Welcome to our second panel today. Could I ask each of you to introduce yourself?

I am David Leeder from Transport Investment Limited.

I am Huw Merriman, chair of the Liverpool-Manchester Railway Board. I was formerly Rail and Regional Transport Minister and Chair and member of the Transport Committee.

You are here today in your fourth iteration, and the second on that side of the room.

Indeed.

Welcome. Jim?

Good morning. I am director of Greengauge 21, which is a transport policy research group. I am also a director of High Speed Rail Group, which supports the development of high-speed rail in Britain. I should also mention that formerly I was on the executive of the short-lived Strategic Rail Authority where my responsibility was strategic planning.

My first question is top level. We have heard throughout the rail investment inquiry—in fact it was why we set it up in the first place—that in this country rail investment is sporadic, lacks strategic oversight and creates cost inefficiencies. What has gone wrong, and was it ever thus?

It was not ever thus. We have had periods of sustained investment. There was a period, essentially in the 1920s and ’30s, when a lot of electrification happened in London and the south-east. There was another period from the mid-1950s until about the mid-1970s when there was a sustained period of investment, so it hasn’t always gone wrong, but clearly there has been a problem over the past 20 years of sudden resumption of investment and massive cost overspend. Very simplistically, that has done two things. No. 1, it has used up the budget so schemes were never completed—for example, Great Western or midland mainline. No. 2, it has destroyed confidence in the Treasury. I have to jump to the defence of the Treasury, which has many other things on which to spend money. That is essentially what has happened in the past 20 years, but it has not always been as it is at the moment.

On the operations, maintenance and renewal side of things, having a control period which is refined so the moneys for that control period cannot be eaten into by the enhancements and overspends that David mentions is good progress. I think it is a question of trying to build enhancements so that there is a pipeline; there is the same level of ringfenced certainty. In learning the lessons from how renewals have developed, there is much that can be put into the same structure with regard to enhancements. There has also been political upheaval. Political choices change because politicians change, but railway delivery tends to go beyond parliamentary stages. I think that the political instability we have all lived through has made things worse.

I agree with that. Looking at the recent position, it has obviously been influenced by covid and the collapse of commuting. I think that has led to a sense across Government that railways are less important. Our colleagues from city regions would probably say, “Hang on a minute. We depend on them for our economies.” I was told many years ago that there were 160 MPs who regarded themselves partly as commuting constituencies, and if that is weakened, in truth, it does damage the prospects of rail in political circles. It is important to note that the recovery from the loss of demand caused by covid is very well under way. We are now pretty close to the levels of demand in 2019. The indications from various sources, including ONS population growth and all the rest of it, are that the demand will continue to grow. Rail does not operate in a vacuum but as part of the national transport system. If you look around, there are not really opportunities for growth in those other transport modes. I think we have had a very rough period, but the prospects are good.

On the control period process for maintenance and renewals, is there anything inherently wrong in that, or would you plan investment for those projects differently?

By and large, I think it is the right approach. The evidence that has been given suggests that the five-year certainty is welcomed. As to how it is planned, it was one of the first things that came across my desk towards the end of 2022 when we had the high-level output specification to sign off and the statement of funds. At that stage that was the Government saying, “This is what we actually want to happen over the next five years.” You then have a period of about 18 months until the control period starts. During that process that is when Network Rail and the Office of Rail and Road, which act, if you like, as the check and balance, fight out how the delivery should be made and also the performance of Network Rail. I thought that worked well because it was free of political interference. It seemed to be getting a bit stuck, but I was advised by officials not to get involved and to leave the two parties to negotiate through it. One particular point was that the regulator wanted to ensure that Network Rail maintained higher performance figures and so a higher standard, rather than just the performance that was currently being experienced. That is a really good check and balance and independent rigour in the process. I believe that works well. Clearly, what does not work well is the peaks and troughs that the supply chain talk about. It is interesting to try to get into the weeds of that. One of the recommendations I would think of would be an independent review of control periods outside Network Rail and the supply chain to work out what is really happening. Part of it is that the control period contracts are still for the control period itself. Because of overruns and projects not being delivered as they should have been they can run over, so that causes an issue with time. Those overruns also mean that you eat into the next control period. There should be a way of making sure that moneys from one control period can go to another. It shouldn’t need to stop, because the money, as I set out, is set down about 18 months beforehand, so Network Rail knows that it will get funding again. It works well as a concept. It is great that it is ringfenced from enhancements. Quite clearly, as the supply chain evidence shows, there are problems around it. I think those problems could be looked at with a bit of independence.

David and Jim, do you have anything to add?

Only that when British Rail was a state monopoly company it was always seeking something like a control period; it was always lobbying the DFT for periods of time—three, five, seven and 10 years—for which it could plan. I agree with Huw that it is better to have these than not have them.

As a caveat, one of the big lessons from HS2 cost escalation is that, if you pursue timescale—having set control periods might encourage this—you risk driving up costs in projects. There is sometimes a trade-off between those two things, and the Department has them for the highways sector too.

For some renewals the timescale will inevitably be longer, and obviously enhancements are a different kettle of fish. As for renewals, do you know whether other countries use a similar framework or do it differently, or if they do it better? If you don’t know, don’t worry.

If we are sitting here thinking that things are difficult here, don’t think they are better elsewhere. The state of German rail infrastructure is a topic of great debate. It is awful. That is in a country that we all respect and expect to have very good engineering management skills. The problems that we face are not unique.

The Germans have just announced €500 billion infrastructure funds with €100 billion going towards fixing those challenges on the railway. They might yet again be an exemplar of how we can do things better.

I now want to move on to the rail network enhancements pipeline—RNEP. Huw, after it was initially published in 2019, updates to the RNEP were promised but never published for many years. Why was it difficult to update and publish it?

I think politics, but I will come back to that. One of the most interesting graphs I saw in my early time as Minister was the straight line from the Treasury as to how much was available for enhancements and then a crazy graph above it which was how much had been promised. That was post Brexit with the Johnson Government. A lot of promises were made to MPs and others as to the ambition, but it did not match the amount that was actually being set down. By the time I came into post I ended up with a list that was much longer than could be funded. Because of political instability and MPs writing to the chair of the 1922 Committee to try to replace the Prime Minister, getting bad news out was not the order of the day, which I regret, because if the railway is to run properly you have to be straight about how much financing you have and what you are going to prioritise that financing on. I had hoped that things would be different, that we would have more stability and calm, and give out bad news as well as good, but that was not possible because things became very febrile. With a new Government with a larger majority and more certainty, my hope is that some form of pipeline can come out. I would challenge “every year”. If there is a pipeline that comes out every year, that is an opportunity to change it every year and again you have that instability. I would like to see a five or 10-year pipeline set out, following a similar process that the renewals process goes through for a control period, and you have a control period for enhancements. I think that would be a much better way of doing it, but I am afraid to say that too many promises and an inability to put out bad news meant we also could not then get on with the good news. Ironically, we were delivering the projects off that pipeline; we just did not announce what the pipeline was, so it was a bizarre time.

David, do you have anything to add about a better way to do it?

I certainly agree with Jim that it is very dangerous to assume it is all better on the continent. That is not the case. To pick up Huw’s point, if you have a manageable supply of cash coming in every year to pursue projects and sensibly resourced delivery teams, it would probably be quite a boring process where you do so much per year. You want to make sure everyone understands where they are in the queue, but the idea that you can suddenly switch on vast additional capacity is probably false. You may be able only to ramp up additional capacity slowly. One should be thinking about doing things in a rather steady way, with slow ramping up and ramping down. It would look very different from the sudden announcement of vast schemes syndrome, which is probably going to cause inflation. That is part of the story of, say, the Great Western project. Announcing something so dramatic almost guaranteed inflation of unit costs.

I should probably have added that the challenge of HS2 on the enhancements pipeline was great, in the sense that the enhancements budget—I talked about the amount it had—got eaten into because HS2 was not ringfenced. I think the Stewart recommendation of ringfencing HS2 spend is a great one. As to what was also going on, it was harder to convince the Treasury when so much subsidy was going on existing rail to build more rail, and construction inflation on building rail was about 20%. As well as the political turbulence, I should add those other factors into why it was a challenge to get a pipeline out.

We heard at an earlier session from Andrew Haines that GBR should be overseeing a more coherent way of planning and delivering investment in railway assets. Do you share that confidence? Are you encouraged by what you have heard from the Government so far on the design of GBR?

I am not encouraged so far. I think you are absolutely right, and Andrew was right, to point this out. If I have a key point to make to the Committee today, it is that, if you are going to talk about a pipeline, you first have to face up to the question of what problems with the railway you are trying to solve. We want to keep a state of good repair, because all honest establishments will know that, if you let that slip, you pay for it. Beyond that, the rail network faces some really important challenges, just like most things Government oversee. You have to make some strategic decisions and choices about those things. These are not in the realm of what has the best business case. The question is: what do you want to do? The process for that needs to be brought forward. At a regional level, Network Rail has been pursuing that for the past decade. Here is a snappy title for you, which I will try to get right: a continuous strategic modular programme of looking at what is needed. That works with the people who were on the previous panel and all the regional authorities consulted on that. To me, that has sunk a bit without trace during this key transition period. I absolutely agree with Andrew Haines that this needs to be brought forward—in my view with a wider regional planning overlay. If I can take you back 20 years without losing your interest, that was what the Strategic Rail Authority set up. We will look at investment route by route and do a regional plan assessment beforehand. It did not last long enough to produce more than one of them, which was incidentally for north-east England, but that kind of process is needed to make sure that the things going into what will be the investment pipeline are really what has been agreed as being needed and prioritised, because we cannot do everything.

There are two concepts. I will go back even further than Jim and take you back to 1947 and the Transport Act of that year. I think British Rail was established on 1 January 1948. That essentially involved the nationalisation of four companies. That was not quite the same as creating an integrated organisation. This does seem to be taking a very long time. The second observation is that it seems to me the argument for changing the structure, which has existed from the 1990s, is the removal of complexity in the system. One of the main reasons you might want to do that is to change the incentive structure. For railways before the 1990s, even the Bluebell railway, Ffestiniog railway or Tyne and Wear metro, it is assumed that most lines of costs are costs you can attack. The structure of track access fees that has existed since the 1990s has tended to freeze a lot of costs and blunt a lot of incentives. A further way you could pay for enhancements and simply improve the economics is to try to tackle cost inflation radically and think about cost reduction. This happened quite a lot in the 1980s and 1990s, because the model given to BR from about 1980 to the mid-1990s was a kind of twin objective: first, to run more train miles; secondly, to reduce unit costs. That sounds like a terribly obvious thing, but under the current arrangements the TOCs have been largely indifferent to track access fees and all sorts of track access costs, so there are huge swathes of costs that could be attacked. To answer your question, they need to resolve the structure, which will never be perfect, very quickly, and then get going at trying to remove inefficiencies that derive from duplication, blunt incentives etc. Clearly, it is not an efficient organisation. Every penny that you spend on waste can go into either renewals or enhancement spending.

Integrating track and train is absolutely the right thing to do. It was something I was keen to see. We were able to publish the Bill. The predecessor Committee scrutinised it, but we could not get the legislation. This Government have that and they are to be congratulated. Anything that brings together track and train will be a positive from an enhancements perspective. It means you are not just looking at the cost of building the railway but how much it costs to renew it and keep its maintenance and operations going, and also whether it is going to get revenue out of passenger numbers. That should be brought together. The downside to it—I have great faith in Peter Hendy and Andrew Haines, because this is something they have really championed—is making sure that, in so doing, operators within the GBR stable do not have preferential treatment compared with the freight sector and operators like Scotrail, Transport for Wales and other public sector operators and, indeed, open access, and that you find the enhancements are skewed towards where the in‑house operators are, because it would not be a good thing in that sense. Maybe one of the things that needs to be looked at is whether, if you look at freight for example, it needs its own ringfenced enhancement fund, because you can find some very cheap fixes that will lead to a lot of growth, particularly coming out of the ports. The London Gateway is a good example. With a bit of electrification you have decarbonised that, and the Gateway port is growing from the Prime Minister’s announcement some months back. We need to make sure we do not lose sight of the entire rail operations when GBR is brought together. We cannot just focus on their own operators.

Huw, reflecting on your experience of working on rail reform and the Williams review, and trying to get that reform through both Parliament and Whitehall, what is the main advice you would give to Ministers today, perhaps working on the assumption that the Government have changed but Whitehall probably has not changed that much? Are there particular frustrations that you think we as a Committee and Ministers need to be mindful of?

Mr Turner, you are spot on. It needs political will to make sure this goes through. It is fair to say, for reasons I understand, that from a Treasury perspective there were concerns about GBR when I was in post trying to push it forward, already grappling with the costs as were, whereas we felt this would be a more efficient model. We lacked buy-in from the Treasury. That was only ever going to change if there had been political seniority from No. 10 and No. 11 to make it happen. In my tenure that was not there. This time it appears that it is, so it is absolutely essential that that laser-like focus from Government Ministers continues. The industry and, indeed, the Department for Transport have been marched up the hill far too many times. I recall when I was on this Committee thinking that legislation was not needed for the big part, which was the changed management; that was just transferring powers from the Secretary of State to award train operation contracts. But it tells both Whitehall and perhaps the Treasury that this is happening. It also tells the staff that this will definitely happen so the changed management occurs. It requires that will. It seems to be on a good trajectory. I do think, however, there is a danger that, once the legislation comes forward, access and the pricing regime will not come out. That will come out later on, which means the railway will not have the same certainty it has right now about how it uses the rail. There won’t be any access charges for the nationalised operators. Does that mean the other operators will have to pick up the slack? Hopefully not, but that level of certainty coming out at the same time as the legislation would help the entire railway feel that GBR is the positive that I feel it will be.

We are going to move on to the features of an investment pipeline.

Several contributors to this inquiry have called for early investment pipelines to be depoliticised. We have had a bit of a chat about it already. Is this realistic, and how could it be achieved?

I think it will be depoliticised if we have a proper process around what goes into the pipeline in the first place. I am worried that the Government think this is going to hold things up while we sit around and talk about it. We have just had three of the regions representing very strongly that their interests in part depend on what happens with the national rail network. We need to get together, work out what the choices are and make some decisions. That is the tough bit. To do that is not beyond our ken, but you have to be prepared to put some things to one side. Then you have a reasonable chance that things will flow through with the understanding that we know what we are trying to achieve. What worries me is when I hear it said, “Yes, it’s fantastic; let’s spend money on this.” But where is the analysis of what problem it is designed to solve? I think we have to invest a bit more time in that. Then there is worry that there will be chop and change. Of course there will be review. We all understand this. As David said earlier, the Treasury has a valid perspective on this. We may have to slow things down, but at least let us get consensus nationally and regionally about what we are trying to do. I think that is seriously the key to this.

Huw, as someone who was a politician and in the thick of things, particularly when you were Rail Minister—now you see things from a different perspective—do you think us lot could ever be kept out of chopping and changing?

The political process is important. You are the representatives of the electorate who use the railways. If you think about it in freight terms, everyone uses the railways even if you are not a passenger. I felt that MPs were particularly helpful when I was in tenure at telling me about the things that didn’t work. They often found out, first of all, when constituents got in touch. That is important. The Restoring Your Railway project, which I have mixed feelings about, was a good example of where communities, via their MPs, were able to get together and form a case for rail. That was really helpful in that regard. Again I come back to this. I look at the control period process and that 18 months. The Department for Transport and the Government Ministers receive the outline and then add their wish list to it. That is government; that is democracy. There is then a period of time for it to get locked down by those who are expert on the railway who will be delivering it. The same process could work for enhancements. There could be a mechanism whereby it is said, “These are the schemes. These make the most sense.” The Government and politics then come into it, rightly so, so that it is properly scrutinised to make sure that that is also what the country wants and it fits in with Government ambitions as a whole. Then we look at what is deliverable, whether this scheme is going to pass muster and be delivered efficiently, and whether it makes the list. That pipeline could then be produced, and then it would be a “no regrets”. There needs to be some element of contingency, because it may well be that something goes higher up the priority list because all of a sudden a new town is going to be developed and that can pay for the station. You do not want to be too rigid. The element of surprise by not telling landowners where a railway may come so that they bank the value and capture it, when in fact they should be paying into a new railway as part of the incentive for it being delivered, is sometimes lost if you are too specific about the list. There needs to be some contingency and some level of change. If it went through that process you could involve the politics, but then you turn it into a proper railway delivery and then you do not change things, as things have chopped and changed over the years and cost overruns have come in as a result.

I would just extend a thought that Jim made about objectives. Railways are good at a rather small number of things. They are good at moving very large numbers of people short distances on commuter railways; they are good at moving people over long distances on high-speed, intercity-type railways; they are good at moving very heavy volumes of freight sometimes over very short distances, which is what we did until recently—for 200 years we moved coal around, which we do not really do any more—and they are good at moving medium/heavy freight over medium-to-long distances. You have to think about how the railways fit in with national, climate change and economic objectives. If you could get that buy-in, that would be much better. The danger that frequently occurs is that a lot of people, including maybe some people in this room, like railways a lot and they fall in love with railway projects rather than falling in love with the objectives that railways can meet, and that then leads to escalation of costs and bad-value projects. The homework that Jim referred to is important. Can we keep politicians out? I fear the answer to your question is no. Even in the 19th century, when railways were a profit-making thing, we never managed to keep politicians out of it because it was seen as being a monopolistic venture that could earn super-profits. That is a fool’s errand that we will not even embark on. The issue is to do the homework on the objectives and then be honest with people that some of the schemes that they may like are not going to happen and spend money on something better and disappoint people early.

We are approaching the third anniversary of the very political and momentous decision to cancel HS2 phase 2B and HS2 East. I am conscious that time is tight, so I do not think this is the right time to reflect on the sequence of events and what exactly happened then, but, with members of the panel having had a close perspective on that decision, as we approach that third anniversary, what are the main lessons to be learned from that cancellation?

One of the first important lessons is that somehow we lost sight as a nation of why we were building HS2. People will happily disparage it as being a terrible waste of money just to save a few minutes and so on. The objective of HS2 was to add national transport capacity. It followed a two-year-long study done—before I was there—for the shadow Strategic Rail Authority: “Can we please take a long-term view of north-south transport capacity?” It is a bit of a bold look, but fantastic. This was a Government agency at that point. The conclusion having looked at everything possible was, “Let’s price off demand. Let’s widen roads. Let’s build a new freight railway. Let’s widen railways. Let’s upgrade rail. Let’s build high-speed rail”—everything you could possibly think of. The best-performing solution was to build high-speed rail. At that stage, we hadn’t really completed High Speed 1, but by the time that had been completed there was pretty much cross-party political consensus that this is the thing to do. What got lost, I would suggest, is why we were doing it. That thought should have been uppermost in people’s minds when they were thinking, “You know what? We can’t afford to do all this”—the period of chopping back. If that had been recognised, I do not think it would have been chopped back in the way that it has been. Let us not forget that there were bits lopped off before as not being value for money, such as a link to HS1 and a link to Heathrow airport. Some of the chops, as far as I could see, watching them being announced by the Prime Minister in Parliament, were just political. The so-called Golborne Link just looked that way, from the way it was presented. My real point is this. You cannot chop off the capacity bits that HS2 provides, and sadly that has happened. We now have to fix that problem urgently, because if HS2 is anything less than a railway from central London to Crewe—some people would like it, of course, to go further—it will not add capacity to the existing network at least north of the midlands, and if it does not reach Euston, which it looks like it may now do but it is taking an awfully long time to sort out the plan to do that, half the demand will be gone. Remember, please, that HS2 is about capacity. Some of the decisions made were very injudicious. Others, I would accept, were necessary or seen as being necessary by a Government that just were not prepared to accept what looked like an ever-rising bill. That care in thinking how to make those changes for now and protect options for the future, which is still a very relevant decision across Staffordshire, I have to say, and we could waste public money and damage individual livelihoods by not getting this right, needs attention now. The property acquisition powers for what was phase 2A run out in February next year. We desperately need a clear plan. There are clear choices to be made as to what to do about that bit of railway that overcomes the key bottleneck that HS2 in its totality was designed to solve.

This is for David in particular, because you have quite a lot of overseas experience. Sir John Armitt, who was the last chairman of the National Infrastructure Commission, told us on this question, in effect, how high-speed rail was rolled out in Spain and France. Basically, once they consulted and got a lot of detail on the route, once it was agreed, the politicians did not interfere despite change of Governments. That is the story he told us. Is that a fair assessment?

I am not a super-expert, but I can say something about the arrangements in France and how we dealt with HS1.

I am just asking a high-level question.

At a high level, in France, there is a thing called a declaration of public utility that you get from the President, which gives you extreme powers. But there are some structural differences. The population of France is similar to the population of the UK, but the land area is in the order of three times greater, so there are some easier factors there. I would highlight two points if you look at HS1 versus HS2. We have all been between St Pancras and Paris. You will notice, if you look out the window, that the railway in England is basically built to the French design to all intents and purposes, including the fences, the signalling and every aspect of it. There is an important difference that, for understandable planning reasons, there are several very long tunnels under London. So HS1 was always going to be an expensive piece of railway and was very expensive compared to previous railways. The HS2 costs are now several orders of magnitude higher than HS1, so something has clearly gone wrong. There are two things that I would highlight. One is that it was a dangerous decision to change the technical specification in return for unclear benefits. The second one, which is an economic point, is that there is clearly something about the structure of the contracts and the way in which variations have been agreed that have led to many of these cost overruns. There is a long list of things from more tunnels and station ideas coming and going. Clearly, something has gone wrong by orders of magnitude. John Armitt is right in saying that you probably need to have a clear view on the route very early on. That will arise from Jim’s point about being clear what the purpose of the railway is. Secondly, you probably need to make a decision early on about whether you are prepared to invest in any technical risk. I would guess that most people, if they thought about it hard, would say they do not really want to do that. A particular issue in the UK, stating the obvious, is that cities are not very far apart, so train frequency will be as important as train speed in determining how the passengers experience the railway. It is not really about the maximum speed of the train; it is about the end-to-end journey time from 23 railway cuttings to wherever it is you are going to in Manchester. The train frequency will be just as important in that. Clearly, something has gone very badly wrong about the incentives for the construction and the design that leads to most of the cost overrun.

Do you have anything to add, Huw?

Yes, to both your point, Chair, and Mr Turner’s point on what lessons can be learned. The Stewart recommendations need to not just be accepted but delivered, and the delivery of it will be the challenge. It talks about the fact that if inflation goes above a certain level funding needs to go up, ringfencing HS2 from the other Department for Transport capital spending projects and having that five-year funding cycle for it. On the positive side, the leadership under Mark Wild is exceptional. That will help. We must not lose sight of the fact that we can build railways well in this country. The Transpennine Route Upgrade is to time and budget. East West Rail from Oxford to Cambridge is to time and budget. One point the Stewart report makes is that we need to talk up HS2 as a project because they need the confidence to be able to deliver and turn things around. In terms of learning the lessons, the partnership approach was mentioned in the previous panel. If we involve and devolve powers, and build railways in partnerships with mayors, it means that they can utilise their powers of development, and the Government and Network Rail can utilise their powers and the supply chain to build a railway. I look around the partnership board that I chair and everybody I see can deliver us a railway. They can also deliver us the homes, the jobs and the skills through the university that you need to make the business case for the railway. We need a fundamental change so that it is not just railway focused. As the Stewart report makes quite clear, projects do not go wrong; they start wrong. You need to spend much more time on the development, and then you are ready to deliver. You need a more coherent governance structure and not, effectively, competing, as the DFT did, with the HS2 body. “Recommendations need to be delivered” would be the key response.

All right, thank you. I would very much like to welcome Sarah Edwards, MP for Tamworth, who is guesting for us today from the Business and Trade Committee.

Through this Committee, I have long challenged the business case process and the Green Book methodology. I do not think it properly scores rail, and not just rail but other light-rail projects or the underground. The extension to Canary Wharf on the Jubilee line scored really badly on a business case basis. I do not think anyone would argue, when they go around Canary Wharf and see what came as a result of the Jubilee line extension, that that was not value for money. We have also seen it with the Northumberland line where we vastly underestimated the number of passengers—five times the numbers. You can score roads higher because you can measure the congestion reductions and therefore apply, whereas with rail you are never really able to apply the economic regeneration and growth that will come off the back of it. As a result, it scores low.

The Green Book; they are Treasury rules in that sense. For rail, it has to follow three business cases: the strategic, the outline and then the full. That can take an awfully long time. It can also cost quite a bit of money. Then there are always challenges, because if the scoring is not high enough from the Treasury rules that say it is good value for money, the accounting officers cannot sign off on it, and it requires ministerial direction. As a result, a lot of rail projects do, and it is quite challenging for a Minister to effectively sign up to say, “I’m willing to spend all this money that is being characterised as poor value for money.”

I remember an inquiry where the predecessor Committee, Chair, that you were part of made recommendations. There was a belief that the Green Book would change and score better on decarbonisation and regeneration, for which a lot of rail projects will tick both boxes. All I can say is it did not seem to pass muster. I know that there is talk right now, and it is important that those rules change and that railways can properly score what they really deliver. We know from evidence what they can deliver. That needs to be baked in as well as looking at things in rigid testing.

Yes. I was in Tamworth last week. I wish I had known.

Tamworth, in my mind, has always been one of those places that should benefit hugely from HS2. I realise it is a great frustration. I have been badgering the Department for years now to come clean on what we are going to do with this released capacity that we get on the west coast main line, which is the reason we are spending all this money. The answer is, “Well, we don’t really need to decide that now. It’s early to set a timetable, and we might set expectations running.” That is the defence. It is very frustrating because it means that the opportunity for places to get a much better train service on the existing railway, having lived with HS2 being built nearby, is lost. Therefore, it is very difficult to engage, I should imagine, with the local business community in believing that there is a good idea to expand their premises there rather than somewhere else, because they do not really know that for certain. It is a tricky problem. I have not yet seen a solution, but the High Speed Rail Group will do its damnedest to keep banging on about this because that is where the gain is. The question of measuring it, to me, is all rather dull and boring. We can look at the number of jobs already created in Birmingham, which people are quite happy to talk about. City leaders will say, “This is largely down to HS2. Why do you think one of our big national banks relocated to Birmingham from Canary Wharf? Because HS2 was coming. It therefore made sense to us.” There is not quite the same effect yet in Manchester and so on, possibly because they cannot see it being built on their doorstep. I don’t know. These things, I can imagine, are very hard for Treasury in an appraisal sense business case to say, “Look, we can bank that, not just you. We’ll get more income. There will be more employment. There will be more tax revenue,” which is after all its bottom line. It is a tough one. I will come back to this. It is about creating capacity. Let us talk more about how that is going to happen without committing people to say, “Oh, so there’s going to be an 8.53, is there? I’ve always wanted one of those.” “No, but yes, we will be at least doubling the fast train service to London,” and so on and so forth. Those statements, I believe, could be made and will help to bring the wider benefits, which after all is one of the key reasons for getting this additional capacity in high-speed rail.

I have two things to say. In the previous session, one of the witnesses stated that it would be best if we could reduce the number of times the appraisals were done. I am strongly of that view. There is probably very little to be gained in doing broadly similar calculations at different points in the process. You probably want to do the basic number crunching early on and kill off schemes that are not going to make it early on. Developing schemes over a long period of time and then doing repeated variant cost-benefit analyses hoping to get a different result is probably not a good idea. As to why the cynicism about some schemes has developed over time, there is a wide range of outcomes. It was a big feature of the 1970s that there would be big, particularly urban, rail schemes, and very often they had disappointing results. What do I mean by “disappointing”? These are schemes like the Merseyrail loop, the Tyne and Wear metro, and the Argyle line in Glasgow. If we go to any of these places, nobody will say, as Jim alluded, that these are a bad idea. Nobody wants to remove the Tyne and Wear metro. If you look at the patronage of the Tyne and Wear metro versus the forecasts, it has tended to underperform; and there are many of these schemes. The idea of optimism bias goes back quite a long way. Some of the schemes justify that caution. In general—Jim may be more of an expert—the longer-distance fast passenger schemes, intercity schemes, have had perhaps a better record than some of the urban schemes. There are very few people, by the way, in any of these areas who will ever say, “We didn’t like the tramway.” I was involved in building the Midland Metro. The patronage is roughly one third of the number on which the approval was given and was seen as only delivering a rather miserable cost-benefit ratio, but nobody cares about that now. From an economic perspective, it is important because maybe better-value schemes existed. There is a difference between perception and what miserable economic types like me like to spend our time on. That is why Treasury cynicism about some of these schemes developed.

Did you want to come in on that point, Jim?

No.

I think just using relevant evidence. Let us just stick with HS2. Sorry, I am in an HS2 loop now. I am sorry, panel. What is it? It is a new railway between London, Birmingham, Manchester and points north: fantastic. What do we know about the ability to influence people to travel by train in that corridor? Is there any evidence that if we make the train service a lot better, more of it, faster and all that stuff, more people will use it? Yes, there is. Is it ever brought into play in assessing things? No. Let me just explain what that is. We have been through the approach, as far as we can, of upgrading the existing line. That was done in a very constructive way in the early days of privatisation by saying, “We’ll transform the train service.” What did that do? The demand trebled. We are used to dealing with 2%, 5% and 10%. It trebled within 10 years. The ability to influence how people travel by the product of what you offer, the service, the quality and the reliability is visible. I am not saying it is perfect, by the way. We know there are problems and it has gone slightly backwards, but that was what was achieved. That would seem to me to be a confidence factor. If you were making a submission to the Treasury, you would want that kind of thing. It does not appear anywhere in any formal business case guidance. We just have to be a little more honest and open about what we know about what the regional city authorities that you interviewed earlier think.

Why do people make choices to travel by car or rail? Nowadays, with mobile technology and occasionally a working wi-fi, you can work when you are on a train in a way you cannot when you are driving. Does that feature in the assessment criteria?

Not in a very positive way.

It is too rigid. First, rather than just looking at the time saved because journey time is reduced—

Exactly.

It needs to be the productivity points you make for those using the train as well as the productivity of freight and the growth of freight. For the Liverpool-Manchester project that Liz mentioned, a large part is predicated on the growth of freight out of the port of Liverpool. It also needs to be predicated on the railway being the enabler of economic growth and tie in the fact that, were it not for the railway, this new town, the expansion of Manchester airport and the new Gateway station in Liverpool would not occur. All of those factors brought in deliver an economic case, but because of the way the scoring currently works it may come up as low value for money, when by the time it is done it will be anything but that because all those things I have described would not occur unless the railway was there and there were the development zones around those stations.

The action would be to unpack schemes that are broadly seen as being successful and then do some economic work on the flowthrough effects that Huw has alluded to and how you put monetary values on them. If you can get a large evidence base of these kinds of effects—there are plenty of good schemes as well as the ones that are seen to have disappointed—you might be on firmer territory. Obviously, the other side of the equation is the cost overruns problem. It is a calculation with two dimensions: the number of passengers on which all the benefits come from and the cost. If the costs are going the wrong way, you are automatically weakening the case.

I am slightly nervous. One of the ambitions in the infrastructure strategy is to get people looking at these things together—electrical power supply, availability of industrial land, new towns, housing expansion and transport. There is an assumption in just saying, “These things are important and may have important interrelationships. Somehow, we’ll get more coherent planning.” I don’t see anything that says, “We would like you, at city region or regional level, to sit down and look at these things together and see if it makes a difference to what you were thinking of doing.” If you are not going to do that, honestly I am not quite sure how it affects this pipeline in our sector of transport or in energy transmission. We are a little bit fearful of sitting down and looking at things together and thinking, “Oh, this is some kind of Soviet-style master plan.” I am not asking for that. Just look at these things together and see what you learn. We have devolved authorities. We want to give them more influence, and this is where they would be incredibly helpful. They will know what the narrow rail people do not know.

I was hoping for a pipeline of specific projects. It is important with the infrastructure strategy to see that we are going to need a huge amount more capability in terms of energy. We will bring it offshore. That means connecting it to the grid. I do not think it has really been thought about how you then construct and all the materials that have to go there. That is going to require rail. I do not think you then say, “Right, in that case, we’ll prioritise rail spend on that,” so that it delivers what I have just described. It is too compartmentalised. I do not think the industrial strategy and the infrastructure strategy have quite cracked that part.

Sorry, I have just realised that time is moving on. We have five substantial questions, unless colleagues feel that you have already answered them. Just for the record, Huw, when you said the North London line, did you mean the North London line, or did you mean the Elizabeth line, both of have been hugely successful?

I said the Jubilee line.

No, Jubilee, and then I think you mentioned the North London line. I wondered whether you meant the Elizabeth line as a successful project.

It has been a successful project, so I should have said that. I did not realise I had said North London.

The Elizabeth line?

Yes.

The North London line was also very successful once TfL took it over. It is a different line.

I remember using the Jubilee line as an example.

You said the North London line. I know that because it is on my patch.

Northumberland line.

Oh, the Northumberland line.

That is what I said.

That was also a very successful project.

How do we square the circle of the sector wanting certainty for investment while projects have to go through many stages of development between them first being announced and confirmed and spades in the ground?

I come back to the Stewart report and recommendations again. It is about making sure that you take the time at the very start of the project to scope it out and how it should be planned. Take more time at that particular part rather than waste time and feel that you are behind the curve, and then you rush delivery. As well as rushed delivery, which is where we see there is a challenge because it takes too long to get going, there is also the challenge of changing delivery and changing scope and not staying true to it. Again, that is a challenge. On the big projects where we have Bill Committees with petitioning, it is quite adversarial. Things can change. Parliament needs to look at itself and assess whether the way it gives consents is the right way. I would welcome Parliament—that is down to Parliament, not Government— changing its approach so that we can get that decision making much faster and it is less legal and adversarial. If we just stay true to it, and do not let the politics get involved and people pork barrel their discounts, we will end up delivering projects to time and to cost.

People on the Bill Committee would not disagree with you on that.

Absolutely. We have heard a lot about partnership, predominantly from the previous panel as well as from you. Partnership always sounds brilliant as a concept, but it involves people agreeing with each other. Is there a danger that, as we go further down that model with the reforms that are coming in of giving more strategic transport authorities additional powers, we are slowing the process down and having more division, which will hinder delivery?

I will give an example where both of those things may achieve a better aim. With a partnership approach—and I have just referenced the adversarial process on the HS2 Bill Committee—that required Greater Manchester combined authority and Transport for Greater Manchester to go and petition, whereas if they were delivering it they would be agreeing what they want to deliver and how the scheme unlocks. For example, an underground station at Piccadilly would unlock 40 acres of prime development. That is what you can then bring to the project from a financing perspective as well, meaning that partnership solves some of the adversarial parts to it and allows you to get a much bigger bang for your buck as a project. The mayors and the combined authorities are using their powers and their ambitions, tying in what they would like to do and maybe amending it because the railway could work better this way, and you have a much better project. I firmly believe that devolution is key. I worry perhaps with GBR that, while there is the focus on devolution, it is about integrating track and train. Ultimately, I have always thought that local people and local leaders know what is best for their communities. They have a budget as well, so they are realistic.

They do, I agree, but it is a national network. You would not happily say, “You know that thing, the national grid? Why don’t we devolve and combine and partner on all of these things?” You would say, “But if we’re going to expand it, we’re going to have to consult and we’re going to have to see if we can get agreement on things.” It is a tough challenge, but we have had stronger relationships in the past. Basically, passenger transport executives—a Barbara Castle invention—specified what services they wanted running, and they paid British Rail to run them. There are all kinds of arrangements. I share your anxiety that it might be just a bit of a talking shop.

The 1968 model ran through until about 2000, but it did not resolve the funding problem, because the PTEs were being funded substantially by the DFT and British Rail was being funded by the DFT. The purpose of it was not to introduce new money; it was to force local input. It was a perfectly workable process that ran for decades. It is not clear why you would not just go back to that.

I am a great fan of passenger transport executives, being probably the only MP who ever referenced them in their maiden speech.

Following on from that question and in the context of devolution, how do you think central Government-funded programmes or DFT programmes such as Access for All and, previously, Restoring Your Railway relate to an overall pipeline?

This is down to one of those tough choices that you have to make early on. Government would say of National Rail, “We’d like a safe, reliable, accessible railway.” You might want to add something else. We know roughly what is wanted, but the question is how you are going to prioritise that. There is a real strategic choice now. We have seen some parts of the country with new train fleets creating pretty close to step-free access, although not everywhere because platform heights vary, blah, blah, blah. We are about to replace a huge number of diesel trains. We can make a requirement of accessibility. It will be there, but how do we deliver it? There is a real choice to prioritise that and make it clear and explicit that this is something that Government want GBR to deliver for them. It is a tremendous opportunity ahead.

Access for All caused big challenges while I was Rail Minister. Chair, I remember engaging with you on this. You have always had a passion for this—

Still waiting.

As did I. The challenge was that projects were not being properly scoped out to ensure that they would fit within the envelope. They should be the more straightforward projects where you need lifts and the bridge across. I had to speak to a number of MPs. It should have been budgeted around about the £5 million mark if it was fitting in Access for All. There was one north London scheme—north London this time—for £30 million, and it meant I had to speak to the two MPs and say, “We’re having to take it out of scope. That is more for enhancements.” It was quite clear also—I feel that Network Rail would say this was fair—that it did not have the right level of seniority and oversight. They did correct that. When the decisions were made as to which stations went on, while there was scoring methodology around the numbers of people in a certain age cohort and mobility issues or whether it fitted into a strategy of making all those stops accessible, there was still some political interference as to who should get their Access for All. The business case had not properly been scoped out, so it meant that at that time we did not know whether it was going to be a £5 million or £30 million exercise. There needs to be much more modularisation so that one team comes in and delivers and then moves on to the next one and learns lessons, not different contractors in different regions. Quite frankly, if heritage groups are going to get quite difficult about how it looks, you move on to the next station where people welcome it. I believe that people’s needs and access rights should sometimes trump the colour of paint. I am afraid that became an issue. Restoring Your Railway was an interesting exercise. It was a classic Grant Shapps competition: “Everyone get involved.” On the one hand, it did ringfence some moneys. The Exeter-Okehampton Restoring Your Railway at least to passengers, if already freight, and the Northumberland line, as I have mentioned, were both successes that arguably may not have occurred had it not been ringfenced. The challenge was that a lot of people had their expectations dashed. A lot of business cases were, “Let’s move it to this stage so we can keep the dream alive.” That just wastes money and expertise because you know that scheme is not going to get a return. I have mixed feelings on it as a result.

I am aware of time. David, do you have any comments on this?

No, I have nothing to add on it.

I worked for Philip Hammond when he was Chancellor, who said, “We’re never doing PFI again.” The danger with that is that it seems to have sent the message that private financing is not welcome to partner. We certainly know that when the Treasury sees private finance it feels more confident in a scheme because it is more likely to be held true. There is obviously a desire from the Government and particularly the Treasury for growth. There is also a desire from the infrastructure investors—those that tend to own the ports—and freight operators. They are huge sovereign wealth funds and pension funds. They want to invest because it will also unlock growth in their asset as well as being something that can be returned. I feel there needs to be more of a process or a set of instructions as to what is good private finance that the Government will welcome and will not end up on balance sheet so that the private sector understands the schemes that it can bring forward. There seems to be a desire from the Government that it occurs and a desire from the private sector that it wants to do this. Something is lost in the middle, and I think it is the detail on what would be welcomed. I very much hope that will be unlocked.

A lot of our clients are banks, infrastructure funds and so on. We have seen them coming into the transport sector in various ways over the years in airports; they own a number of bus companies, financing electric bus conversion and that kind of thing. There is a lot of interest in this. There are different pools of capital with different appetites for risk. You have to scope your schemes to fit the interests of the different groups. You also have to think about what the role of the private sector is. Huw has alluded to this. It may not just be providing capital; it may also be competition of good ideas. Maybe they can bring better ways of delivering the end objective at lower cost. Again, this is as old as the hills; these existed in the 19th century. The Forth bridge was built by an infrastructure company. This is not new thinking. It can be done. You have to remove political risk; they cannot take that political risk. There is a large opportunity here to think about schemes. A key issue that has been alluded to is on whose balance sheet these assets sit. Everyone is going to believe this is really Government debt, which it would be, but a lot more could be done and competitions could be created. A lot of capital is looking for this kind of home. Energy transition is a large pool of capital. Incremental electrification schemes are the ones that are the most obvious place to look. By the way, per the earlier discussion about strategy, you need to roughly double UK energy production to decarbonise transport. There may be opportunities for them to electrify the line and provide incremental renewables. There is a tremendous amount that could be done, given thought and time to develop the objectives and the structure. The objective to PFI used to be, just to be rude about it for a minute, sometimes a trivial one, which is a bit like saying, “I object to Nationwide asking me to repay my mortgage.” In essence, it is just a mortgage. The clever bit is if it provides some insight and help and a better way of doing things. At the financial core, you are just taking out a loan and repaying it over 20 or 30 years. Of course, that is not as good as the DFT coming along with Treasury money and just giving you non-repayable capital. That is one of the reasons people do not like it.

Yes, just very briefly. David is quite right to point out electrification. That could well even attract the existing ROSCOs to fund it because these are probably going to be small-scale intermittent schemes rather than great long routes. There is kit to go with that. They fund depots anyway. There is an established competitive source for that. That is a good approach. It is also just worth remembering that HS1, once it was finished and up and operating, was sold to, in the first instance, a Canadian teachers’ pension fund. It was by far the biggest cash inflow payment to Treasury that has been made off the back of a PFI project. What is required? Two things: first, a stable, non-political income stream, which is track charges; and, secondly, a means of reviewing what the value of that would be periodically going forward, because this is a very long-term deal. We have an independent regulator that retains those powers to make those decisions—”Five years in, has the cost of this gone up? Have interest rates shifted?”—looking at the balance of interest and setting the charging structure periodically forward on that basis. We have the mechanism to do this if the will is there.

Other models beyond straightforward investment. Land value capture?

That is something that we have not done a lot of. The Northern line extension to Battersea is often cited. That basically was, “You can’t develop Battersea unless the Northern line is there,” therefore it was a bit more obvious. Crossrail was quite an interesting one because a levy was put across all London businesses. That meant that if you were a business in Croydon you would be paying in as you would if you were someone just down the road from the station. If you look at the sheer number of jobs that have been developed off the back of Crossrail, it is absolutely extraordinary, so it is probably right that business pays in. The Northumberland line had a bit of land value capture in it. You need that element of surprise, because as soon as you have said where the railway is going to go it means that the incentive to be a part of it if a railway came would go. Certainly, in Liverpool and Manchester, that is very much what we are looking at in terms of land value capture. It is also fair. Why should a landowner just happen to be fortunate enough to have a railway nearby and make a lot of money but not pay anything in? But it can also be the difference between projects going ahead or not.

The way that we have done it in the past was a long ago thing. The Metropolitan Railway famously was basically a property developer in the ’20s and ’30s, and it got significant income from developing residential properties and office properties. This has been done. It was much more common in America in the pre-second world war period. But that would be a completely different conception of what a railway company is. The current live example would be that all the Japanese railway companies function as property developers. This, again, is not science fiction. It is a totally different way of thinking about the capital and the objectives of the company, and what they do as a business. Their primary business is property development enabled by the railway.

We have to be careful that we do not end up building on railway property. A classic example is that you deliver aggregate into a yard which allows you to house build around an area, and, if you just look at it and think, “Well, that will be a great space to build houses on,” you do not have the material to build houses elsewhere. A strategy is needed to make sure that we do not sell off land that really is needed for railway purposes.

The unfortunate answer is that there are only two ways of financing it, which is the passenger and the subsidies. The subsidies break down into different types. There are only two sources of income. Finance is a way of spreading the cost over time, but it is not a source of magic money, because it has to be repaid. Several people have said it already today. Getting more fare-paying passengers is jolly helpful, and that is obviously what the Japanese have spent a lot of time on. Then you have to think about how the subsidies are structured. Unless anyone has any superior information, those are the only two sources. It is just that the subsidy side is often very complicated. It normally traces back to the Treasury. You have to resolve that problem. More passengers are really helpful.

We could allow the railway to take more land so that you could then develop on a part of it. You could follow more of the Japanese model. With HS2, it is fair to say that the House of Lords narrowed it. That meant that you could not build as much, which would have gone to the payment. I would also argue that, when you are getting the consent for the railway, you take enough land to make sure you can develop around the stations in particular. That is where the money comes. That way, it pays into it.

We have probably come to an end. In your extensive answers, you have all more or less covered the last couple of questions. Thank you all for coming today and for the evidence that you have given. If there is anything else that you would like to add that you did not get a chance to say today, please send it to us. We have all found your comments and answers very helpful. We have our final evidence session in a couple of weeks’ time with the Rail Minister as we move towards the final stages of our inquiry. That concludes today’s meeting.