1. INTRODUCTION

  1.1 The Railway Industry Association (RIA) is the trade association for UK based manufacturers, contractors leasing companies, consultants and providers of other specialist services to the worldwide railway industry.

  1.2 RIA is an active participant in the work of the Railway Forum, the umbrella organisation for the railway industry as a whole. RIA's concerns are included among the points put forward by the Forum in their parallel submission to the Committee. The purposes of this paper are:

—  to place particular emphasis on some of the key points put forward by the Forum; and

—  to provide additional evidence to the Committee on one point which is a major issue for many members of RIA: the artificial and seriously damaging "feast and famine" distortions in the rolling stock market induced by the franchising process.

2. KEY POINTS: GENERAL ISSUES

  2.1 RIA urges the early establishment of the proposed Strategic Rail Authority, whether in full or shadow form, so that rapid progress can be made on two crucial issues: the harmonisation of the appraisal framework and of pricing principles between road and rail, taking account of the social and environmental costs and benefits involved.

  2.2 There is also a series of environmental and other requirements where rail is subject to more stringent obligations than road. The Authority or the Commission for Integrated Transport should take action to level the playing field in these areas.

  2.3 We applaud the EU initiatives[10] to bring pricing principles into line between modes, and urge the British Government to support those initiatives and to bring them into force in this country as quickly as possible.

  2.4 RIA also looks to the Government to make available the resources required to fund investment which is shown to be in the national interest under the new appraisal and pricing arrangements, but which does not meet commercial criteria. The Government's objectives in the White Paper, to encourage people to switch from cars to public transport, can only be accomplished with a modern, attractive and efficient railway—not by one which is widely characterised by Victorian infrastructure and by the effects of decades of under-investment, with inevitable consequences for service quality and reliability.

  2.5 Substantial private-sector investment is planned, and the new investment funds announced by the Government will help. We suspect, however, that they will make only small inroads into the backlog of socially-necessary investment which has been built up. Rectifying this backlog is one of the most urgent tasks facing the railway and Government today, using funding released by the fall in subsidy payments to the franchisees over time.

  2.6 We welcome the Government's intention to allow local authorities to charge for the use of roads and for workplace parking and to use the proceeds to enhance public transport provision. This is a long-awaited initiative which could have potentially significant effects. But it is vital that the powers should be drawn up in a way which is fully adequate for their purpose, that they should be introduced quickly, and that the Treasury should be prevented from docking the other resources made available to local authorities because of the income from the new charges.

  2.7 It will also be vitally important that the Government encourages authorities actually to use the new powers once they are available. The best mechanism for this is likely to be the Regional Planning Guidance, encouraging all authorities in an area to introduce charging together so that no authority need fear being undercut by its neighbours.

  2.8 In addition, however, it is important that the Government encourages the local acceptability of charges. Charges and restraints need to go hand-in-hand with improved public transport provision, or there is a real risk that schemes will fail or be withdrawn. Government therefore needs to provide resources in advance to ensure that better public transport services are available as soon as charges are introduced.

  2.9 Like the Forum, we fail to understand why the White Paper suggests that light rail schemes should not be a priority. It is in our view wrong to adopt pre-conceived notions of priority when the appraisal system exists to allow informed judgements to be made of the restrictive merits of competing investments.

  2.10 Light rail schemes on the continent have shown their ability to transform the quality of life in urban areas, especially in city centres. They have demonstrated that people are willing to leave their cars at home where a high-quality public transport alternative is provided. We believe that such schemes are therefore likely to play an important part in delivering the White Paper objectives. We accordingly look forward to the opening of the schemes in the West Midlands and Croydon, and in due course the extensions at Manchester, and consider that they should be followed by others where appraisal shows them to be justified by environmental and other social benefits.

3. KEY POINTS: FEAST AND FAMINE IN ORDERS FOR ROLLING STOCK

  3.1 In recent years the rolling stock supply industry has made a series of important innovations in a highly competitive market. The cost of new vehicles has been cut dramatically in real terms. That is due largely to the development by the supply industry of innovative design and assembly techniques: a standard coach now takes far fewer man-hours to build. And a wholly new commercial framework has been created, in which manufacturers are prepared to take responsibility for the long-term maintenance and continuing serviceability of the fleet that they provide, with tough penalties for any failure to deliver to time, cost or quality.

  3.2 That success is reflected in the currently healthy state of the order book. But that is a short-term peak in demand, with great uncertainty facing the industry very soon. The scale of the fluctuations in demand for main-line domestic rolling stock is illustrated by the attached chart (which is already in the public domain).

  3.3 The issue is not with the quantity of investment but with its phasing. Approximately 400 vehicles a year were ordered in the late 1980s and early 1990s—roughly the long-term average needed to maintain the age profile of the fleet nationally. There were then virtually no orders for main-line rolling stock throughout 1994, 1995 and 1996. That caused a permanent contraction in the capacity of the British rolling stock industry and the loss of some 10,000 jobs.

  3.4 Large orders have been placed this year and last: some 2,000 vehicles. Yet that was simply catching up with the absence of orders from 1994-96. The recent orders were largely given as a result of franchise commitments, and ordering has now become substantially a function of the franchising process. Yet the next main round of franchising does not begin until 2003. By the time that any consequent orders are placed, we may have seen a repeat of the famine of orders that beset the rolling stock industry from 1994 to 1996.

  3.5 The effect on the rolling stock supply industry, if nothing is done, will be grave. While we fully recognise that variations in annual orders are inevitable, the fluctuations that we have seen are extreme. No industry can afford to keep expensive capital and a substantial workforce idle for a period of years waiting for future orders. And it should not be asked to do so for artificial reasons caused essentially by an administrative process.

  3.6 There is no lack of underlying demand for rolling stock. The White Paper says that the franchises were let on the basis of average passenger growth forecasts of nearly 25 per cent by 2002-03, and many franchises are experiencing growth faster than they anticipated in their bids. Yet very few trains have been ordered to cater for this growth: the great bulk of the 2,000 vehicles on order are for the replacement of existing aged fleets. In the absence of further orders, trains will inevitably become more and more overcrowded—just as the Government is seeking to encourage more people to switch to public transport.

  3.7 The reason is simple: as the unexpired period of a franchise diminishes, the franchisee has less and less of an incentive to order new stock. This is not a new point: the Rail Regulator in his May 1998 report, for example, recommended that:

"the Government, the proposed Strategic Rail Authority and OPRAF, as appropriate, should identify means of reducing current uncertainties over the future strategic direction of the passenger railway and the rolling stock requirements likely to be needed to support it, and over the approach to be adopted to the next franchise round, with the aim of facilitating planning of new investment in rolling stock and encouraging competition from new entrants."

[11]

  3.8 As yet the Government has made no direct response to this recommendation, the White Paper simply indicating that franchise renewal issues will be for the Strategic Rail Authority to consider. However, the formal establishment of the Authority and the outcome of its subsequent consideration could be two years away or more. The problem is much too urgent for such a delay. Early action is needed.

—  to give the existing franchisees clear guidance on the criteria they will have to meet if they wish to renew their franchises, and to launch negotiations, so that the franchisees can plan the future with more confidence, commit service improvements and expenses where appropriate, and order accordingly;

—  to stagger the re-letting of future franchises to avoid bunching, so that we are not forever in a seven-year cycle of boom and bust.

  3.9 It is essential that the Strategic Rail authority is formed on a shadow basis as quickly as possible and addresses these problems with OPRAF as a matter of high priority.

Railway Industry Association

September 1998

11   "Review of the Rolling Stock Market-Report to the Deputy Prime Minister", Office of the Rail Regulator, May 1998, para 1.28(v). Back