The following Declarations of Interest were made:

Mrs Gwyneth Dunwoody, Member, Associated Society of Locomotive Engineers and Firemen

Mr Brian H Donohoe, Clive Efford, Mrs Louise Ellman and Mr George Stevenson, Members of Transport and General Workers' Union

Ian Lucas and Mr Graham Stringer, Members of MSF Amicus

Miss Anne McIntosh, Member, RAC, Holder of shares in: First Group, Eurotunnel, BAA plc, BA and BAE SYSTEMS

The Committee deliberated.

Draft Report (The Future of the Railway), proposed by the Chairman, brought up and read.

Ordered, That the Chairman's draft Report be read a second time, paragraph by paragraph.

Paragraphs 1 to 3 read and agreed to.

Paragraphs 4 to 15 brought up and read.

Motion made, to leave out paragraphs 4 to 15 and insert the following new paragraphs:

The costs of the railway in Great Britain are enormous. The SRA projected that the national train service would cost £9 billion in 2002-03, up from £6.1 billion in 1999-00. These sums largely comprise rail infrastructure, which is the responsibility of Network Rail, and passenger rail franchising costs, the SRA's direct funding responsibility. The costs of the latter were projected by the SRA to be £3.860 billion in 2004-05, but will not be known until the Government announces the results of its Spending Review in the summer. The infrastructure costs for the next 5 years are now clear from the Rail Regulator's Access Charges Review 2003: Final Conclusions document published in December and stand at £22.2 billion. The gross revenue requirement for the infrastructure in 2004-05 will be £5.125 billion.

Taking a longer perspective, of the £181.9 billion set aside for transport in the Government's Ten Year Plan, £64.9 billion, approximately one third, is allocated to the railway in the period 2001/02 - 2010/11. Since the Plan was published the Government has had to provide the railway with additional funds, and Mr Richard Bowker has indicated that additional funding will be required. Yet only 6 % of journeys were made by train in Great Britain in 2002, a figure which has not been exceeded in the previous 10 years. Such a disparity between the amounts spent by the Government on the railway, and the proportion of journeys by rail is noteworthy. In these circumstances it is vital that the sums spent represent excellent value for money not only for the fare paying passenger, but for the taxpayer. Is this the case?

The performance of the passenger railway in recent years has been well below par. The most recent figures for the percentage of trains arriving on time - the official public performance measure - is 76.5% which compares with 89.7% in 1997-98, itself the best figure in the period 1997 - 2003. That 1 in 4 trains arrives late demonstrates the train industry's inability, as presently structured, to improve its performance substantially. The underlying causes of delay are broadly attributable to train operators and the infrastructure provider on a 50-50 basis. The performance of the trains depends crucially on the performance of the infrastructure as measured in delay minutes. The Rail Regulator told us that in October 2000, immediately before the Hatfield accident, that the delay on the railway attributable to inefficient infrastructure was 7.7 million minutes with the latest available figures showing a delay total of 14.7 million minutes. These figures were not disputed by Network Rail. The Regulator pointed out that this meant the performance of the infrastructure operator had fallen by 92% since October 2000. It is clear from these figures that neither the fare payer nor the tax payer is presently receiving good value for money from the railway.

A significant contribution to the industry's inability to reduce costs and to pull itself back to pre-Hatfield levels of performance, lies in the confusing and fragmented nature of the railway's present organisation. The Strategic Rail Authority, which is meant to ensure that the performance and growth of the industry are on upward trends, and is officially the industry leader, does not have control over the means of achieving those objectives. It has no control over the Regulator who is responsible for funding Network Rail and specifying its maintenance and renewals outputs in detail; or over Network Rail which is a private company funded by debt, even though the SRA holds stand-by loans which help to guarantee that lending; or over the regulation of safety on the railway which is the sole responsibility of the Health and Safety Executive. The result is that costs have risen sharply: while the scale of work on the WCML upgrade is greater, 16.68 million for the WCML and £1.8 million in the case of the ECML at current prices - provide a dramatic example of how the railway industry has lost control of major projects.

This fragmentation means there is no focus on the needs of the customer. When something does go wrong, passengers are unaware who is responsible and therefore who to complain to. For example, Network Rail are generally at fault over passenger train delays, however the passengers blame the train operating companies. We need to see greater transparency for our travelling public. The Rail Passengers Council, which should be the traveller's champion, is far too low profile. The profile of the RPC throughout the network is too low. We likened the Council to a 'secret' which the industry likes to 'keep to itself'. We were concerned, for example, that members of the public who wanted to complain about train services would not find the RPC's contact details readily available. This needs to change.

Taking a broader view of rail, there is a fundamental lack of clarity about where rail fits into the wider transport planning picture. Funding decisions need to take account of technological and other improvements in all modes of transport, but this rarely seems to happen. For example, bus design and performance has improved significantly over the last 20 years and might benefit from a measure of funding being switched from the railway. We were told that road schemes were subject to efficient and accurate cost benefit analysis, but that the forecasts of increased traffic from rail projects were optimistic, while the forecasts of costs was invariably too low.

The result of the present arrangements is that rational choices by the Government about what to fund are made difficult, if not impossible, risking poor value for money. It is the Government's job to ensure that intra-modal planning, and the subsequent funding decisions, are of the highest quality, and that finite resources are not wasted. Extraordinary amounts of money have been ploughed into a railway which has failed to deliver any significant improvements and has provided excessive profits for the private sector.

These problems can only be addressed by looking at the questions we started with. We take each in turn.

Rail is not necessarily an outmoded form of transport, but it can no longer be taken for granted as the most efficient means of transporting people long distances. As we explored in our aviation inquiry, rail cannot compete with air travel for journeys above three hours. There are circumstances in which bus or coach travel offers a valuable and more flexible alternative to rail. While rail may be a sensible way of moving people around congested city centres, where car use impose a significant external costs, car or coach may be more sensible for inter-urban or rural travel. The aim must be to examine what the railway does best, and how it is best integrated into other modes, rather than to assume that the existing network must be protected at all costs.

We consider the current "mixed mode" railway needs to be reassessed. Academic commentators suggested considerable problems with operations which contain a mixture of freight and passenger trains. Professor Roderick Smith, Head of Mechanical Engineering, Imperial College, London, argues that capacity is limited because of the inherent contradictions of a 'mixed' traffic railway which causes bottlenecks and a 'huge number of conflicting movements', a view shared by Professor David Newbery, Director of the Department of Applied Economics, University of Cambridge. We heard a good deal of evidence about the importance and potential of a dedicated passenger railway. Professor Sir Frederick Holliday argued for the removal of rail freight to road on the basis that this would permit an increase in passenger rail performance sufficient to attract compensating traffic from road to rail. Passenger and freight operations need to be separated more rigorously than at present.

The SRA's Network Output Strategy proposes that rural and freight routes will receive low maintenance priority. The SRA made it clear to us that they did not think that 'retrenchment' was the answer for rural lines, pointing out that closure of the rail infrastructure was inconsistent with the Secretary of State's Directions and Guidance to it and, in any case, cost savings on a part of the network so starved of resources were limited. The SRA has appointed a new Director of Community Rail, and recently published a consultation on a new strategy for Community Railways which seeks to increase passenger volume and income, reduce unit costs and extend community involvement in local railways.

Professor Roderick Smith's evidence to us on the position of the rural railway in Japan, where such lines are owned by so-called 'third sector' companies comprising local authorities and private companies, is interesting and worthy of consideration in the UK. The 37 'third sector' companies run lines varying in length from 6.6 kms to 140 kms. In 2002 these companies carried 50.86 million passengers. Though most of the companies are loss making, vigorous local support means that the companies are well resourced with 20.006 yen being available in 2002 to the companies through various support and stabilisation funds.

The SRA's publication of a consultation document on Community Railways should be used as an opportunity to consider what level of support rural railways should have, and how that support could be delivered without massive direct subsidy. While rural branch lines provide a vital service to passengers they should be protected, but the costs should be reasonable. However, careful integration with other local transport services and significant local involvement of private and public bodies are prerequisites for success.

Our railways compare badly with others. We took extensive evidence from the Dutch railway organisation, and two members of staff paid a study visit to the Netherlands. The structure of railway governance in the Netherlands is far clearer than in the UK; there is no economic regulator, although there is a regulator who determines track access, and no equivalent of the SRA. Although ProRail, the infrastructure manager, contracts out maintenance and renewals, it is meticulously planned, and ProRail has planned access to each section of the track for at least five hours every four weeks. The Government pays for maintenance separately from new projects, so that it is clear where money has been allocated, and what has been bought. Even though fares are lower than in the United Kingdom, the government owned NS Railway operates as a private company and pays a dividend to government. The operators are expected to focus on their customers' needs, so timetables are set by them. Rail is seen as part of the wider transport system, so that there are facilities for car parking, and interchanges with other modes, such as bus. Larger stations are better equipped for passengers than in the UK, but staff are not provided that small stations, although they do have call centres. In short, a simpler structure and greater focus on passenger needs and providing an appropriate level of service has produced an extremely efficient railway. This should be a model for Britain to follow.

The key to success must be:

• recognition that the rail network is part of the wider transport system, not an end in itself;

• focus on travellers' needs;

• clarity about what expenditure is buying;

• longer-term planning; and

• a realistic assessment of what the system can do, and how it should be improved so that ineffective uses of the railway are identified and discarded, while effective investments, such as those to produce more separation between the passenger and freight network, are supported.

Motion made, and Question put, That the paragraphs be read a second time.

The Committee divided.

So the Question was negatived

Paragraphs 4 to 15 agreed to.

Paragraphs 16 to 223 read and agreed to.

Annex agreed to.

Resolved, That the Report be the Seventh Report of the Committee to the House.

Ordered, That the Chairman do make the Report to the House.

Ordered, That the provisions of Standing Order No. 134 (Select committee (reports)) be applied to the Report.

Ordered, That the Appendices to the Minutes of Evidence taken before the Committee be reported to the House.

[Adjourned till Wednesday 31March at 2.30 pm