Published on January 6, 2019
After the initial cynicism of ‘yet another review’ there seems to be a growing sense that the Williams review could be something that actually changes the structure of the industry for the next chapter. A read of some of the initial interviews with Williams, also sounds encouraging.
As commentators and politicians scramble to assert their views of the issues and promote their favoured solutions – there are no doubt many like myself in the industry also wondering what changes they would like to see. I found this genuinely quite a challenge. There is a tendency to feel a certain allegiance to structures you’ve been part of, and fear the unknown. It can be hard to reset those views, and consider alternatives.
I’ve worked in and around the industry for almost 20 years, and I’ve witnessed most of the evolution of the post-privatisation era. I don’t have first-hand experience of BR, but I work with many who have and who are often willing to give quite balanced viewpoints.
What are the railways for?
It’s reassuring to see that Williams appears to be starting with the fundamental question of ‘what are the railways for?’ Often, I think the opposing views about how the railway should be structured and run have their roots in this issue. Is the railway a business just like any other, or is it a public service? If so, what are its public service objectives?
Many of the questions would be easier to answer if it was just a business: The aim becomes to maximise return for investors, and eliminate public subsidy. Government would have a limited role in regulating issues such as health and safety, and anti-competitive practice. What service to provide and what to charge for it, however, could be unregulated, just like most airlines. Contrary to the views of those who talk about the taxpayer having to “bailout” unprofitable train companies, I’m certain that without a public service obligation, railways could be very profitable. Plenty of unprofitable services that could be cut, and plenty of captive markets that would have little choice but to sustain a fares hike.
At the other end of the spectrum there is the view that nationalisation is the solution. Often this view is expressed without articulating what the problem is, or how nationalisation solves it. Being state run, and being run for public service objectives are not necessarily the same thing. As I understand it, at times BR was run more like a business than a public service, with balancing the books for the Treasury carrying more weight than the local socio-economic impact of the necessary decisions.
In looking for the answer, (I might be biased), but in my view it seems that at least some of the devolved nations and sub-national transport bodies have a much clearer view as to what railways are for than is articulated by central Government.
It is unlikely that ‘the purpose of the railways’ will be something that can be captured in a one-off statement that can be agreed and then delegated for delivery forever thereafter. In practice we can probably get a list of objectives to be balanced, a starting point to work from, and an accountable governance structure that deals with the inevitable ongoing trade-offs between competing priorities and finite budgets.
I don’t think that defining some high-level objectives needs to be too controversial (subject to some liberal use of undefined ‘appropriate’!):
- Dependable day-to-day operation with appropriate levels of punctuality, crowding and reliability;
- Fares structures and levels that balance the public service need with achieving the prescribed fare payer/taxpayer balance;
- A timetable and service specification that is aligned to passenger and socio-economic needs;
- Appropriate cost base and demonstrable value for money.
- And finally, whilst it’s almost taken as a given nowadays – safety.
Much of the process that is currently used for consulting upon and agreeing franchise specifications and Network Rail control period funding, feels entirely reusable to populate more detailed objectives and outputs.
Specifying, funding and running
The debate about how to structure the industry often reverts to a binary private sector vs public sector one – which seems to be often driven by political allegiances rather than understanding of the issues.
Instead of adopting a political stance, perhaps it is helpful to think of the different roles required in specifying, funding and running the network. There is a high degree of independence between these roles – e.g. you don’t have to have an entirely state-run railway as the only way to have a state specified railway.
Specification: Both major political parties seem to work on the basis that the state (either nationally or regionally) has a large role to play in the specification of the railways. In the current structure, most of the timetable, fares, fleet, staffing levels and enhancement projects are largely state specified. Franchise agreements typically run to hundreds of pages of detailed specification. The state could take on a more prescriptive role, for example specifying the on-board menu, staff uniforms, or even the marketing and promotion. Alternatively, it could reduce its role, focusing on fewer core output specifications and less detail. I’m told that BR had far more flexibility to specify its products and services than current franchisees have.
Funding: How the industry is funded is a key political issue. The first part of the question is how much (if any) state subsidy should be provided, and second part is largely about whether to use straight forward Government debt vs more complex mechanisms designed to create elements of risk and reward incentives for the supply chain (and move debt off the Government books). Most organisations would evaluate such decisions on a case by case basis – for example, some airlines own their fleet; many lease them with a variety of different lease structures. Is it right to take a philosophical stance, when different models may better suit different circumstances?
Structure: The structure of the industry best suited to run the network and deliver enhancements is the crux of the Williams review. Before diving into potential solutions, what do we want the structure to achieve? My starting point would include:
- Clear accountability for clearly defined outputs. Those accountable need to be capable of making decisions that have a meaningful impact on the outputs. In an industry as large as GB rail you can’t realistically run the railways as one monolith, but responsibilities for departments, or companies, need to be well defined and logical. This is not a problem unique to rail – any large industry needs to divide itself into manageable chunks with a clear sense of purpose, identity and responsibilities to others. I don’t believe you can eliminate interfaces, just make them clear, logical and measurable.
- An industry that can attract, develop and retain appropriate skills and knowledge. Yes - it's that old adage that an organisation is only as good as its people. Rail needs many specialist skills and domain experts, but also those with a good understanding of the ‘whole system’. Since privatisation, people have been more likely to remain in a particular vertical of the industry, and as such there are fewer people with experience of how the whole system works. At the same time, we must also ensure that the industry remains attractive to ‘outsiders’ capable of bringing new ideas and experience, and challenging the ways of working.
- Predictable funding and a steady pipeline of initiatives. This is important to developing and retaining a skilled workforce, facilities and capable supply chain. Whether it is building rolling stock, electrification, tunnelling, signalling or building passenger information systems – a rolling pipeline of projects developing and retaining knowledge to apply to the next one, is far more effective, and cost effective, than feast and famine.
- Appropriate prices, and a suitable fares structure. Given the conflicting needs of affordability, capacity management and balancing the books, I doubt a perfect solution exists. However, trade-offs should be understood and consciously balanced. (I’ve written about this before). If the review results in a move away from ‘revenue risk’ franchising, then that further strengthens the case for a different way of setting fares. The significance and wider impact of changing the basis for setting fares should not be underestimated. This fundamentally impacts issues including patronage, crowding, affordability, passenger trust and financial sustainability - but also has wider impact on the industry structure and who carries revenue risk.
- A customer-centric culture that seeks continuous improvement. Culture change is often hardest and most elusive – but if achieved is very powerful.
I believe we should strive for a core structure that works for any colour of Government. Naturally different political persuasions may seek a different balance between fare payer and tax-payer, or to promote different levels of outsourcing – but regular fundamental change isn’t good for passengers, employees, or the industry as a whole. Whatever transition is required from old to new, needs to ensure we don’t lose the people with the best skills and experience to actually deliver what customers want - even if those skills currently reside in organisations that have fallen out of favour.
This is where I probably get out of my depth. However, many people with no understanding of the industry are happy to lecture on how it should be run, so I might as well give my views.
Many people that I’ve worked with who worked in the BR era have a positive sentiment towards the old BR structure of Network South East, Intercity, and Regional as a basic structure, and similarly devolved routes seems to be in favour at present. As was the case in the BR structure, it also seems evident that some roles are best performed nationally. It appears therefore that a hybrid regional/national model has merits.
Within that hybrid model, I doubt it will be easy to establish a perfect regional or route-based split. The dividing lines become difficult to establish – for example, do you split GWR into separate regional/intercity/NSE organisations and undo the previous perception that ‘one terminus = one operator’ was the optimal operating model? Similarly, there is a rationale to align regions/routes to how the railway operates, but an alternative view to align more to devolved nation and political boundaries and associated accountability. A key challenge in the UK is that long distance and local services share the same track and stations.
Assuming you can find an acceptable way to slice the pie into regions/routes, then there is an attraction of combining operations of track and train in each region into a body accountable for running a specified number of trains/seats to a specified timetable, with a strong operational culture - albeit I still haven't quite got my head around how this works with the mix of long-distance, local and freight sharing the same tracks.
Responsibility for key investment decisions also needs both regional and national aspects. At present, it is often the sub-national transport bodies or devolved Governments that articulate the greatest clarity of what they want to achieve through improvements to railways in their regions. However, major projects such as electrification, digital signalling or new IT systems may span multiple regions – and the needs of the long-distance passenger or freight customer need a strong voice in the process. Such a process could potentially feed a major projects function focused on enhancements and other major projects. This function would also be tasked with ensuring that a rolling programme minimises feast and famine within important skill sets, and allows for continuous improvement and development of skills within the various project disciplines.
For pricing and selling travel, I think there is a case to handle pricing of ‘captive markets’ and ‘surplus capacity’ differently. A bit like regulated and unregulated fares, but not as crude. Rather than blunt regulation (such as rudimentary pence per mile pricing or index linked fares), or trying to engineer a complex long-term fares algorithm, I wonder if core fares used by ‘captive markets’ need to be set by some sort of independent commission, or devolved regional commissions. Such commissions could set core fares for things like commuter and peak-time travel – but surplus capacity could be sold wholesale to organisations better suited to market it, either standalone, or bundled as packages. Whilst many aspects of current fares complexity are indefensible, I do fear that if the pendulum swings too far to absolute simplicity, this would remove the incentives for people to travel on off-peak services or longer distance rural routes – ultimately risking the viability of such services.
Managing the customer interface is an interesting dilemma. There’s an attraction in having a series of regional organisations absolutely focused on the customer interface – employing front-line staff, providing information, assistance and centred on a culture of delighting passengers. However, in practice the boundary between staff performing operational roles such as train dispatch and guards, and those providing customer service is indistinct, with many doing both. Who decides how many customer facing staff there should be, what their roles are, and who they report to? For long-distance operators in particular, the nature of the on-board service, particularly in first class, has been a key part of the overall package of the rail experience being sold.
IT and technology are areas where arguably franchising has already brought too much fragmentation. Take retail for example: There are only around 2500 stations, and less than half of those have ticket offices, but we have four different ticket office systems, and at least four different self-service ticket machine systems, each with different layouts and terminology that confuse the customer. It’s not just the impact on customers: Having to make changes in eight (or more) different systems through 30+ contractual arrangements makes it cumbersome and expensive to introduce change, and means that central systems such as those for setting fares cannot easily change for fear of breaking numerous downstream systems. Similarly, timetabling is a complex enough process to start with, compounded by splitting the process across different organisations and technology systems. There may be competitive reasons for having more than one supplier in many areas, but a small number centrally contracted would probably be more efficient.
In summary, my starter for ten would be:
- Consider the requirements for specifying, funding and running the railways independently;
- Create regional or route centric organisations accountable for day-to-day delivery of the specified timetable and capacity. Give focus to ensuring that customer facing roles have an absolute customer service focus, and don’t get lost within an operational and engineering heavy culture;
- Create both regional and national processes for specifying and agreeing a programme of enhancements, that also creates an ongoing pipeline of skills development and reduces feast & famine for key skills. This works closely with and feeds into a programmes function accountable for delivery of the agreed enhancements;
- Create a focus on recruiting and developing the skills that the industry needs. Improving knowledge of roles outside individual’s specific remit, providing career development paths, and creating the right balance of long-term industry knowledge, and insight and challenge from new-comers;
- Establish one or more commissions accountable to the state for setting fares used by ‘captive markets’, but don’t constrain them with blunt instruments such as pence per mile or direct index tracking. For other markets, encourage the commercial pricing of fares to maximise the income of the industry and ensure viability of services;
- Create a national IT / technology capability that embraces innovation, works closely with its users and uses the best of external capabilities – but also reduces unnecessary duplication of systems, and ensures that change can be efficiently delivered across the network.
I’ve probably missed some big areas, and no doubt many will disagree with me – I'll have probably changed my own views in a few weeks time! It will be interesting to see what conclusions the Williams review reaches.