83.    The Commission has argued that "a new kind of railway is needed" if rail is to reverse its recent decline and play a greater role in meeting the transport needs of the next century. The reactions of witnesses to the White Paper-from the Government to the unions, from train operators to road hauliers-show that a broad consensus exists on the scale of the problems facing rail and on the need for change. The Committee endorses the aims of the White Paper and many of the proposals it contains, but we caution that large scale changes, even if they can be realised, may take a generation to achieve and would require a concerted political will throughout the Community. Member States' railway networks were developed largely in response to the transport demands of the last century and are better suited to moving goods and people within national boundaries rather than across frontiers. Although these structural factors present formidable obstacles to any long term strategy aimed at reversing rail's declining market share, this should not prevent the immediate implementation of proposals to make railways more attractive to their customers.

  84.    In considering the Commission's White Paper we have been struck by the similarities between it and the Commission's 1989 Communication, which was the subject of an earlier report by this Committee[10]. The main change in the Commission's thinking in seven years appears to be the greater sense of urgency with which it is now addressing the issue, and for which it is to be commended. The White Paper remains, however, an outline sketch of the measures that will be needed rather than a concrete set of proposals. As such it is closer to what we could call a Green Paper, and considerable further work will be needed to translate the ideas it contains into reality.

  85.    There is no shortage of reasons why the future of rail is important. Relative to road, its market share continues to decline, despite the fact that the social and environmental costs of an ever greater reliance on road are now recognised. Rail is safer than road; given favourable circumstances, it can also be cheaper, faster, less polluting and more convenient. It has the potential to carry freight rapidly and efficiently over long distances, while reducing the number of heavy lorries on the roads. It remains a major element in the public transport infrastructure, vital to commuters and those without access to cars. It is also a significant industry and employer. While supporting rail for these reasons, we recognise that the revitalisation of rail, even on the most optimistic forecast, is likely to have in itself only a minor impact on the overall balance of transport modes.

  86.    As currently structured, however, rail is not well-equipped to compete in the growing transport market. Most Member States' railways are burdened by debt, dependent on State subsidy, required to operate loss-making services, and limited in their ability to secure investment. Without major change, the future of rail is by no means secure. While we question the Commissioner's warning about "terminal decline", we recognise a real danger that rail will continue to lose market share. Although the principal responsibility for effecting change rests with railway operators and Member States, existing Treaty commitments relating to transport, together with the need for a co-ordinated approach to overcoming the obstacles confronting international rail traffic, warrant action at Community level.

INTRODUCING MARKET FORCES

  87.    Railways should be encouraged to operate in a more business-like manner, with a greater awareness of commerical pressures and more emphasis on meeting their customers' needs. We agree with the Commission that a key priority in revitalising rail is the introduction of market forces. This is essential to attract the investment required, but will not alone be sufficient to arrest rail's decline. In an industry that is likely to remain dependent on public subsidy for passenger services for the foreseeable future, we believe it is vital that the relationship between the State and the railways should be clear and transparent. In this way, the State can ensure that it obtains value for its expenditure on public service provision, leaving the railways free to act commercially and on equal terms with other transport operators in the remainder of their activities. We therefore support the Commission's proposal that the State should negotiate public service contracts with passenger rail operators to govern the relationship between them. As well as protecting the interests of both parties, such contracts would advise passengers of the level of service they can expect.

Privatisation

  88.    We have received a range of views on the merits of privatisation, as it has been applied to the former British Rail (paragraphs 38-42 above). We do not offer any opinion on that evidence here. Not only is rail privatisation a matter of domestic Government rather than Community policy, it is also at too early a stage for its success to be judged. The longer term impact of this initiative will doubtless be carefully assessed by other Member States as they develop their own policies for restructuring their railways.

Subsidy arrangements

  89.    A secondary issue concerns the mechanism by which State subsidy is delivered. The method adopted in Great Britain has been to pay subsidy to train operators who then pass it on to the infrastructure operator through relatively high track access charges. Sweden offers an alternative model, with State subsidy paid directly to the infrastructure authority, which then charges train operators less for access. While we believe that it should be left to Member States to choose which model is more appropriate, we recognise that a variety of subsidy arrangements and access charges in different countries may inhibit the negotiation of prices and access for international services, particularly freight.

REFORMING RAILWAY FINANCES

  90.    We agree with the Commission that some measures are required to reduce or eliminate the accumulated debts of Member States' railways. There are wide variations, however, in the magnitude of these debts and in the policies that led to them, and we doubt whether it is appropriate to impose a uniform cut-off date for all such debt, as the Commission proposes. Measures to reform railway finances should be applied on a case-by-case basis to ensure that railways cannot simply write off the costs of acquiring modern rolling stock capable of operating in other Member States, thereby gaining an unfair advantage over other operators less well-equipped to compete in a single market for rail services governed by principles of open access.

OPEN ACCESS

  91.    A key element in the Commission's aim of introducing market forces into rail involves granting new entrants access rights to the infrastructure. There is a strong case for guaranteeing open access for freight operators, both international and domestic, and a similar case can be made for international passenger services. But we believe that this should only be extended to domestic passenger services with caution. One reason for this caution is that passengers generally expect to be able to travel on any train or by any route, particularly on local or regional journeys, and it is much easier to provide such flexibility where services are franchised rather than subject to direct competition.

  92.    Another reason to limit open access to domestic passenger services is that many such services cannot be operated profitably without subsidy. The only competition that open access is likely to attract on these less profitable routes will tend to undermine rather than improve the service available to passengers. If a State wishes to ensure that an adequate public transport service is provided throughout its network, it must expect to guarantee exclusive rights to operate on particular routes to the operator which it subsidises to provide a service on those routes. If a system of passenger franchises, as established in Great Britain, is adopted, we believe that the application of Single Market principles make it appropriate that such exclusive concessions to operate services should, as the White Paper proposes, be open to tender on a Community-wide basis.

Separation of infrastructure and operations

  93.    The Commission is adamant that open access can only work fairly if the management of the rail infrastructure is clearly separated from the operation of services. Directive 91/440/EEC already requires separate accounts to be kept, and we believe this represents the minimum level of transparency necessary for open access to succeed. We are not convinced, however, that the division of railways into separate "business units", as the Commission now proposes, is essential. While we recognise the danger that a vertically-integrated railway will tend to discriminate in favour of its own train operation, we believe it should be possible to prevent such distortion of the market by a system of independent regulation, without requiring the complete restructuring of national railway companies. It is not yet proven whether such restructuring, either as practised in Sweden or Great Britain, will be successful nor whether, if successful, its benefits will outweigh the advantages of vertical integration, such as the easier co-ordination of investment in rolling stock, track and signalling.

Rail freight freeways

  94.    We welcome the Commission's proposal for "trans-European rail freight freeways". This is an imaginative initiative which has the potential to overcome many of the practical obstacles confronting long-distance freight transport. We particularly commend the Commission's emphasis on freeways as voluntary agreements among infrastructure managers in co-operation with train operators as an alternative to pursuing a slower and less flexible legislative route.

Track access charges

  95.    The success of an open access regime will partly depend on the method by which track access charges are determined. This is particularly important for freight, where rail must compete directly with the highly efficient road haulage industry. We recognise the danger that with a system of published tariffs some freight journeys would be uneconomic on rail, and that this creates a presumption in favour of a negotiated access system such as that now operating in Great Britain. But price is not the only factor and freight operators are understandably concerned that negotiated access is slower and more bureaucratic than a system of tariffs which could easily be quoted to prospective customers. There is already a variety of access charging systems in different Member States and this creates particular difficulties for operators interested in organising the movement of freight across the Community. We would therefore urge Member States to adopt charging arrangements for international trains which are broadly compatible with those in neighbouring countries.

The case for a European Railway Agency

  96.    In supervising access rights and prices and in ensuring non-discrimination, the role of regulatory authorities will be vital, both at national and Community level, as progress is made towards the creation of a single market in rail services. The Commission has suggested that there may be a case for a European Railway Agency to supervise the allocation of infrastructure capacity, technical harmonisation and safety rules and to advance interoperability and the creation of a single market for railway equipment (paragraph 55 of the White Paper). While we recognise that there are likely to be formidable political and practical obstacles to securing agreement on the role and powers of such a body, we believe these issues must be confronted if the rest of the Commission's strategy is to have any chance of success. We therefore recommend the creation of a Community regulatory authority, rather than an agency. Such an authority need not be large or bureaucratic, but it must have teeth.

INTEGRATION AND INTEROPERABILITY

  97.    The Community's ambitious Trans-European Network (TEN) programme, involving building or upgrading cross-border links and principal trans-national routes, aims to tackle major infrastructure weaknesses resulting from the historic national focus of Member States' rail networks. Equally important, however, are the obstacles to cross-border services presented by the many different national standards and operational procedures that exist at present. These range from the gauge of the track and rolling stock specifications to electrification systems and train crew qualifications. In order to obtain the obvious potential benefits of greater interoperability, it is likely to be more cost-effective in many cases to develop compatibility in systems and equipment than to pursue the unattainable ideal of total harmonisation. Some of the greatest gains are likely to be made by simplifying and streamlining frontier procedures, for example, rather than by expensive alterations to tunnels and bridges, although these may also be justified on particular routes. We therefore believe it is vital that each case is considered on its merits, balancing benefit against cost and ensuring where possible that changes are not forced on domestic operators who do not stand to benefit directly. The Community can play a major role in proposing and implementing harmonised standards, but must work closely with railways to ensure that those standards are practical and cost-effective. Many of the specific decisions on where to adapt to Community standards should be made by railway companies themselves on the basis of commercial considerations, but the Commission could assist rail operators in developing compatible systems and equipment in cases where harmonisation is uneconomic.

Safety

  98.    One important area in which harmonisation could yield benefits is safety. The White Paper suggests that rail safety standards are onerous by comparison with road. The rail unions were concerned that this implied lowering standards for rail, but this need not follow. The Commission's aim should be to promote common safety appraisal techniques to achieve cost effective safety. We also believe that safety appraisal should be overseen by a Community-wide body independent of the railway industry.

SOCIAL ASPECTS

  99.    The European railways have shed half a million jobs between 1985 and 1994. While we understand the concerns of the unions about further job losses from restructuring, we believe that the employment prospects of railway workers are more likely to be protected in the longer term by changes that will allow rail to compete effectively. We strongly endorse the Commission's idea that the Social Fund could be used to mitigate the social impact of job losses in the rail sector.