UK: Williams: Where Next For The Rail Industry?

Last Updated: 29 August 2019
Article by Zara Skelton and Matthew Hanslip Ward

As the summer holiday season begins and the autumn reporting date for the Williams Rail Review (the Review) draws ever closer, we have had the clearest indications yet of what it is likely to bring. The Review was established in September 2018 to look at the structure of the whole industry and the way passenger rail services are delivered. The government website that hosts the review indicates that the Review's findings and recommendations will be published in a Government White Paper in autumn 2019, with reform to begin in 2020. The Review has received a wide range of submissions from a broad section of industry players: the Office of Rail and Road (ORR); Network Rail; operators; contractors; trade associations; and local interest groups. Written submissions are not the only evidence that the Review has received – it has also been in touch with stakeholders and has the benefit of the experience of many industry veterans working for it.

Keith Williams, the independent chair of the Review, spoke at a Northern Powerhouse Partnership event in Bradford in mid-July to provide an update on progress to date. In the course of his speech he identified five areas on which reform will be focused: a new passenger offer; simplified fares and ticketing; a new industry structure; a new commercial model; and proposals for people. This article will look at what he said about each of these areas and highlight some of the submissions made to the Review, to consider what might be in store for the industry later in the year.

A new passenger offer

Williams made clear that reforms will be aimed at customer service excellence driven by performance measures to bring about behavioural and cultural change. Comments regarding misalignment of existing incentives and criticism of the existing performance and possessions regimes (schedules 8 and 4 of track access contracts, respectively) are a feature of many of the submissions to the Review. Transport Focus argues that it is not simply a case of aligning the incentives of Network Rail and train operating companies (TOCs), but also of ensuring that the incentives arrived at align with passenger priorities. For example, Transport Focus's research indicates that many passengers will not travel if a replacement bus is involved. In its view, therefore, the default assumption should be that routes remain open while engineering work takes place and there should be incentives on Network Rail and TOCs aimed at achieving this wherever possible. Transport Focus also argues for specific targets for punctuality and cancellations and targets for service. The Rail Delivery Group (RDG)'s submission picks up on this theme, including a point in its plan to make sure that track and train are working to the same customer-focused goals.

Williams also talked of initiatives to strengthen the consumer voice, improve accessibility, compensation and passenger information. He finished his comments by promising that the ORR would say more on these topics. Later the same day, the ORR published recommendations on accessibility and compensation. This followed a request to the ORR made by Williams in February 2019 to provide advice to the Review regarding these areas.

The ORR's recommendations on compensation are a combination of short-, medium- and long-term proposals ranging from the introduction of a delay compensation licence condition and code of practice in the short term through greater harmonisation and automation of compensation schemes in the medium term, to a long-term proposal involving ring-fencing of compensation funds. It is noticeable that the ORR does not see the Review as the driver for the implementation of any of these proposals. The ORR intends to consult by spring 2020 on the licence condition and code of practice and it sees government and the industry itself as responsible for driving the medium- and long-term proposals.

With regard to accessibility, the ORR again organised its proposals into short-, medium- and 
long-term changes. In the short term, the ORR proposes, amongst other things, improving reliability of assistance for passengers, strengthening staff accessibility training and redress for booked assistance failures. Again, the ORR sees most of these initiatives as already being in train by either it or industry generally. Turning to medium-term proposals, here the ORR does make some which require input from the Review. These relate to ticket purchase and assistance booking becoming part of a single process, the use of commercial incentives regarding assistance and consideration of a universal service obligation for assisted travel. Finally, the long-term proposal is for a government review of rail vehicle accessibility standards.

Simplified fares and ticketing

In his speech, Keith Williams used the airline industry as an example of an industry with innovative, customer-focused initiatives in this area, citing the success of companies specialising in selling flight tickets. In his view, certain train apps are making progress in this area, but modernisation of fares and ticketing can unlock much more potential. Virgin also drew comparisons with the airline industry in its submission, pointing out how easy it is to compare airlines against each other in that industry, something which in its view the Review should seek to emulate for rail.

The first point of RDG's eight-point plan outlined in its submission is "to deliver easier fares for all". RDG's view is that decades of regulation need to be updated to arrive at a system that is much easier for passengers to use because the current system is based on the buying requirements of the 1990s which do not reflect the requirements of the modern rail passenger. RDG and Transport Focus have been working on a national listening exercise regarding fares reform and have developed proposals based on this. RDG proposes the introduction of pay-as-you-go with a price cap across commuter markets and tickets aimed at encouraging people to use the network at different times of day, following an update of the current peak and off-peak system. RDG would back this up with an industry-wide "best fare guarantee", meaning that passengers know they are always paying the lowest fare available. RDG is working on trials and financial modelling to support this vision.

Unsurprisingly, Transport Focus also put fares reform at the heart of its submission, indicating that the fares structure should offer: affordable flexibility; an easier to understand structure; easy ways to buy; greater personalisation; a system capable of catering to national and local needs; consumer protection; and consumer confidence and trust. Transport Focus also stressed that transparent and fair ticketing is not simply a "nice to have aspiration", but a requirement of consumer law.

A new industry structure

The key element of the reforms in this area appears to be removing some of government's control over the day-to-day running of the railway. Keith Williams recognised that: "[a] wide range of organisations have argued in favour of a new arm's length body or bodies to act as a 'guiding mind'". It is, however, clear that at the time of giving the speech the shape of that body was far from clear, with Keith Williams listing many questions regarding it including: "What would it really mean to have a new public-sector body when government is providing so much of the funding?".

The second point in RDG's plan is to "put a new independent organising body in charge of the whole industry". This is intended to remove the politics from the running of the railway as far as possible. Part of the reason for this recommendation is to address the issue of trust in the industry as RDG's research indicates that customers do not think the industry is working together effectively. RDG's view is that it should be distinct and independent from all delivery parts of the industry and it would allow for the consolidation of key roles in the industry into one body in contrast to the current position where many organisations have overlapping remits.

A new commercial model

Williams indicated in Bradford, as he had done before, that "the franchising model has had its day", and that what should come next involves a "different relationship between the public and private sector that lets train operators get on with running services in the interests of passengers". He also indicated that there needs to be "greater flexibility so that the sector can respond to changing travel patterns and long-term incentives for creativity and innovation", but gave no other real clues to exactly how this would be done.

TfL's submission argued for the "metroisation" of commuter rail operations serving areas such as London. To do this TfL proposed a commercial model based on its rail concessions; a gross cost contracting model under which TfL takes revenue risk, specifies services and takes responsibility for customer information. Under this model TfL manages performance by working in partnership with the concession operator which is subject to a number of incentive regimes applying to matters such as operational performance, ticketless travel and customer satisfaction. TfL would couple this with greater integration of track and train, and transfer of infrastructure management responsibility and regional transport authority to the body concerned. This type of approach, allowing much greater local decision-making over rail-related decisions would appear to be supported in many of the submissions to the Review made by regional bodies. Railfuture also appeared to be in favour of a concession model for services which are part of a plan for a city or region, stating that it provides better accountability. However, as recognised by the Local Government Association's submission, "this will only ever be a partial solution as only a handful of regions will ever be able to support a viable suburban rail network". Balfour Beatty argued for new "collaborative contractual mechanisms" and the development of new alliances. Network Rail argued for reducing contractual complexity to ensure that there is a clear line of sight from contractual specification to passenger and freight user outcomes.

Using the concession model for shorter distance operators also formed part of Virgin's submission to the Review. Virgin argues that such concessions should last around 20 years to allow large-scale investment, longer-term thinking and stable culture and leadership. With regard to long distance services, Virgin proposes auctions for bundles of train slots (which could comprise some very popular services with other less popular ones) which would be sold by the government in perpetuity (unless forfeited or reclaimed following failure to comply with minimum standards enforced by the regulator). Giving a long-term stake in the industry would allow for greater investment to be made by the owning companies. There would be a public service operator for slots which the market does not bid for. Train companies can respond to changes in demand by selling slots to or buying them from competitors with the approval of the Competition and Markets Authority. This would also allow for competition between operators over routes and would mean that train operators would need strong corporate brands to succeed.

Underpinning Virgin's suggested models for both short and long distance travel is a shift away from bids based on pre-set payments being made to government. Instead, in Virgin's view, bids should be based on a commitment to pay a percentage of profits, if there are any. This approach is intended to avoid the problem in the current franchise system of bidders making a commitment that they cannot then meet following changes in conditions. Virgin's proposals are intended to allow operators greater flexibility to meet changes in demand and to innovate.

Proposals for people

In common with many other industries at present, the rail industry has recently increased its focus on diversity and inclusion and this appears set to continue. Keith Williams indicated that the Review's proposals for people would also look at leadership, skills and increased engagement. The need to move away from a history of adversarial industrial relations was also mentioned.

Investment in people is one of the points in the RDG's proposed plan for the industry outlined in its submission to the Review. The RDG seeks a new approach which provides the industry with "the skills, resources and rewards they need to deliver generational change in the railway". Recommendations to secure this include focusing on long-term incentives in public service contracts, leadership and skills programmes, collaboration on diversity and preparation for a digital future. In RDG's view focusing on such initiatives will help to deliver excellent customer service. RDG also recognises that, as rail becomes part of an integrated transport door-to-door offer, the types of jobs people do in the industry will change.

Safety moment

Before concluding, we wanted to highlight a point made in response to the Review's call for evidence by the Parliamentary Advisory Council for Transport Safety (PACTS). It is absolutely essential that risks associated with any changes made to the industry as a result of the Review are identified and suitably mitigated. PACTS reminded the Review that the "Cullen Inquiry into rail safety following the Ladbroke Grove collision starkly identified inadequately controlled safety hazards that had arisen directly (albeit inadvertently) from changes that were made during the restructuring which preceded privatisation of the railways in the 1990s". As many respondents to the Review point out, the UK rail system now has an enviable safety record. This must be protected whatever the outcome of the Review and however significant the reforms arising from it eventually are.

Conclusion

A focus on customer service, fares, industry structure, commercial models and people is perhaps not surprising given the central role which these factors (particularly customer service and fares) have played in discourse about the railways over recent years.

The shape of some of the key customer service proposals regarding compensation and accessibility appears to be relatively clear given the ORR's advice to the Review in these areas. The ORR intends to consult on these changes in due course. With regard to the task of alignment of incentives on rail companies with passenger needs, the nature and extent of changes will perhaps depend on the approach adopted in relation to commercial models. Fare reform is an area that has often been considered but there has not been a truly wholesale review of the structure of fares and ticketing since privatisation. Such an undertaking will need to be tailored to fit with any new structure or approach to franchising.

What will be essential in respect of the proposal for an independent industry body is to ensure that it is not simply a return to the past, introducing the Strategic Rail Authority by another name. The question of the appropriate commercial model is perhaps the area in which there is the least clarity from Keith Williams' speech about what might come next and some of the most eye-catching proposals made by industry. There is the potential for significant changes to be made here amounting to a true overhaul of the contractual franchising system which has dominated the industry since privatisation. The level of detail that the Review will go into here remains to be seen and will perhaps depend on whether a completely new model or simply an adjustment of arrangements already in place (for example, concessions) is to be proposed. To be effective, the people proposals will need to add to the efforts being made by the Rail Sector Deal to ensure that careers in the rail industry are an attractive long-term option for today's top graduates and skilled engineers.

The Review is now working on the detail of the proposals, assessing possible changes against the 11 outcomes and seven outputs outlined in the objectives and assessment criteria document in March 2019. As stated in that document, the Review will aim to provide proposals which are "practically deliverable from a baseline of today's railway and capable of implementation within realistic timescales".

The timing of the Review is apposite given that passenger satisfaction levels started the year at the worst level in more than a decade. However, industry reviews have been a fairly regular feature of the sector and the results of other reviews have not always been fully implemented. Also, the amount of time that Brexit is taking up in Parliament (which, as things stand, appears likely to continue to be the case whether or not exit occurs on 31 October 2019 as planned) means that proposals requiring legislative intervention (which would be the case with a proposal to create a new independent industry body to oversee day-to-day running) may struggle to move forward quickly. It is at least encouraging to see that the new Secretary of State for Transport, Grant Shapps, has said he supports the Williams Rail Review.

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