series of key performance indicators. An improving infrastructure can result only in improving performance for passengers.

We have targeted getting back to a public performance measure of 89 or 90 per cent throughout the network, which is regarded as satisfactory performance. At present, the average for the past seven days is 83 per cent and the rolling average is 81 per cent, although the figure fell to about 76 per cent at the time of Hatfield. It takes a long time to move the average up—we have said that it could take as long as five years, although many people will say that that is too long.

The figures that John Armitt has given are UK-wide. In Scotland, the public performance measure is running at around 86 per cent, with ScotRail regularly exceeding the magical 90 per cent figure.

If we are to have renewal or maintenance work, will it be done on Sundays or during the week? I know how busy the Edinburgh to Glasgow track is and what the impact on other services on that line would be.

Much of our work at the moment is done at the weekend and at night. That situation will continue. As was touched on earlier, we are exploring better possession management so that we get longer periods of possession of track, which allows us to make more efficient use of and to get more productivity out of each window of opportunity. The process of weekend and night-time working will continue. A lot of regular maintenance work goes on during the night.

So you are not suggesting that there will be major disruption. That is what I am trying to get at.

There will be no more disruption than we have at present. Major projects will result in occasional major disruptive possessions. To cite an example, the Waverley project, which was completed last weekend, was a major project that went extremely well. We were able to restore the service on Monday morning, as promised, with no hiccups, I am pleased to say.

Three more members want to ask supplementary questions. I ask them all to be as brief as possible.

Whose responsibility is disabled access, particularly in relation to meeting the terms of the Disability Discrimination Act 1995? Is it the responsibility of Network Rail as the owners, or of the train-operating companies as the lessees?

Essentially, such changes would be enhancements. If you wanted to improve all the stations to bring them up to disability legislation standards, that would involve significant expenditure, which would have to be allowed for through enhancements. We do not have funds in our normal budgets to enable us to bring all stations up to preferred standards when it comes to disabled access.

I return to the point that a fellow committee member made about the Strathclyde Passenger Transport network. We are talking about an area that transports more than half of Scotland and the whole network has been classified as "other secondary". Are you happy with that classification or will you investigate it?

It has not been classified by Network Rail.

I know that, but when representatives from the transport authority came here they said that they were working to your specifications. Quite clearly, most of the committee members felt that they were trying to bat the decision back into your court. They said that the SRA is saying that it was under your specifications that it arrived at the designation of the SPT network.

I am not sure that I quite follow that, but I return to what I said at the beginning. The parts of the network that are clearly carrying intensive daily use, particularly by passengers, are exactly the sort of areas where we would expect to focus our effort and expenditure. If we are simplistic about it, and at the risk of upsetting people in some of the rural communities, the major intercity routes and the major routes in and between the major conurbations are clearly where the bulk of the passengers travel each day and where we need to focus our efforts to ensure that we are minimising disruption and providing the best possible service to the maximum number of people.

Could we ask Ron McAulay to look specifically at that categorisation of the SPT network? That was the evidence that was given to us by the SRA representatives.

On the issue of safety and performance, both of you have said a couple of times how pleased you are with ScotRail. The problem is that many of ScotRail's passengers would not agree with you, because of the number of times that they have had to stand in far too overcrowded trains. More than a year ago, a target was set that no one should stand for more than 10 minutes on a journey. Does Network Rail have any view on the safety of that? It is a bit of an anomaly that rail is the only mode of transport that does not yet have a safety limit for standing. In planes, buses and cars, there are safety limits for how many people can be on board. Travel on the rush-hour trains between Glasgow and Edinburgh and I will show you people squeezed in like cattle. You can get a seat only after people have been dropped off at Falkirk, which is more than 30 minutes into the journey. What is Network Rail's view on that element of safety?

That is not an aspect of safety that is our responsibility. The health and handling of passengers and the crush loading are the responsibility of the train operators. They measure those things and have categories for them, labelled A, B, C or D according to how densely packed a train is, just as the underground operators do. There are views as to what is a reasonable level of standing passengers on a train. Responsibility for the safety implications of that lies totally with the train operators.

There are a number of schemes, some of which are starting round about now, to lengthen platforms on a number of lines. That will allow longer trains and more carriages to be taken back and forwards, which should help to alleviate that problem on some routes.

Believe you me, there is plenty of room for more carriages on the trains that I am talking about. The problem does not lie in platforms for those trains, but in the fact that the trains do not have enough carriages.

Finally, in response to a question that I think that David Mundell asked about streamlining decision making, you seemed to identify the SRA as a possible target for streamlining—whatever that might be. I am a bit concerned about safety and safety monitoring. Are you suggesting that the Health and Safety Executive will not continue to have a key input in the railway industry?

That has been suggested. The model with which people draw comparisons is the Civil Aviation Authority, which is a single body that regulates the aviation industry. It has responsibility for aviation safety standards airside as opposed to landside. HMRI was originally part of British Rail until about 1990, I think, when it was moved across and became part of the Health and Safety Executive. It has been suggested that HMRI could be put with the rail regulator so that there is a single body to regulate the railways and at the same time oversee the safety of the railways. The safety and regulatory functions would sit within a single body.

It is clear from yesterday's statement by the Secretary of State for Transport, Alistair Darling, that, for example, the structure of safety control regulation across the railways bears examination and that people's views about sensible changes are expected in the coming period. Of course, there can be only one overriding driver for such changes, which is maintaining and seeking to improve safety as efficiently and cost effectively as possible. A point that we recently made to the House of Commons Select Committee on Transport was that one cannot simply have safety at any price. There is a limit to how much money can continue to be spent on safety improvements if there are no measurable benefits from them.

In the recent past, ScotRail and some local authorities have criticised Network Rail for being overly risk averse and excessively bureaucratic in its contractual arrangements and they have said that that has led to overblown estimates and project delays. What is your response to such charges? What are you doing about them?

We are aware of those criticisms. Some instances that ScotRail has mentioned are from some time past and relate to Railtrack, but I will not use that fact as a means of avoiding the issue.

We are conscious that we are sometimes overbureaucratic and that people are risk averse, but their risk aversion must be put in context. A number of Network Rail employees are waiting to be prosecuted by the Crown Prosecution Service over safety issues and a number of investigations are running that involve people who are conscious of the fact that they are being questioned about decisions that they made in meetings several years ago against the background of what happened at Ladbroke Grove, for example. If a person has spent the morning being interviewed by British Transport Police investigators who are seeking to hold that person to account for decisions that they made several years ago and the person comes back to the office and is faced with another set of decisions that they must make, it can be imagined why they are likely consciously to make decisions as safely as they deem. There could be risk aversion at times; I make no apology for that. I believe that we have gone too far as a society in seeking to allocate blame and prosecute individuals for mistakes. If somebody is grossly and wilfully negligent, I accept that they should be held to account. However, there is a tendency to seek to blame and prosecute quickly, rather than to find the root cause of an incident and ensure that it does not happen again. When engineers and managers at the middle level of an organisation find themselves at risk, we should not be surprised if they err on the side of caution all the time.

Can you clarify a previous answer regarding Strathclyde? You said that heavy usage would, as a matter of policy, attract greater investment. What scale were you referring to when you said that? Was it the UK scale or the Scottish scale?

We would take a network-wide approach and consider the areas where there were many passengers. Many people travel in and around cities and PTEs are key parts of the transport infrastructure for such areas. However, a benefit of the current arrangement is that the train operators themselves are not backward in coming forward and seeking from us constant improvement and constant attention to ensuring that there are no weaknesses in the infrastructure so that they can provide the best possible service to their passengers. Therefore, we need to consider carefully commuter-based, regular-use networks such as Strathclyde to ensure that we provide as good a service as we can.

I want to be clear about the matter because where there is heavy usage you obviously want to maximise the investment to get to the majority of people. However, on a UK scale that would mean that there would not be much investment above Crewe. In the Scottish situation, I want to ensure that Strathclyde, which has heavy passenger usage, does not lose out. Can you clarify that, as regards a UK scale and a Scottish scale, one would not preclude the other?

If you look, as I have done on occasion, across the seven regions that we split the country into and at the route miles within the regions and the level of expenditure, you will see that the expenditure has turned out to be pretty evenly distributed. There is no part of the country that could be said to be suffering and not getting a fair share of the cake. Scotland, although it might not have as many passengers as there are, for example, between Surbiton and Waterloo, is certainly not being denied a fair share of financial resources.

The problem is that it does not feel that way if you are packed in like a sardine between Edinburgh and Glasgow, or within Strathclyde.

I can assure you that the people who travel into Victoria and Waterloo in the mornings from the leafy suburbs of Surrey would sympathise with that situation.

I gather that that situation is traditional down there, but my concern is Scotland.

That brings us to the end of questions, so I thank Ron McAulay and John Armitt for their evidence. To clarify Network Rail's views on the prioritisation of different parts of the network within Scotland, it would be useful to have a written follow-up from you. That would help to inform members about your assessment of the various lines within Scotland.

Yes, we can certainly do that. Thank you all very much.

Thank you for the evidence.