Philip Hammond delivers Rail Reform speech at Railtex

At Railtex this week, the rail engineer held a series of technical seminars featuring the Chairman of Network Rail, Rick Haythornthwaite and Sir Roy McNulty.

At 10:30 on Wednesday 15th June, we were joined by Rt Hon Philip Hammond MP – Secretary of State for Transport. His speech, Rail Reform – Building a Sustainable Railway, was delivered to the largest audience the seminars saw, with people overflowing the theatre to listen.

Here’s what he had to say:

Rail Reform

Building A Sustainable Railway

Rt Hon Philip Hammond MP – Secretary of State for Transport

‘Well thank you for the introduction. I have to say I’m slightly daunted at the prospect of delivering a technical seminar. That might be a bit beyond the brief but it’s a pleasure to be here this morning because there is no really better place to take the pulse of an industry, to understand what’s going on than a major trade show like Railtex.

‘This is a shop window for hundreds of businesses across the industry, large and small. It’s an important forum for discussion, debate and a place where decision makers can come together to exchange views about the future of your industry, this vital sector for the UK economy.

‘There are not many industries that are able to say, in the current tough economic climate, that they have a genuine sense of optimism and confidence about the future. But I want to explain to you this morning why I think the rail industry has the right to be optimistic and confident and why I think a new and positive era is beckoning for Britain’s railways.

‘But I also want to be clear that the bright future I’m predicting will depend on the industry being willing and able to deliver the efficiency improvements and crucially the cost reductions that are needed for it to become sustainable.

‘When I was a teenager which was a few years ago, the received wisdom was that the coming of the motorways and the growth of car ownership inevitably spelt the death of the railways. But the gloom-mongers could not have got it more wrong. In fact over the past decade and a half, since the privatisation, our railways have undergone a remarkable and very welcome renaissance.

‘Between 1994 and 2009, the annual number of miles travelled by passengers in Britain nearly doubled, from 18bn to 32bn and that growth shows no sign at all of subsiding. Rail patronage rose to 1.32bn people last year, more than at any time since 1928 when our railway was three times as big as it is today.

‘Alongside this impressive growth in numbers have been huge improvements in passenger satisfaction and in safety and reliability. So Britain’s railways in the 21st Century have been a remarkable success story, which is very much to the credit of the industry represented here today.

‘When I took over this brief just over a year ago, I set out the coalition’s twin objectives for transport, supporting economic growth and delivering carbon reduction. And it’s clear to me that rail can contribute fundamentally to the achievement of both of these agendas, with the potential to become the mode of choice for intercity journeys in particular.

‘The importance of infrastructure investment in the government’s growth strategy and transport’s role in it, was reflected in a spending review settlement for the Department for Transport that I think far exceeded the expectations of most people in the industry.

‘Over the next four years we will invest over £30bn in transport projects right across Britain, with £18bn committed to the railways. To complete the Crossrail project and support the upgrade of London Underground, to deliver Thameslink by 2018, for electrification of the Great Western Main Line and of key lines in the north west of England and the Intercity Express Programme, a project that will generate 500 manufacturing jobs in the north east and restore train building to the industry’s birth place.

‘We’ve given the go ahead to the long awaited Ordsall Chord in Manchester, the redoubling of the line between Swindon and Kemble. We’ve confirmed the purchase of over 2,000 new rail vehicles for Thameslink, Crossrail and other franchises as well as the cascading of hundreds more.

‘At a time when every penny of public spending is under the microscope, this investment represents a very significant commitment by the government to the future of rail in this country. And that commitment is not just to the projects that will be delivered in the medium term like Crossrail, Thameslink and Electrification. We are also planning for the long term.

‘So while we’re making significant investments in Britain’s classic rail network, we also recognise the inherent constraints, connectivity, capacity and speed that our largely Victorian railway faces.

‘As the Thameslink and Crossrail projects near completion, we recognise the need to move the focus of strategic rail investment away from London to building a state of the art rail infrastructure that will support the wider UK economy. So in February this year we launched the consultation on our plans for a high speed rail network.

‘Our proposed high speed rail line to Birmingham with onward legs to Leeds and Manchester would slash journey times, enhance connectivity and attract passengers from road and air travel, reducing carbon emissions and local environmental impacts. It would regenerate our regions and re-energise our economy, with the potential to deliver economic benefits of around £44bn in net present value, for a net cost of around £17bn.

‘During the first phase alone, 9,000 jobs will be created during construction as well as 1,500 permanent operational jobs. The line to Birmingham is expected to support the job growth of a further 30,000 jobs in the regeneration zones around new high speed rail stations.

‘Most importantly, phased construction of the national network between 2016 and 2033 would support the growth of a robust domestic supply chain, giving UK businesses the chance to export their products and know how, to the developing high speed rail market around the world.

‘But HS2 will also deliver significant opportunities for the classic rail network.

‘Huge amounts of capacity will be freed up for services on existing lines resulting in more commuter, regional and freight services on the West Coast, East Coast and Midland Main Lines.

‘Those who oppose high speed rail are articulate, often directly self interested and very well organised. The potential beneficiaries of this massive infrastructure project are more diffuse and spread out, many of them will not have even identified themselves as beneficiaries at this stage.

‘The anti’s will have their say. The voice in favour of High Speed 2 also needs to be clearly heard so I hope that all of you here will take part in the consultation and give your support to a project which has the potential to transform the way Britain works and competes in the 21st Century and to send a clear signal that we are investing in Britain’s future.

‘There are great opportunities ahead for our railways and for those that work on them but alongside the impressive growth that we’ve seen over the last few years and the improvement in safety and reliability, there is another less welcome fact – a huge increase in the cost of running the railway and I’m clear that the Government’s commitment to investment in the industry must now be matched by a similar commitment by the industry to cost reduction.

‘I’ve always said I’m a railway realist rather than a railway romantic and I suspect my predecessor was a bit of a railway romantic. For me, that means I believe our railways must be competitive, must offer an affordable and attractive service to passengers without being dependent on a bottomless pit of public subsidy. I’m not a romantic, and I’m not a superstitious person either but if I was I could detect a fortuitous alignment of circumstances that I believe, is auspicious for the future of the rail industry.

‘First, a new Government determined to deliver better value for the tax payer’s money and determined to invest in Britain’s infrastructure. Secondly, a change at the top of Network Rail, signalling a gear change in the organisation and a willingness to work with its partners who address its costs and government’s issues. Thirdly, I detect a new realism among train operators who recognise that rethinking the way our railways work is vital if they are to become sustainable in the future. And finally, crucially, the burning platform of the fiscal crisis that we inherited from the last government. And the penny finally dropping that public subsidy on the scale of the past decade is indeed a thing of the past.

‘Sir Roy McNulty’s independent study into value for money in the railway has already pointed to the scale of the challenge and I would like to thank Sir Roy and his team for the excellent work they have done. Their analysis has shown Britain’s railway costs about 40% more per passenger mile to operate than the railways of our principal European competitors.

‘Tax payers and fare payers have shared the burden of this inefficiency through some of the highest fares in Europe and some of the highest levels of public subsidy. I’m clear that this high cost status quo is no longer an option. It’s bad for passengers and taxpayers and it is a competitive disadvantage for the UK economy.

‘In the future, the industry will have to compete for investment by demonstrating that it is tackling its long term cost issues.

‘My department will do its bit. We’ve already announced our commitment to longer franchises with less micro management from central government and the introduction of support arrangements that deliver fewer perverse incentives.

‘This is, without a doubt, a major culture change within the Department for Transport but it is one that I am determined to deliver. These reforms, together with those recommended by Sir Roy, will progressively be incorporated into new franchises as they are let.

‘Sir Roy has estimated that potential savings of up to £1bn per year could be found by the end of this decade and all without any reductions in service.

‘Let me be clear about the potential if these savings that Sir Roy has identified are delivered. We can put the era of inflation busting fare rises behind us, creating the opportunity for even greater passenger growth in the future.

‘One of the key challenges is the unsustainable growth of unit labour costs in the industry. A 21st Century rail network needs 21st Century employment practices from the boardroom to the shop floor.

‘Sir Roy’s work shows that a large part of the increase we’ve seen in rail operating costs is down to wage bills that have risen much faster than in other sectors while productivity gains have been disappointing. It would be simply irresponsible for us to ignore this issue any longer so addressing inefficient working practices and excessive wage demands will form a key part of the strategy for building a sustainable and affordable railway, securing the jobs of the people that work on the railways for the long term.

‘Sir Roy’s report also stresses the need for greater innovation to reduce the industry’s costs. Here at Railtex, we can see how innovative technology is playing an increasing role across the railway from signalling to rolling stock and passenger information systems. But although the pace of innovation in rail has improved in recent years, it still lags behind other sectors such as defence and aerospace.

‘Creating a more innovative railway will require suppliers and buyers to challenge current standards, products and processes to cut costs and deliver better value. And for regulators to be ready to respond to innovative proposals.

‘So while there is much to be done, I see this process of reform as an evolution not a revolution, with change delivered through collaboration, not legislation, wherever possible.

‘So on all these issues we’re going to need everyone in the industry; Network Rail, train companies, unions, suppliers and indeed government to work together.

‘We need an industry wide approach with much greater sharing of costs and benefits across the internal dividing lines. We need to build on Network Rail’s announcement of devolution of managerial responsibility to route directors and on the Rail Delivery Group, which the industry has formed at McNulty’s suggestion to enhance leadership and collaborate for real change.

‘It is a positive start. For our part in government we will work towards devolving more responsibility for commissioning services from the centre to local bodies which have greater accountability to local communities and passengers, and a better understanding about the local consequences of the decisions that they take and the priorities that they set.

‘Effective industry leadership coupled with a smaller role for central government and a diversification of the public sector customer base through decentralisation will help the railway to start to look less like a public sector monopoly and more like a customer orientated and cost responsive business.

‘I’m pleased that many of Sir Roy’s recommendations are already being implemented by the industry and over the next few months we will consider carefully the recommendations that he has directed at government. We will set out later this year in a White Paper, our vision for the future of a sustainable railway in Britain.

‘We’ve come a very long way since 1994, indeed, almost nobody then would have dreamed that the renaissance of our railways in the dramatic form that it has occurred was even possible. Through the political battles over privatisation and the traumas of Hatfield and Potter’s Bar, and the debacle of the Railtrack collapse, through it all the railway has survived and prospered, albeit at an unsustainable cost to taxpayer and fare payer alike.

‘Now I believe we stand at the crossroads or perhaps I should say, at the points. One route leads to a truly sustainable railway where all the major players in the industry work together, with a willingness to change and a commitment to the future. The other route option, is a loop back to the past, with unsustainable practices dependent on unaffordable public subsidy.

‘As Sir Roy himself has warned, that latter route leads inevitably to a smaller railway and fewer services.

‘We in the government have made our choice to invest in the sustainable railway of the future. Now we need the industry to back that choice with a real and lasting commitment to change.

‘If we seize this opportunity and make it work together, we can look forward with confidence to what I believe will be the dawn of the next era in the long and proud history of Britain’s railway.

‘Thank you very much.’