What a way to cost a railway

The railway’s cost allocation system is dumping costs on the sector least able to afford them – regional rail. It must be changed.

And so it came to pass that the Office of Rail Regulation issued the subsidy figures  for the different parts of the railway which were engraved on tablets of stone. And a hush descended as the great multitude of executives, lawyers, consultants, officials and economists, and others of the vast and well renumerated tribes of the privatised railway, gazed upon them. Verily those regional railways look expensive they thought. Useful stats if we need to give them a good kicking later on.

I adopt an ersatz biblical tone because the way in which the subsidy figures for different parts of the railway are presented is often done as if they were written on tablets of stone. Absolute truths handed down by a greater intelligence. However as our recent report, ‘A heavy load to bear? Towards a fairer allocation of rail industry costs for regional rail’ shows the reality is that they are constructs based on choices on how costs are allocated to sectors. Choices which are often political. Choices which in the Beeching era were made to justify a frenzied application of the axe. Choices which in more modern times, during rail privatisation, were made to create a ‘profitable’ intercity network and a ‘how much do they cost!?’ regional rail network.

Once you summon up the courage and mental fortitude to cross the threshold of the intimidating edifice of the railway’s cost allocation system and into the cloistered world of railway economics that lies beyond it, the bias against regional railway which was built into the privatised system from the outset, becomes startlingly apparent.

Firstly, and obvious to the naked eye, is that by and large, cross subsidy within the passenger rail network was dismantled so that the regional railways that feed the intercity networks were separated out.  However, delving deeper this is compounded by a disproportionate and entirely unfair allocation to regional rail of both the overall costs of the railway, and of other rail sector’s costs.

This dumping of costs on the sector least able to afford them took place in a number of ways. Here are two of the most pernicious ways in which it was done. Inter-city trains are estimated to produce twenty times the track damage of a Pacer – yet they are allocated equal shares of maintenance and renewal costs. Infrastructure damage comparison diagram

Secondly, regional rail received only 18% of new investment by Network Rail but regional rail contributed 30% of fixed track access charges and was allocated of 32% of the financing costs. In other words regional rail is paying for track impacts and damages it didn’t cause, and paying for investment in the railways that it doesn’t benefit from.

And then there’s freight. I am all in favour of getting freight off the roads. I have no problem with railfreight not paying the full costs of its impact on rail infrastructure in order to achieve this end. I think the railfreight lobby has been determined and effective in fighting freight’s corner. A far better job than the regional rail lobby has done (though that in itself is not difficult as there isn’t one). Rail freight’s hard won status as a marginal user of the network is also another example of how cost allocation is less of a saintly practice of pure and spotless economic rationality than the consequence of politics and hard bargaining. I don’t have a problem with that either. But better to be honest about it.

If rail freight is a marginal user then there’s a strong, though slightly different, argument for regional rail to be a marginal user too. Regional rail takes traffic off the roads (benefitting remaining road users); gives commuters access to city centre jobs and opens up rural areas poorly served by road for inbound tourism and outbound access to opportunity. All of which benefit a host of wider Government objectives for growth, jobs and the environment. At the same time regional rail generally causes less damage to the infrastructure than other sectors, generates the least income, and requires the least fancy engineering. If it were to vanish tomorrow the majority of the bills of the railway would still need paying. Why on earth therefore should cash strapped regional rail be the one that always gets its, and other peoples’,  rounds in at the bar? And worse, ending up with the equivalent of a pint of dodgy mild whilst paying for others’ premium lagers and cocktails.

What happened to regional rail’s costs at the point of privatisation shows just how extreme the effect of this change in the way costs were allocated was – and what a construct are those cost per passenger kilometre, and subsidy figures by train operator or sector. Before privatisation the costs allocated to West Yorkshire’s rail network was £14 million, the minute after the new privatised cost allocation system came in (with the same trains and the same network) the costs increased to £43 million. For Centro the costs increased overnight from £33 million to £62 million.

All clever stuff then. All confirming London Government’s prejudices about the value of any service that doesn’t stop or start in London. All neatly positioning regional rail on the scaffold’s trapdoor whilst at the same time showing that rail privatisation created seemingly real inter city businesses that made real profits. All of this matters right now because these flawed subsidy figures are hanging over the re-franchising of the North’s railways. Right now the narrative feels like the future’s bright, the future’s rail. But really, just look at how much those regional railways cost and draw your own conclusions. We will do what we can for you but those figures speak for themselves.

But what would the figures look like under a fairer, more defensible and more rational system for allocating the railways costs?  If costs were allocated more in proportion to estimates of track wear and tear by different sectors? If overheads were allocated to prime users? If the track access charge payments that relate to infrastructure investment better reflected where that infrastructure investment was made?

Our report estimated that if that were the case then government support for regional networks would be more than a third lower than ORR currently states it is. Subsidy per passenger kilometre figures also change significantly. ORR’s figures of 22p per passenger kilometre for regional rail and 4p for InterCity becomes 17p for regional rail and 12p for intercity.Government funding estimates by market segment


What our figures show is that regional rail networks go from receiving more than half of all government funding to a share of just over a quarter. Regional rail passengers still receive the highest level of subsidy per passenger-km but it now becomes clear that this is driven by operating subsidy rather than infrastructure spending. Real subsidy levels are also shown to be much closer between Inter-City, London South East and Regional networks than previously thought.

The low level of infrastructure spending in regional networks also goes a long way towards explaining the high level of operating subsidy. Investment and the quality of infrastructure clearly play a key part in the ability of regional rail to attract passengers and thus generate additional revenue. Investment (or lack of it) is also a determining factor of train operating costs. For example, increasing train speeds can reduce costs, attract passengers while making future frequency enhancements cheaper to deliver. In that sense, it is not surprising that decades of underinvestment in regional rail infrastructure will lead to a widening gap in terms of subsidy requirements relative to other parts of the network.

It would take a relatively small increase in demand and yield (or, conversely, a fall in unit operating costs) to bring regional rail subsidy in line with subsidy on the rest of the network. This shouldn’t be hard to achieve given the relatively low mode share of rail in the regional market and the rampant growth observed following service improvements.

Overall the case for investing to save (rather than handwringing and penny pinching) on regional rail looks far stronger. More realistic numbers about where costs fall also tie in with the realities on the ground about regional rail which is that regional rail fits so well these days with how the North’s economy is developing. More people commuting longer distances to access high value jobs in city centres that can’t cope with much more road traffic; people taking to the train to avoid the hassle of driving and parking in the North’s many wondrous national parks and revitalised urban centres; and town and city economies that are starting to fuse and synergise. That’s why regional rail patronage has been soaring – even on routes where Whitehall lumbers is with Britain’s worst and oldest trains running at collective punishment frequencies.

A cost allocation system that is still playing out trace memories of Dr Beeching’s creative accounting, as part of a dusty Whitehall long game over regional rail now, looks as out of touch with what’s good for regional economies as communicating with tablets of stone.

Jonathan Bray

Ten years of the pteg Support Unit: Part three

In the last of a series of three blog posts, pteg Support Unit Director Jonathan Bray concludes his look back over ten years of the pteg Support Unit.

Ten years of pteg: the way we work and the way cities will work in the future

Evening city scene - Liverpool

Focus on what transport does for people, economies, cities, the environment and society.

The way we work

  • ‘Train hard, fight easy’. You need your stats, your evidence, your best arguments in place before you start to engage in a policy debate.
  • If you want to achieve policy change you need to be sharper, more relentless and be better at strategy than those who seek to defend the status quo because the incumbents always have the advantage and usually have greater resources.
  • Get the right staff. When your resources are limited and everything you do should be better than the incumbants (see above!) you need to make sure you have the right staff – so we put the time and effort into recruitment and got the right staff.
  • Press every button. It’s hard to know exactly why suddenly old policy consensus crumbles and new ones are established – so press every button available to you from reports, use of the media, stakeholder engagement – the lot.
  • Don’t commission research as a displacement activity or leave whoever is writing it to their own devices. Or let it sit on the shelf when done. Go through the pain barrier with whoever is working on it to ensure it fits the bill and then use it as the bedrock for the work you do in that area for the next couple of years at least. And find ways to get people to read it once it’s published.
  • Don’t go on about transport too much. Transport people love transport detail. The rest of the world doesn’t care. They are interested in what transport does for them, their economy, their cities, their environment, their society, the world they live in. Focus on that.

Building our reputation and effectiveness

pteg reports (Picture: Brainstorm Design)

Our reports have set a direction for emerging policy areas, like Total Transport (Picture: Brainstorm Design)

The Support Unit isn’t big, pteg may not always be liked – but we are good at what we do, we are a force to be reckoned with, we’ve saved our members millions and we have made the weather across a range of urban transport policy issues. Some of what’s been achieved is covered elsewhere in the previous parts of this blogpost, but it’s also been gratifying how we’ve been able to set a direction for emerging policy areas through focussed research and policy documents and through painstaking work to get internal and external stakeholders on board. Three examples:

  • In my view our work on social inclusion and transport over the decade (and in particular on young people in the last few years) has been the most lucid, consistent and focussed from any UK body in setting out the key challenges and how best they can be addressed
  • Our 2011 report on ‘Total Transport’ remains the primary document on pooling vehicle fleets and budgets
  • Our work on the opportunities for transport from the devolution of public health responsibilities is encapsulated in a hub on our website which provides the best introduction out there to local transport authority officers on what they can achieve in this area.

Smart cities / smart grid / smart transport

What seemed very far away now seems much closer. Cities with smart grids based on renewable energy powering largely electric transport systems. Mobile phones giving access to all forms of transport (from rental electric cars and bikes to public transport). Roads which are more social spaces than channels for cars. And this future is starting to form itself in big cities like Berlin. These kinds of developments transform the whole nature of the transport debate and open up some exciting opportunities for transport authorities to take the lead in guiding these changes in a way that maximises the benefits. There’s more on all of this in our recent blogpost on ‘Three global transport trends that should reshape our cities’.

Electric car, Berlin

Smart cities: there for the taking

So near…

Our city regions are not so far as it might sometimes seem from emulating what London takes for granted. Not in terms of underground rail networks and the scale of provision overall – but in getting the key building blocks in place. If the city regions can gain more say over rail and bus – then smart ticketing can fuse the two into the same single network that is the basis for London’s successful transport system. From there our cities can kick on to go smart and offer comprehensive total mobility packages, electrify transport systems in the most cost effective way and transform urban centres into more sociable, sustainable and prosperous places. It’s there for the taking.

Jonathan Bray

< Read Part two in the series ‘Ten years of the pteg Support Unit’, focusing on the unstoppable force of devolution.

< Read Part one in the series ‘Ten years of the pteg Support Unit’, featuring top ten highlights of the last ten years plus the influence of London.

Ten years of the pteg Support Unit: Part two

In the second of a series of three blog posts, pteg Support Unit Director Jonathan Bray continues his look back over ten years of the pteg Support Unit.

Ten years of the pteg Support Unit: The unstoppable force of devolution

Merseyrail train at station

Devolution has seen Merseyrail Electrics transform into one of the best performing rail networks in the country

Some of the votes on devolution to Wales, Scotland and London were tight. They wouldn’t be if they were re-run now. And devolution has been good for transport. London is the most striking example with just about every aspect of transport in the capital either transformed for the better, or in the process of being transformed. Rail investment has also rocketed in Scotland. Some of the best performing rail routes are also those that have been devolved – London Overground and Merseyrail Electrics in particular.

The trouble is that for England outside London what tier of governance you devolve to is less clear cut. Regions, city regions, Counties, Districts – what you do for one area has implications for others. This, coupled with the Metropolitan policy elite’s disdain for inquiring too deeply (see Part one) has led to both this and the previous government layering on various initiatives which don’t always relate to each other and lack sufficient decisiveness. Whitehall too is reluctant to fully let go – because now that Scotland, Wales and London are gone – there’s only the rest of England left to play with. So progress is slow, messy and fitful but it’s happening – and it is a one way process. Ultimately though, the logic of having local public transport services controlled locally will prevail and our major cities will have transport systems and planning arrangements that will look and feel more like those in London and in cities across Europe. We will get there in the end.

The rise and rise of rail

Design for a high speed train by Priestmangoode

Rail is now seen as a symbol of the future – rather than of the past (Picture: Priestmangoode)

Fifty years ago Beeching slashed and burned as much of the rail network as he could get away with. And in the decades that followed the rail network was constantly having to fend off a Whitehall establishment that saw rail as a costly problem bequeathed to them by an earlier era that sooner or later they would deal with decisively and terminally. But in the last ten years or so there’s been an extraordinary turn around. Not least because there’s been a boom in rail traffic. Particularly on our city region networks – where growth has outstripped that of London and the South East as people commute further and in greater numbers to access the jobs and opportunities in revitalised core city centres. Rail now looks more like the future and less like the past. HS2 symbolises all of that. After decades as being seen as a costly problem to be managed down to size, rail is seen as part of the solution not the problem. Rail is something that politicians of all kinds want to be associated with. There’s also a sense recently that some of rail’s stardust has settled on the other modes. The recently flurry of investment and expansion of tram schemes – with, most notably, Manchester Metrolink becoming a full on network. And even the bus has lost some of its ‘loser cruiser’ stigma with the Metropolitan policy elite in the last year or so. The bus is now seen as a respectable policy option – if not yet a cool one! The protection of BSOG in the Spending Review being one sign of that.

The battle for the bus

The bus is local public transport for most people outside London. Yet because buses in London are sorted and the bus lacks social cache, bus services outside London had largely been left to decline. Part of a gentlemen’s agreement between Whitehall and the large operators that the bus operators would pretend to compete with each other while Whitehall would pretend to care about falling patronage and rising fares. And whilst the media was hypnotised by every twist and turn of the politics and profits of rail privatisation they let the massive profits being generated off the back of the poorest people in Britain by deregulated bus services outside London go unreported and unexplored. Even though it’s been these profits that have actually been fuelling the wider global ambitions of the big groups. Meanwhile local government in general had slipped into cosy ‘decline management ‘mode on bus. How sloppy were things before we got stuck in? Not long before we started the DfT seconded a senior official to work for CPT on policy, media and public affairs (a fairly easy job lobbying yourself!); maintenance standards were so shoddy wheels were coming off First Group buses in service; and the Traffic Commissioners were regularly dealing with truly appalling early, late and non-running – because even the largest operators knew they could get away with it.

Speakers from the pteg Urban Bus event

New alliances are being forged in support of bus, as our recent ‘Case for the Urban Bus’ event showed. (L-R): Konstanze Scharring, Director of Policy, SMMT; Stephen Joseph, Chief Executive, Campaign for Better Transport; David Brown, Chair, pteg; Pedro Abrantes, Economist, pteg; Claire Haigh, Chief Executive, Greener Journeys; Dr Janet Atherton, President, Association of Directors of Public Health; and Tony Travers, Director, LSE. Picture by Andrew Wiard andrew@reportphotos.com

We changed all that. We put some sharp dividing lines into the bus debate. We dragged bus policy out of the shadows and into the public arena. We had to fight unbelievably hard against Ministers who too often sided with their hostile officials to get some workable legislation for local transport authorities to improve bus services and we worked together as a network to put that legislation into practice.

We were vilified  for doing this not only by the operators (fair enough) but also by their legions of spear carriers – including the world’s most craven trade press and the extensive selection of organisations and individuals who in one way or another are on the bus companies payroll and whose main job it is to enforce a ‘partnership’ (deregulation) consensus at all costs.

We kept going regardless and by doing so the bus is in a far better place than it was ten years ago. At the very least the bus operators know that they have to be seen to push to the very limits what can be achieved in a deregulated environment – which is increasingly guided by legal agreements which came out of the 2008 Local Transport Act. Meanwhile our tenth anniversary saw the first move by a Local Transport Authority (Nexus) to trigger the statutory process for the franchising of bus services (a ‘Quality Contract’) which if it goes ahead will allow bus services to be properly planned and managed and make Tyne and Wear the first conurbation outside London to enjoy the benefits of simple, smart and integrated zonal ticketing across the modes.

Jonathan Bray

Read Part three in the series ‘Ten years of the pteg Support Unit’ which looks at the way we work and the way cities will work in the future. >

< Read Part one in the series ‘Ten years of the pteg Support Unit’ featuring top ten highlights of the last ten years plus the influence of London.