Steve Montgomery, Maggie Simpson and John Thomas gave evidence.

We are now sitting in public, and the proceedings are being broadcast. Does anybody have anything to declare? No. We will now hear oral evidence from First Rail, Rail Freight Group and ALLRAIL. We have until 2.40 pm for this panel. Will the witnesses please introduce themselves for the record?

John Thomas:

I am John Thomas, policy director of ALLRAIL.

Maggie Simpson:

I am Maggie Simpson, director general of Rail Freight Group.

Steve Montgomery:

I am Steve Montgomery, managing director of FirstGroup’s rail Division.

Thank you for attending to give oral evidence. Maggie Simpson, we heard from the chief executive of the Office of Rail and Road this morning that the appeals process is very tightly constrained. Is it worth the paper it is written on?Q67

Maggie Simpson:

We are really concerned about the scope and definition of the appeals function as proposed in the Bill. We know that Great British Railways wishes rail freight to succeed. There are positive provisions for rail freight at the beginning of the Bill, but GBR will be a vertically integrated, incredibly powerful monopoly that, quite rightly, will be very focused on its own trains. This legislation will last for a long time, and the behaviours and actions of people today may not be mirrored in future Administrations or at future times.

Our members—businesses across the country that rely on the railways for their supply chains—are really concerned about ensuring that, if things go wrong, they have an effective right of appeal. The provisions in the Bill set an incredibly high threshold—judicial review standards—for bringing an appeal. Even if it is met, the actions that can be taken are such a high bar that it is very unlikely that a decision would ever be overturned, and future Secretaries of State can by regulation, through the negative procedure, set out even more steps and fees. We are really concerned that that is weak. It is a backstop provision; we would only need to use it if things went wrong, but if it is not any use, it will deter people from investing.

Q Moving on to access decisions and charging, on your reading of the Bill, does the ORR have enough power to hold GBR to account? If your answer, as I suspect it might be, is that it does not, what changes need to be made to improve the Bill?

Maggie Simpson:

On capacity allocation in particular, as well as the points I have just made about the appeals function, we have a conflict between two clauses in the Bill. The capacity duty in Clause 63 sets an incredibly powerful requirement in law for GBR to keep capacity for its own trains and any trains it wants to run in the future. We have sought assurance from the Department for Transport on how that duty and clause 60, on the infrastructure capacity plan, work together. The Department has told us that its intention is for the capacity duty to be subservient to the infrastructure capacity plan, where an assessment is made of the best use of the network, but that is not what the law says. We would like to see it clarified that the value-based assessment of what is the right use of capacity on the network is done first, and that GBR is then able to assure the capacity afterwards.

Q Thank you. Mr Thomas, in your view, under the Bill, will the railways be regulated in a fair and non-discriminatory manner? I am talking about the relationship between open access—the non-nationalised parts of the railway—and GBR. If not, why do you say that, and how would you suggest it is fixed?

John Thomas:

First, I will say that the policy intent is quite clear. One of the DFT’s supporting documents to the Bill is quite clear that one of the definitions of a duty on GBR is for it to be fair and non-discriminatory in its decision making. Network Rail’s recent access and use policy document also made it clear that GBR would have to be fair and non-discriminatory in its decision making. However, there is nothing on the face of the Bill to suggest that.

It is really important that there is something on the face of the Bill to say that GBR needs to be fair, transparent and non-discriminatory in its decision making. I think that would be in the best interests of customers and communities, and it would give our members confidence to continue to invest, rather than just relying on the taxpayer to make investments.

The reason I say no is that there is no such provision on the face of the Bill. Going back to Maggie’s point about appeals, I think it would really help the appeals process if there were provision for GBR to be non-discriminatory in making decisions; otherwise, what are appeals going to be based on? They will be based on GBR’s own policies, and if it can discriminate against other services, what is there to appeal against?

In addition, the ORR will lose its ability to hear appeals on the basis of taking into account the benefits of competition for users. We think that is wrong. We think that an open access appeal could never be successful if that provision were taken away, so we advocate adding it back in. The ORR should have a duty to take account of the benefits of competition. Clearly, it has to take into account other matters, as it does currently, including the funds available to the Secretary of State, but if it does not have the ability to take account of the benefits of competition, how is an open access operator ever going to be successful in any appeal?

Q Mr Montgomery, will you say whether you agree with that position, as well as answering this final question? In areas of capacity and access, the Bill anticipates the Secretary of State being granted power to change capacity decisions and access agreements without notice. If that is the case, what impact will that have on the ability of open access operators to build a business case for investment in the future? What impact will it have on future investment?

Steve Montgomery:

I agree with everything John and Maggie said. The challenge we see as a private sector operator is how you get anybody to invest in the industry with the lack of clarity in the Bill. As John alluded to, there is reference by the DFT in the memorandum of understanding on the Bill, but nothing in the Bill itself. That makes it very difficult to go to a board and say, “Look, we want to invest in these things.” What certainty do you have for the future?

An awful lot has been made of open access as we have gone through this process. It would take up 1% of overall capacity, but it is held out there, in the commentary, as one of the major plays in the Bill. We think that open access brings the opportunity for competition, which we seem to have lost with some of the wording in the Bill. How do we make sure that there are better services for customers? That is what we all want and what GBR is setting out to do, but how do we make sure that we all have a fair chance when bidding? We have talked about the access situation. GBR can decide not to give access, and the ORR has very limited powers to hear an appeal, so where is the confidence for the private sector investment that the industry continues to cry out for?

Q Thank you all for appearing before the Committee. I will start by asking you a macro question about the provisions in the Bill. There are two fundamental protections for freight within the Bill: the freight target and the freight duty, and not just GBR but the Secretary of State and the ORR will be accountable for them. The consultation response published alongside the Bill mentions freight 100 times. There will be a freight rep on GBR’s board and a specific freight team within the organisation. I understand that you met the Rail Minister and had the opportunity to discuss some of the concerns. In the overall context of the provisions in the Bill, do you think that GBR, as it will be set up through the Bill, will have due consideration of the needs of freight and an interest in promoting it?

Maggie Simpson:

We have been very clear that we welcome those provisions. We are grateful to the Rail Minister and his team at the DFT, and to your own team, for their commitment to freight. That is really good but, with respect, I have been around a long time and I have seen circumstances in which Secretaries of State and Rail Ministers have not been as keen on freight, or perhaps have been more keen on road freight and less keen on rail freight. We have seen situations arise through different political times and economic circumstances.

When I am looking at the Bill, I am looking at whether it works today, with a Government who are supportive of and promoting freight, and at whether it would it work in the future, with a Government, of whatever colour, who have a different view. We have to look at it through that lens because we legislate for the long term. It is really difficult, because you are saying to people who are trying to help you, “Actually, I don’t like this.” That is an emotional tension—of course it is.

The duties and provisions in the Bill are great— I would not want to be going into GBR without them, and I think they will be powerful—but they are doing a lot of heavy lifting. We are going into a very different cultural environment. GBR will think about its own trains first; it has to for it to succeed—that is kind of the core. We are going into a very different access arrangement and a very different set of parameters, and it is entirely possible that they could go wrong and that we would need the recourse of the appeal function. They might not, but we need to know that it will work if they do. Having a strong appeal function will help it to work, because GBR will know that if things do go wrong we have that recourse in law.

Q Absolutely. It is a really fair point that, in the context of rail policy over the last two decades, it is right to have a healthy degree of scepticism about the willingness of sequential Governments to commit to this target. That is why I think that the legally binding duty regarding freight is so important. I also take the point that you have raised about the appeals process, as well as the point about clauses 60 and 63, on the capacity duty and best use of the railway.

It is important that we clarify that GBR has to set out what it means by “best use” before we get into questions of the capacity duty. It has to have due regard for freight in the network, open access in the network and the provision of passenger services before the capacity duty is triggered. That means that GBR has to deliver the services it has identified as being necessary to run the railway effectively, but the appeals process is enormously important. Do you think the fact that freight operators would be able to appeal GBR’s interpretation of “best use” in relation to its duties, one of which is to promote the interests of freight, provides a safeguard to ensure that freight is considered when GBR is deciding what constitutes best use of the railway overall?

Maggie Simpson:

I think my children would use the phrase “gaslighting”. I have read the Bill many times, and I cannot see in law that the capacity duty is subservient to Clause 60 on the infrastructure capacity plan. I understand that that is the intention—I have heard it from the Rail Minister, yourselves and Network Rail, and I get that; there is a lot of work to do on the access and use policy, and we are engaged on that and want it to work—but it is not what the Bill says, and therefore a future Minister or Secretary of State could interpret it very differently and say, “Look, GBR, we don’t like your infrastructure capacity plan, so we’re triggering clause 63—get those freight trains out my way.” I do not expect that from the current Administration, but we need to square off that hole in law, in my opinion. If that is the intention, let us say so.

On how that infrastructure evaluation—that capacity analysis—is taken forward, it is incredibly complex, and I appreciate that most of the detail will be in the access and use policy and not in the Bill. We do not have a problem with the way that clause 60 is worded. We will work with colleagues to try to make sure that that process is effective and those duties matter. Of course, those duties are not relevant in clause 63, because clause 18(4) turns them off. When looking at that capacity duty, a future Secretary of State would not have to have regard to freight, because the Bill explicitly turns it off. That would mean that if we went to an appeal, GBR would be in line with the law in not having thought about freight in using clause 63, because the law would not require it to. We would not be able to prove a judicial review threshold appeal, because the law would say that GBR was okay not to have thought about freight.

Q Thank you; that is really useful insight, and I think it is incumbent upon the Government to make clear the sequential nature of the clauses, with best use coming first in deciding overall provision within the railway, and then the capacity duty locking in GBR’s responsibility, essentially, to the Secretary of State and taxpayers to deliver the services that it says it requires to run the railway properly. It is really important that we make that clear to stakeholders, so thank you for bringing that to light.

May I ask one final question to Mr Montgomery, as it relates to open access? We have an overall issue with capacity in this country. The Government’s view is that, by running a single, unified approach to the railways, GBR will be able to allocate capacity in a way that is more reasonable, makes more sense and balances those interests around best use. Can you set out briefly how that contrasts with the open access regime as we currently find it? How is capacity on the railways perhaps holding back competitive movements in the open access market as it stands?

Steve Montgomery:

The situation with open access and capacity, under the Bill as it is written, is that GBR decides what capacity is available and what capacity it might hold back for future use or performance. As it stands, the railway is not funded in that way, so the opportunity for private sector investment gets lost because, given the way that the Bill is written, people can almost sit on their hands and say, “Well, we’re not going to do anything because we might do something in the future.”

It is for us, in making open access applications, to go and look at where we believe capacity is and then submit an application, as things stand via the regulator—hence our concerns for the future under GBR. If it can turn around and decide, “No, there’s no access” or “We may use that in the future,” why would any future open access application ever get through?

We can set that out a little later, probably in the evidence that I give, but thank you all very much. I will let other Members ask questions.

InQ the existing framework, open access applications are routinely refused due to lack of capacity, or perceived lack of capacity. That pitches passengers against freight all the time. What is good about that system that you would want to keep? What would you like to see change?

Steve Montgomery:

The system at the moment is independent. The regulator evaluates, takes all the different evidence from the applicant and from Network Rail on how much capacity is there. It takes all that evidence and does an abstraction test to make sure that an open access application is not abstracting revenue from the existing operators. That independence is there, and it allows the regulator to evaluate that and make its decision. In the last year, it has granted some applications and refused others.

The system works—maybe not to everyone’s satisfaction, but it does work and it is independent. Under GBR, it will be a huge public sector body with no real regulation. Looking at it at the moment, it is difficult to see where that independent regulation is, looking at the industry and holding GBR to account. Capacity is one of the areas we need to look at, and likewise access charges, where that comes into play.

Q Are you saying that we do not need any changes in this area?

Steve Montgomery:

We can modify it, but we need that comfort that it will be evaluated fairly and not have the constraints of GBR putting everything in front of it, saying, “We might use those paths in the future again”. We cannot have that; we need certainty. As I said earlier, we need the opportunity to allow investment in the railway. If private sector investment is coming in while there are paths sitting there not being used, that means that we are not funding the industry up to the capacity that it may have.

John Thomas:

There are no protections in the Bill for open access operators. As Keir said, freight is mentioned at least 100 times and there is a freight growth target that GBR must have regard to, but there is nothing on open access. There is an inherent conflict when you have a body that will be granting access to its competitors. We would rather see the Office of Rail and Road still making those decisions. We accept that that is unlikely, because that is not the direction of travel from the Government, so as a minimum we think that a fair and non-discriminatory provision in relation to GBR decisions will help.

We think, as I said earlier, that the provision for ORR to have regard to the benefits of competition in hearing appeals will help. It will not be as sufficient as today. This is not part of the Bill, but we think that the access and use policy ought to carry on with the not primarily abstractive tests. It is not just because of lack of capacity that decisions have been rejected in the past; as Steve said, it is the revenue abstraction test as well. There is nothing to stop GBR increasing test in terms of the level of abstraction that is allowed before not granting access to open access operators. There is a lot to be worked through in the access and use policy to protect open access operators but, as I say, there is nothing whatsoever in the Bill to protect them at the moment.

Maggie Simpson:

We recognise that the current system is not perfect, but my members want to understand two things: first, if they are running a train today that their supply chain relies on, that they can reasonably expect to be running that train in the future. Today, the ORR would have a presumption of continuity—forgive me, this is not in the Bill—so if we came to the end of an access contract they would let the trains go into the next one. The infrastructure capacity plan process is different: it throws everything up in the air. People are really worried that they will commit and invest against a service that their supply chain relies on, and then in future something else will be judged to be better value and they will be taken off the network.

Secondly, when people are looking at investments, whether that is a new port or a new terminal—a new interchange might be a £1 billion investment—they need to have a sense that the capacity for the trains coming out of that interchange will be there when they need to use it. The current system has more capacity for that. That is why Clause 63 worries people, because they think that that capacity could be taken away from those trains.

John Thomas:

Clause 71 is also a real concern for us, because it allows the Secretary of State to establish regulations to amend or even abolish access rights or access contracts. That seems quite a draconian power to us. We have been assured that that is not the intention, and that the intention is to use that power to amend contracts so that they are operable in the new structure. Our view is that the clause should be limited to enable contracts to be operable in the new structure, and not to give the Secretary of State unilateral powers to amend or abolish access contracts or access rights. Again, that will make private sector operators really nervous about future investment. I agree with Maggie: I get no impression that the current Administration would ever use that clause—but, if you are never going to use it, why have it in there?

AQ brief question from me: in this morning’s session my colleague Ms Smith highlighted 19—and counting—different documents, plans and strategies that are referred to here. This Committee has not had any sight of drafts of them yet and I am conscious that nor will you, but they will be fundamental to how this works or does not work in practice. Recognising that you have not seen the documents, what assessment would you make of the Bill’s provisions on how, for example, the access and use and the infrastructure capacity policies will be produced? How should they be produced to properly reflect both the needs of an effective railway and the multiple groups with a stake in this? How can they be framed to ensure that GBR, which will essentially be a monopoly provider with a weakened regulator, is meaningfully held to account for what it puts in those policies?

Maggie Simpson:

My members and I are working collaboratively with Network Rail colleagues and DFT colleagues to try to ensure that those policies and plans are going to be written in the right way. It is fair to say there is a lot of work still to be done, particularly on capacity allocation. On track access charges we feel a little more comfortable with the Bill provisions and that we will get there, but on capacity allocation there is a huge amount of work yet to be done.

Some of that work is practical stuff around the interplay between capacity plans on different routes, regions and sections of network, which could be quite big or quite small, and how we wind a freight train through what could be 10 or 20 different infrastructure capacity plans. There is a lot of work to do. There are great people working on this, so let us hope that they get there.

In terms of how GBR is held to account, that is a macro question for this Committee across a lot of different aspects. There are lots of powers in the Bill that you will have seen going in both directions between GBR, the Secretary of State, the regulator and so on. Our focus is on that appeals function, which I have already spoken about.

Q Gentlemen, do you have anything to add?

Steve Montgomery:

I do not think we have much more to add, other than that, given the way the Bill is written at the moment, how can you be comfortable with what is in the Bill when you cannot see what is in the licence conditions that are going to be set out? As it stands, Clause 63 at the moment can override everything. We would need to see how, when you word the Bill in a certain way, and then the licence, we can get more comfortable with it when they write it up in the access conditions.

John Thomas:

The licence is a bit of a worry for me, because of all the indications, as we have been discussing, of ORR’s weakened powers. For example, it will not be able to enforce business performance in future. It will be able to advise the Secretary of State, who can then decide whether to take enforcement action or whatever action she deems necessary. That is a far cry from the current licence, which is a much stronger Network Rail network licence. We have not seen it yet, so we cannot really comment, but all the indications are that it would be a much weaker licence for GBR than under Network Rail.

As Maggie said, there has been good communication with DFT and Network Rail on the access and use policy, for example, but what are the checks and balances on GBR to create something that is fair and non-discriminatory? As one example, the charging framework is really good. It is based on the current framework of cost directly incurred plus a mark-up; it says—this is a point of detail—that if the operator can bear it, it needs to revert back to whether the market can bear it. On the whole, the provisions are good, but there are different ways of calculating charges even based on those principles. My worry is this: what is the incentive on GBR not to increase charges to price people off the network in order to support its own services? As long as there is good engagement and GBR, in the future, and Network Rail and DFT now, listen to us, that is all we can do at this point in time.

As I did in this morning’s session, I draw attention to the fact that I am a member of Unite. I have a few short questions, primarily to Ms Simpson to start with. We heard from some of our witnesses in this morning’s panels that they would like to see a passenger growth target in the Bill on an equivalent basis to the freight growth target. I am interested in your reaction to that proposalQ .

Maggie Simpson:

It is not my business to talk about the passenger railway. We see two things as important in having a freight growth target: first, it is a statement of Government commitment to growth, which is hugely powerful; secondly, and importantly, the people who are going to be running GBR are going to spring out of bed every morning and say, “It’s my job to make my trains run on time,” and the freight growth target makes them say, over their Weetabix, “Yes, and I must make freight run on time as well.” It is the incentive effect of having a growth target.

We have seen that effect really powerfully with the freight growth target that the Scottish Government and Whitehall have set, in that it changes the dynamic and the culture. I think—perhaps you would say I am biased— that people think about the passenger railway all the time, so I do not see that that incentive effect is as necessary—but in terms of other factors, I leave that to others.

John Thomas:

May I add to that? I think a passenger growth target is really important. At the moment, the duties for GBR only include improving performance. You can improve performance, as we saw during covid, by cutting the number of services, but that is not necessarily in the best interest of customers. We think a balance between a performance target and a passenger growth target is really important.

Q Returning to freight, I understand there is a problem at the moment with the ORR refusing longer-term applications, which presumably has a dampening effect on investment—at least, I would assume so. Do you think there is least the potential under GBR to take a longer-term view, and hopefully to reflect that in longer-term access agreements?

Maggie Simpson:

There are two parts to that question. Certainly, the provisions in the Bill allow for a core contract to be longer, because it removes the cap in law today. For that contract to be meaningful, though, it needs to have some committed capacity in it, because there is no point having a contract to run if you have no paths. That comes back to the access and use policy, the capacity commitments and how they will work out through those capacity plans. We simply do not have the detail on that yet to know whether we will be able to get meaningful, long-term capacity commitments. That is an open point.

Q I turn to Clause 64 on the charging scheme. Subsection (4) allows GBR to levy lower charges for the purpose of introducing new services, including for the carriage of goods. How would your members like to see that power applied?

Maggie Simpson:

We very much welcome that Clause; it is a broadening of the provision in the current law, which is quite tightly worded. There are some areas where we think it could be particularly powerful, such as incentivising a greater uptick in use of electric traction, where those units exist, and making sure that people are using them wherever they can. We have just seen the first fleet of digitally enabled wagons arrive in service. That is something that can help to reduce track damage, but it is expensive, so helping the introduction of more digital technology would be another area.

We are looking at novel markets for rail freight—moving new fuels, for example, and supporting green energy. Often, it is quite difficult to get new flows up and running in new markets, so incentivising growth through the uptick of those sectors would be another area.

I have one final question, if there is time.

Very quickly, please.

Q I will make it very quick. Mr Montgomery, I saw a document that rail partners published a few years ago called “Working together for a better railway”, which suggested that the ideal mix of passenger contracts would be concessions for commuter services and franchising—I do not think it used the word “franchising”, but maybe something similar—for longer-term services. Is that your personal point of view?

Steve Montgomery:

Yes. We believe that the Bill does not give enough power to the Secretary of State to put out contracts and devolved parties—whether that is Greater Manchester, Liverpool, and so on—to give them out. The concession model is something that we have continued to support.

Q But for inter-city, something similar to franchising?

Steve Montgomery:

Yes, you can put it out.

I have a question about GBR’s licence. What can we glean from the provisions for that licence in the Railways Bill, without having seen a draft of the documentQ ?

John Thomas:

It is really difficult. As I said earlier, all we can glean is that, given the reduced powers that ORR will have, it will be a slimmed-down licence; ORR will not have the power that it currently has to enforce business performance. Until we see it, we cannot really comment on it.

I am a bit surprised that we have not seen a draft of the licence yet. We have seen the access and use policy discussion document, but not a draft of the licence. It has been a long time in the making, so I am surprised that we have not seen it yet. I was told that we might not see it for some time. It is a key part of the overall framework, so until we see it, we cannot really comment on that framework. We are having to—we are having to comment on the Bill—but until we see the licence it is difficult to determine what our position will be.

Q What role would industry expect to play in the production of that licence?

John Thomas:

As a minimum, we want to be consulted and to help to shape the licence. Our ability to do that will be affected by what will ultimately be in the Act, but we certainly want to be consulted and help to shape the licence.

I am afraid that the next question will probably be the last to this set of witnesses. I call Sarah Smith.

In my Constituency, we have a potential site for a rail freight terminal, and I welcome the commitment to rail freight growth in the Bill. As I understand it, GB Railfreight has invested in 30 new locomotives so far, and has raised more than £218 million of debt available for capital investment. Do you not agree that that demonstrates industry confidence, and that those steps, plus the other things happening in the industry at this stage, suggests that the industry is not unnerved by the progress being made by the Government and what is currently outlined in the Bill?Q

Maggie Simpson:

The industry is unnerved by the provisions in the Bill—I have members writing letters across Government to set out their concerns—but business goes on. Keith Williams picked up his biro in 2018; you could have raised a child in the time since then, so of course business has to go on. People are making good investments and, as I said at the beginning of the panel, we are pleased with the support of this Government. What we are looking at in the Bill is whether we have a framework that will enable those investments to happen in five, 10 or 15 years’ time, under a different Administration with, potentially, a different mindset, which might be better or worse—we do not know.

That question has different layers. Are we unnerved now? Yes. Is that stopping investment now? Not everywhere, but possibly in some places; other factors are at play too, of course. Will it start to impact investment? Yes, it will. The first time that GBR says to somebody, “Take your freight train off my network because I want to run this service instead”, if we have no or very limited right to appeal, it will absolutely start to spook the market.

Steve Montgomery:

I know your question was about freight, but private sector investment, particularly in passenger rolling stock, is an area you have to look at and ask, “Where’s that coming from?”. We have committed to spend £500 million between buying new trains and maintaining them, and that keeps the supply chain going.

We have potential future orders that we want to place, but we are again getting caught up in the mechanics of whether there will be open access, or whether we will lose our rights at any point under Clause 71. All those different things are in play at this moment of time, so where do you get that confidence? The Bill is not strong enough in that area, particularly not for passenger service operators.

Q I have a very short question about a slightly different area. John, I understand that you have worked across Europe and looked at different approaches across the world. In Finland, as I understand it, they have gone all out on family-friendly trains and ensuring inclusive access to trains in the widest possible sense. Is there anything we can learn from that part of the world on how we can meet the ambitions for accessible services laid out in the legislation?

John Thomas:

I am fairly new to the role. We are a Brussels-based organisation and we do have lots of European members. I am not familiar with the Finland example, but the European Union is going in completely the opposite direction from us. They are continuing to liberalise, opening up their markets—in the United States, in Australia, in South America—

Order. That brings us to the end of the allocated time for the Committee to ask questions, I am afraid. On behalf of the Committee, I thank witnesses for the evidence they have given this afternoon.