Financial Times UK 30Jan2020

Thursday 30 January 2020 ★ FINANCIAL TIMES 3

the Rail Delivery Group, the member-

ship organisation that brings together

the companies that run the railways.

Andrew Haines, chief executive of

Network Rail, is considered one likely

candidate to run the new body.

Ed Thomas, head of transport at advi-

sory group KPMG, said the rail system

currently had “too many actors with

separate agendas and ideas”. He added:

“Williams has got to simplify the proc-

ess so there is first, a clear strategy and

then, when contracts are commis-

sioned, all the actors are aligned to

deliver to one single plan.”

Mr Thomas noted that this was part of

the difficulties Northern had faced.

“Delivering the new Northern franchise

relied upon ambitious plans from the

operator around introducing new roll-

ing stock and changes [to] the timetable

being aligned to Network Rail’s plans to

upgrade the infrastructure. That was

always going to be hard to deliver with-

out an overall guiding mind.”

Rail experts also noted that the cur-

rent system had worked well in terms of

increasing the market from where it was

at privatisation, which followed the

break-up of British Rail in 1994. Twice

as many people are travelling now than

20 years ago and about 25 per cent more

trains are on the network.

seyTravel respectively set fares and

timetables, and grant long concessions

to a single operator.

Simpler concession contracts could

create a more flexible system that was

more responsive to changing circum-

stances, rail experts said.

The problem with the current fran-

chising system, which is underpinned

by revenue projections, is that changing

contractual commitments requires

complex negotiations.

On Tuesday, a national survey by

Transport Focus highlighted that the

networks scoring the highest passenger

satisfaction were largely those not run

on franchise contracts. These included

Heathrow Express, Grand Central, Hull

Trains, which are run as open-access

operators, and Merseyrail, which is a

concession model.

Mr Shapps told the BBC the new body

in charge of the railways would be “what

the media call a ‘Fat Controller’ who

everyone knows is in charge and who

holds the lever”.

Industry figures said they believed Mr

Williams would recommend the agency

should be established by Christmas and

it would include the central functions of

Network Rail, the government body

that owns and runs the infrastructure,

and some of the statutory elements of

J I M P I C K A R D A N D TA N YA P OW L E Y

The government is poised to announce a
sweeping overhaul of Britain’s railways,
which is expected to see franchises
replaced with more flexible, longer con-
tracts and the creation of an overarch-
ing body in charge of the network.
Grant Shapps, transport secretary,
said yesterday as he announced the
nationalisation of the Northern fran-
chise that proposed legislation to be
published very soon would deliver a
“model for the 21st century”.
It is expected to recommend the
scrapping of the franchise system after
years of chaos on the lines. Two fran-
chises have been nationalised since June
2018, others are in deep trouble and
numerous infrastructure improve-
ments have been delayed.
The proposals will incorporate the
final report of a 16-month independent
review into the rail industry. Keith Wil-
liams, the former British Airways chief
executive who led the review, said in a
speech last July that the current fran-
chise system had “had its day” and
called for “revolution not evolution”.
The publication of the white paper, as
the proposed government legislation is
known, is said to be planned for early
February, although the timing could
slip, given ministers are grappling with
problems at several franchises — nota-
bly whether to nationalise South West-
ern Railway.
David Sidebottom, director at passen-
ger lobby group Transport Focus, said it
was clear from a consumer viewpoint
that the core product — a punctual, reli-
able railway — was “not being delivered
sufficiently”.
Northern’s nationalisation, which was
flagged several weeks ago, is — on the
face of it — politically embarrassing for
the Conservative government. Minis-
ters were scathing about Labour’s mani-
festo promise to take the entire system
into state control over a long period.
However, Mr Shapps yesterday told
the BBC he did not take an “ideological
point of view” about the issue of who
controlled the trains: much more
important was the question of whether
trains arrived on time “to the minute”,
he argued.
The transport secretary claimed that
privatisation had been an overall suc-
cess, with companies held back mostly
by network capacity constraints.
The biggest change in the proposals is
likely to be the scrapping of franchises
in favour of a management contract
model, with private companies given
concessions of 15 to 20 years, longer
than the standard franchising period of
seven to 10 years.
Mr Williams is expected to recom-
mend a model similar to how London
Overground is run by Transport for
London, under which the state control-
ler takes the risk of rising or falling reve-
nue. The concession operator would be
paid a set amount, which could rise or
fall depending on factors such as opera-
tional performance, ticketless travel
and customer satisfaction.
This model has been deemed largely
successful on London Overground and
Merseyrail in Liverpool. TfL and Mer-

Privilege against self-incrimination is

invoked in situations where a witness

could incriminate themselves by speak-

ing out. Witnesses have sought such

privilege in public inquiries.

A Metropolitan Police criminal inves-

tigation is running in tandem with the

public inquiry. Lawyers for the corpo-

rate witnesses have said it is “very

broad” in scope and concerned with

numerous potential offences.

But a senior lawyer with knowledge of

the inquiry said it was “very surprising”

the request had been made so late.

“[Seeking privilege] is common

where there is a criminal investigation

running in parallel with a public

inquiry,” he said. “[But] I share the sur-

prise that this has been raised now

because it is something that ought to be

raised right at the outset.”

The fallout has sparked soul-search-

ing in government and business, with

parties scrambling to update fire safety

guidance and adopting new guidelines.

Sir Martin said yesterday he was “a lit-

tle surprised” by the move. “Hitherto,

there has been the fullest co-operation

with the inquiry,” the Press Association

reported. The request, if granted, would

give the interested witnesses “complete

freedom to tell the truth without any

concern for the future”, he said.

dence given by witnesses to the public

inquiry against them in any future crim-

inal proceedings,” the lawyers said in

the letter, submitted on Monday.

“Without it, witnesses will legitimat-

ely and reasonably be entitled to refuse

to answer questions and would there-

fore not be in a position to give relevant

evidence before the inquiry,” it added.

Michael Mansfield QC, for the berea-

ved relatives and survivors, told the

inquiry yesterday the move was “highly

reprehensible and highly questionable,

coming on the eve of evidence”.

“There has been plenty of time for

this to have been considered as it does

normally in inquiries and inquests,” he

said, adding that the request caused

“immense anxiety, distress and anger”

to the bereaved and survivors after a

long wait. Lawyers for the bereaved rel-

atives and survivors said they would

have to confer with clients to share their

views back to Sir Martin, a retired Court

of Appeal judge.

D O N ATO PAO LO M A N C I N I
A N D K AT E B E I O L E Y

Corporate witnesses at the public
inquiry into the Grenfell Tower disas-
ter have asked for immunity from pro-
secution for themselves and their em-
ployers over any evidence they give, a
move condemned as “highly reprehen-
sible” by victims’ lawyers.

Lawyers acting on behalf of facades pro-
viderHarley Facades, architectsStudio
E, the Kensington and Chelsea Tenant
Management Organisation, and several
individuals wrote to the inquiry asking
that public statements not be used
against their clients.
Martin Moore-Bick, inquiry chair,
disclosed the letter yesterday, the third
day of the second phase of the inquiry
into the June 2017 fire at a block of flats
in Kensington, west London, that killed

72. This phase of the inquiry is examin-
    ing factors leading to the fire, particu-
    larly a renovation that ended in 2016.
    Some of the parties, notably Studio E
    and Harley Facades, had faced accusa-
    tions on Tuesday that they were aware
    of how the exterior panels would fail if
    flames reached the outside of the flats.
    “We collectively write to request that
    you seek an undertaking from the attor-
    ney-general preventing the use of evi-

G E O R G E PA R K E R A N D C H R I S G I L E S

Boris Johnson has ordered all cabinet

ministers to identify cuts of at least

5 per cent to their Whitehall depart-

ment budgets, telling them to consider

axing programmes that do not improve

health, fight crime or tackle regional

inequalities.

A letter jointly signed by the prime min-

ister and chancellor Sajid Javid tells

ministers that budgets remain

extremely tight, even after a decade of

austerity in the public services.

Cabinet ministers have been told to

identify possible cuts of at least 5 per

cent in their day-to-day current budgets

and to name 10 projects that could be

scrapped in this autumn’s comprehen-

sive spending review led by the

Treasury.

Ministers will have to go through

every line of their departmental budgets

assessing value for money, while pro-

grammes that do not relate to the gov-

ernment’s priorities — funding the

National Health Service, tackling crime

or “levelling up” underperforming

regions — should be considered for the

chop.

In the letter sent to ministers yester-

day, first published in The Sun, Mr John-

son and Mr Javid said: “We have been

elected with a clear fiscal mandate to

keep control of day-to-day spending.

“This means there will need to be sav-

ings made across government to free up

money to invest in our priorities.” Min-

isters were invited to submit “radical

options” for saving money.

Forceful letters from the centre of

government to spending ministries

ahead of comprehensive spending

reviews are a regular feature of White-

hall life and often elicit proposed cuts

that are so politically explosive they are

never implemented.

The Treasury’s public spending team

is expected to have bruising conversa-

tions across Whitehall in the coming

months.

Mr Javid already has a long list of

spending priorities, ranging from social

care to further education colleges.

The letter by Mr Johnson and Mr Javid

highlights the fact that despite ministe-

rial talk of a rapid increase in capital

spending on infrastructure — funded by

borrowing — the pressure is on the cur-

rent budget.

The Conservative manifesto said the

government thought it had only £5bn of

headroom against its new fiscal rule to

balance the current budget by 2022-23.

Mr Javid would be loath to be seen to

be on course to miss his new rule so soon

after setting it.

The public finances this year are in a

healthy state and on course to show a

smaller deficit than restated forecasts

from the Office for Budget Responsibil-

ity, giving a bit of extra wiggle room for

Mr Javid as he prepares for his March

Budget.

But the UK fiscal watchdog will be

under some pressure to lower future

forecasts for economic performance to

take account of a relatively “hard”

Brexit in the shape of a Canada-style

free trade agreement between Britain

and the EU.

Shapps goes full steam ahead with rail

plan that puts ‘Fat Controller’ in charge

Transport chief eyes replacing franchises with management contracts in bid to achieve punctuality

Joint letter

PM and Javid

order cabinet

to draw up

budget cuts

of at least 5%

Public inquiry

Grenfell witnesses rapped for seeking immunity

return of 5-6 per cent that shareholders

would make if they invested in FTSE all-

share companies, according to the

watchdog.

“We estimate that if Ofgem had

placed greater weight on this [up-to-

date] evidence, consumers could have

paid at least £800 million less,” said the

NAO report.

Networks’ returns have also been

boosted by rewards for hitting perform-

ance targets, but the NAO said these

were set by Ofgem “too far in advance”

and network companies were exceeding

them before the regulatory period had

even begun.

The criticism comes at a sensitive

time for network companies, which are

tussling with Ofgem over the returns

they should be allowed to make from

2021 and 2023, when the next regula-

tory periods begin.

Ofgem has vowed to crack down on

returns after the consumer charity Citi-

zens Advice warned in 2017 that net-

work companies were making “eye-

watering” profits.

Labour leader Jeremy Corbyn

pledged to renationalise energy net-

works before December’s general elec-

tion, claiming they had been “over-

charging customers to the order of bil-

lions of pounds” since privatisation.

account the latest information it had on

the risks network companies were likely

to bear compared with those in other

sectors.

Ofgem assesses network companies’

business plans over a set “price control”

period — the most recent of which will

last eight years — and calculates a base-

line rate of return for investors which is

intended to reflect the levels of risk they

assume.

The NAO said electricity network

companies expected to make an infla-

tion-adjusted return of 9 per cent on

average to shareholders during the cur-

rent price period. This ends in March

2021 for National Grid, SSE and Iber-

drola, which own high-voltage trans-

mission networks in Britain, and in

March 2023 for businesses such as UK

Power Networks and Northern Power-

grid, which own local infrastructure

that carries electricity from the main

grid to homes and businesses.

This compares with an estimated

N AT H A L I E T H O M A S— EDINBURGH

Households could have saved £800m

on their energy bills over eight years if

electricity network companies had

been regulated with more “up-to-date”

information, according to the National

Audit Office.

The public spending watchdog has

attacked the level of returns that energy

regulator Ofgem has allowed the coun-

try’s electricity network companies to

give to their shareholders since the mid-

dle of last decade. The NAO said these

returns had come at the expense of

consumers.

Households and businesses pay for

the running and upgrade of electricity

networks via their energy bills, with the

costs typically making up 20 per cent, or

£130, each year. But in recent years

these figures have come under scrutiny

from consumer campaigners and oppo-

sition MPs, who have criticised the level

of profits made by network companies,

such asNational Grid,SSE,Iberdrolaof

Spain andUK Power Networks.

In a report published today, the NAO

said that the cost to consumers of man-

aging the electricity grid “has been

greater than it should have been” in

recent years. The NAO said this was

partly because Ofgem did not take into

Network regulation

Ofgem oversight of energy groups criticised

Citizens Advice warned in

2017 that network

companies were making

‘eye-watering’ profits

Grenfell Tower:

the June 2017 fire

at a block of flats

in Kensington,

west London, left

72 people dead

NATIONAL

Leeds Hull

Stoke-

on-Trent

York

Scarborough

Carlisle

Manchester

Nottingham

Newcastle

Liverpool

Area served

by Northern

Source: Oice of Rail and Road * Virgin East Coast Trains until 

Rail companies are slowing down















    

National average London North Eastern Railway*

Merseyrail Northern South Western Railway

Share of passenger trains punctual at final destination,

four-quarter moving average ()

Cracked rail causes derailment in Hatfield killing four.

Trains slowed throughout the country as rails checked

Railway satisfaction

Share of people satisfied with overall journey,

autumn  ()

Source: Transport Focus

Merseyrail

London North

Eastern Railway

National average

South Western

Railway

Northern

    

The Northern rail franchise will be

nationalised, government announced

yesterday, in a move that will bring a

second train network under state

control in less than two years.

The decision will see the existing

Northern franchise removed five years

early from Arriva, part of German

state-owned railway company

Deutsche Bahn, and placed in the

hands of the government’s “operator

of last resort”.

Grant Shapps, transport secretary,

said the franchise, which stretches

from Staffordshire to Northumberland

and carries 108m passengers a year on

2,800 daily services, will be stripped

from Arriva from March 1. The minister

said passengers had “lost trust in the

north’s rail network”, admitting that its

problems were not going to be easy to

put right. The operator of last resort

will trial new technology to fix

overcrowding, and extend platforms at

30 stations to allow for longer trains.

Mr Shapps said a new cross-

industry body, the North West

Recovery Task Force, will be

co-ordinated by Network Rail, which

owns the country’s rail infrastructure,

to recommend how best to boost

capacity and performance.

The demise of Northern, originally a

nine-year contract, comes after the

failure of East Coast and ScotRail. The

former was renationalised in mid-2018,

while the Scottish government said

last month it would end the latter’s

contract three years early in 2022.

Between November 10 and

December 7 last year, just 50.6 per

cent of Northern’s services were on

time, compared with 62.2 per cent

nationally. This month the government

indicated that South Western Railway,

Britain’s second-biggest commuter

network, could also be nationalised

within months.

The problems underline how the

franchising system is no longer

regarded as fit for purpose. Shadow

transport secretary Andy McDonald

reiterated Labour’s call for full

nationalisation. “Today’s admission of

failure after years of denial is frankly

too little too late,” he said.

Tanya Powley and Jim Pickard

Nationalisation

Northern becomes second

network to hit buffers

A Northern train on

Ribblehead Viaduct in

Yorkshire. The franchise

has been taken back

into state ownership

Mark Sunderland Photography/Alamy