Sir Peter Hendy CBE, chairman of Network Rail spoke to Lorna Slade about devolution, working together, and why he’s ‘dead keen’ on having private money into the railway…

With the government’s devolution of power agenda, for example new combined authorities and mayors are going to want your attention. Will Network Rail be pulled in different and unplanned directions, and what could go wrong with that?

Our own devolution gives us route managing directors with more power locally, part of whose job is to get on with all stakeholders including local authorities and particularly where there’s a new mayor, where government has given money and devolved some tax raising powers like business rates and so on. And we’re very anxious to get on with them because they’ve had significant monies given to them from government for local infrastructure enhancement and skills. In the case of the West of England for example its £30 million a year for 30 years, and frankly some of it needs to be spent on the railway so we’re dead keen.  We see the government’s devolution agenda as an essential reason why our devolution should work.

What’s more devolution is about creating economic wealth on a local basis, and we’re extremely keen on that because the railway has got something to offer. Were we not devolving it would have been more difficult, but because we are it’s relatively easy. And on my part, because I used to work with the mayor in London I’ve had 16 years’ experience of a devolved transport organisation.

The recent Independent Transport Commission report Classic Rail and Connected Cities: Capturing the Benefits from Rail System Development provides a template for maximising the long-term benefit from railway enhancements. You gave a foreword to this. Can you comment further?

The essential ingredients, which I learned in London, are that you need a strategic spatial and economic development plan for an area which sets out the places where jobs are going to be created and the places that houses are going to be built, and then underneath that you need a transport strategy which sets out what the transport links are to make those places work. Then you need to fund the right projects. And I think some authorities are further ahead than others – actually West of England’s got quite a good transport plan, opinions vary about how good the spatial development plan is, but you need a good one of both of them, and if you look at London’s success that’s why so much was funded, because transport then enables the plan to happen, which is what creates the wealth.

So you think planning has been good enough…

Well it’ll be better when the mayors and the combined authorities get their act together: in some cases there’s a good regional spatial plan, in others clearly less so. But what is essential is that there is one, because without one you build the transport links in isolation and that’s useless frankly.

Yes because the report states: ‘We regard rail system development as too important to be left to the rail industry alone’.

I agree. One of the things that’s been wrong with rail planning in the recent past is that there’s a big enhancement programme but it’s a whole collection of projects originated by different people, and I agree that there should be an evident and overt link between economic growth and planning railway enhancements. Indeed the other reason for that is because the people who benefit from the enhancements, which will generally increase land values, ought to pay for some of it too, and that hasn’t happened either in the past.

In terms of the new vertical model planned by Chris Grayling, what can go wrong between public and private companies? You are on record as saying that putting in the signalling on the Jubilee Line was ‘hell’ because the PPP didn’t allow the correct relationship to deliver the project?

Yes that is correct. I stand by that verdict the PPP was a disaster, but it’s a really good example of a contract that was not harmonised with the operation of the railway, and I can remember sitting in the mayor’s office with Riley Bechtel telling him that he was entitled to have the railway as often as he wanted to finish the job, which to say Boris [Johnson] was surprised was an understatement, and that’s not a very good way of running a public transport system.

It doesn’t mean that the interfaces between public and private sectors can’t be made to work properly but – all Mark Carne’s work not mine – the integrated scorecards which our routes now have, on which we’re judged on some of the measures that our customers –  the train operators – are judging themselves on, is a very good way forward.  So we need to make sure that what we do is integrated with our customers.

The other thing is that there’s no barrier to the private sector working on the railway, the only questions are ‘What are the contractual conditions under which they do it?’ and ‘Are they attuned to the operation of the railway?’ The PPP was an extreme example of ones that weren’t and I think we’re quite able to work with ones that are, providing we’re thoughtful and we remember what the customers actually want.

What are the incentives for Network Rail and Toc’s to work together?

If we share each other’s scorecards and we reward our staff, and they reward theirs, on the grounds of measures that matter to passengers and freight, then we will succeed in doing things which are the right things to do together, even if our motivations are slightly different.

The fact that this is a public sector company and the train operators are private sector people – I’m not bothered what their ownership is, I’m bothered about what their motivation is to work together.  And we are beginning to see some results out of the routes: West Coast Main Line is performing better than it has done for decades – we used to pay them Schedule 8 now they’re paying us Schedule 8 because it’s so reliable. That’s good for us but it is about getting the right measures together, and the fact that many of the Toc’s want their measures of customer satisfaction to be on our scorecards is, I think, absolutely fantastic; that’s the right way of doing things.

Chris Grayling says the vertical model will lead to cheaper fares – do you believe that will be the case?

That’s more likely to be his choice not ours. The level of railway fares is primarily a function of government policy but if it makes the railway cheaper to operate then that’ll be a result, and it might do because more liaison might make our works quicker to do and cheaper to do.  The other thing is that if we work together we’ll almost certainly create more capacity than we would do if we didn’t, and that’ll increase the number of people travelling, so that’ll produce more revenue as well.

Responding to Grayling’s plans, shadow transport secretary Andy McDonald sees the new vertical model as introducing yet more fragmentation and complexity. He also sees the new structure as offering more opportunities for private entities to extract value out of our railway. What would you say to him?

It’s wrong. That’s what I would say. I think it’s a cheap political point and it doesn’t reflect a real understanding about how the railway works. It’s not an additional layer of complexity, in fact it’s less complex if the train operators and Network Rail work together with the same set of objectives than it would be if we had separate objectives, and I don’t think it matters who owns which bit of the railway, what matters is that it works for the customers.

So the new vertical model will fit with Network Rail’s devolution model?

Yep, absolutely. Absolutely right, and the only difference is that our routes generally serve a number of train operators. So in order for us to get a decent scorecard we’ve got to consult each of the operators that have trains on our routes, and the scorecard that results will largely have the dominant operators’ measures, but also some other measures, from people like CrossCountry for example: there’s some real innovation there because, while PPM is the national measure, if you’re CrossCountry what really matters to you is right time arrivals at Reading and Birmingham, because that’s where everybody changes. So that’s what’s in the relevant route measures for their performance and that’s absolutely right.

Regarding Network Rail’s plan to operate more like a business than a public sector organisation – part of that is that it’s developing a new incentive scheme to reward private contractors for investing in the Digital Railway. Can you confirm yet whether the financial return for the investment will come from Network Rail or from the Toc’s benefiting from running the trains?

So this is work in the course of development but Mark and I and the board certainly believe, and I think for that matter the government certainly believe, that where there are investments in the railway that create more capacity, which have the potential to create more revenue, then the way to draw in private sector investment rather than government investment is to make sure that investment can be rewarded by performance, and if the performance or the assets produces more train paths and therefore more revenue that’s evidently where the source of the reward should come from, so it won’t be rewarded directly from NR, but it will be rewarded from the railway as a whole, enabled by the extra capacity it created.

You said concerning the increased revenue ‘However there will have to be some adjustment because railway revenue goes in through a different door of the Treasury to the one which Network Rail’s costs are paid out of, so that needs to be resolved.’ 

It does. And I think that’s a challenge for the DfT. I think they’re right up for it, they’re evidently very keen as we are on private sector investment and that’s something that they have to solve.

Can the DfT and ORR keep up with Network Rail’s new mindset and structure and be supportive and innovative?

Yes I think so, I mean you should ask them but certainly the ORR has been very supportive. We are looking for separate regulated settlements for each of the routes from April 2019 for CP6 and they’re up for that. The Department are up for it too. And frankly everybody wants us to devolve so the least they could be is receptive to the mechanisms that result from us doing so.

How are you getting on with the DfT? Do you think your new funder will be interfering more despite appearances to the contrary?

We came out very strongly in support of the secretary of state’s proposition that the track and the train should be closer together because it absolutely mirrors the devolution structure that Mark’s put in place. The DfT is also responsible for letting every franchise, which involves a huge amount of detail about how many trains stop at which station, and therefore the working with Network Rail is inevitably really close. I mean it would be foolish to say that has always been in total harmony because it can’t be, and there are different stresses, particularly when the railway is as crowded as it is now. But on the other hand, actually, whoever was letting the franchises, and whether they were our owner or not you would have at least equal debate, because the capacity of the infrastructure to absorb the number of trains and people that we all aspire to put on it is bound to lead you to an interesting debate, if not some things that need to be resolved.

Every franchise is looking for more trains, longer trains, faster trains, new methods of propulsion, and they all require infrastructure adjustments, so, is it an easy relationship? Well sometimes it isn’t actually, but would it be an easier relationship if it weren’t the DfT letting the franchises? No, it would be just as difficult.

And the delay over electrification – did that cause tension?

Well I think the truth is it’s their choice [DfT] because it’s their money, so my report is my report – I wrote the first four pages, they decided what was in the other 112 because it’s their money. I mean clearly every change to the CP5 enhancement programme is a change; it can sometimes cost money and time. Is it a tight programme? It’s hideously tight. There’s no spare money and there’s no spare time in it. Would you really have wanted it to be like that if we weren’t where we are? No, but we are so we’d better manage it.

ORR’s Joanna Whittington sees the potential for increased devolution of routes to undermine the quality of service to those operating across them – freight operators for example – do you believe that’s the case?

We have to be careful because you can fill the railway up with the most immediately demanded passenger paths and we do need freight to not only have the paths it needs but to be able to grow. On the other hand if you look at the recent exercise that Paul McMahon, the freight route MD did, the result of his painstaking work has been the removal of something like 4000 freight paths a day which weren’t used, which enables them to be available for passenger services, so it doesn’t wind up in inevitable conflict. What it does require of us all is to work closely together on a very granular basis to fit everything on the railway, and that’s much harder than it was 20 years ago. Paul’s work has been done path by path, but that’s the only way to do it otherwise you’re full of generalities about not being able to fit any more trains on a bit of track, which is virtually never true.

You mentioned earlier that ORR will be regulating each route – will that be harder for it to keep a handle on all that goes on?

I don’t think so, I mean Network Rail is still going to exist as a corporate entity, and the board and the executive are still going to have to opine on moving resources, money and people between the routes according to what the need is. Actually I think it’s easier in one sense because judging performance by aggregate measures across the whole railway is a pretty hapless way of measuring things, because the railway’s not the same thing in different places – national PPM targets don’t mean anything – the PPM of a CrossCountry train from Dundee to Penzance plus or minus ten at Penzance affects a minute number of people compared with right time arrivals at Birmingham where all the trains are full and they all change between them. So I think if it requires a bit more dexterity that’s dexterity worth requiring if you see what I mean.

Network Rail has a vociferous critic in Lord Tony Berkeley, who says it failed to produce realistic costs for projects and deliver them on time and to budget. What do you say to that?

He’s alright. He’s a nice old stick. He has got one or more correspondents who would like Network Rail to adopt particular methodologies of project management, and he’s welcome to his view, and the evidence shows that actually there are projects, particularly in CP5 which haven’t performed well so we can’t be too righteous about it.

I think Mark and his executive have been through a huge process with CP5 enhancements. The truth, whatever Tony says, is that a project which hasn’t been scoped properly, where the outcomes are not clear, where the costs are not clear, where the timescale isn’t clear is almost bound to go wrong. There are a number of those in CP5 which have been designed as they’re being built which is the reason they cost a lot. And that’s not where you want to be. Crossrail is an outstandingly good example of a project which was properly scoped, costed and timed, and will deliver on time. The Great Western is not a project like that; it’s a very bad project from that point of view and that’s not wholly Network Rail’s fault.  I wouldn’t disagree with Tony that we can manage projects better; the best thing we can do is to know what they are before we start them; that’s the biggest solution.

Ian Prosser told the Transport Select Committee that Network Rail has not yet assessed all of the risks arising from its move to ROC’s and has concerns the network may now have a single point of failure. Could too many eggs in one basket eventually be a problem?

Well Ian’s a very wise bloke and I think that one of his comments if I’m right was about the management of very large numbers of level crossings remotely. I think that’s one issue that we are looking at. As to the durability and the resilience of the ROC system, what is true is you’re concentrating more control in one place; I don’t have enough detail to know whether his criticism is justified or not, but what I do know is that when Ian says something we take it very seriously.

How will they [ROC’s] cope with the Digital Railway?

Well that’s different because a lot of the intelligence transfers from the signalling system to the train – if you want to pop up to the Northern Line control room at Highgate you can see the Digital Railway in operation

So will it be easier for them?

Well, when I was last up there they were all drinking tea with their feet on the table because actually the system does a lot of things for you which you would otherwise have to intervene in.  So if there is a perturbation the system will work out the best thing to do with the trains for now and several hours hence. Manual methods of control produce virtually impossible decisions because you’ve got to work out what might happen in two or three hours’ time for both the trains and the crew. So I think it makes it easier. It’s a much more relaxed environment at Highgate than I ever remember at Cobourg Street, when they were pretty fraught most of the time.

It appears to be Network Rail that looks into business cases and benefits of rail re-openings and other enhancements. Yet again that involves consultants but no input from Toc’s. Who is best qualified to work out whether a scheme should go ahead or not?

So it’s partially Network Rail, but actually the business cases for quite a lot of enhancements in CP5 are actually held by the department [DfT]. And it ought to be a matter of public policy whether railway re-openings, certainly as far as they’re paid for by taxpayer are… Toc’s have a role to some extent, they can opine on things to do with the operation of trains on the railway, but actually it’s a basic decision about economic growth and where you want to put your money. I think what’s more important frankly is that any such propositions are accompanied by real offers of support for rebuilding the railway. If you want a railway in a place that hasn’t got one you presumably want it because people believe it’s got an economic value, either in jobs or houses; and my invitation and Mark’s invitation and our route MD’s’ invitation is for people to put their money where their mouth is.

What’s the situation with the East West Rail link? Chris Grayling says it will provide a degree of comparison with Network Rail in terms of whether we can build lines quicker and cheaper than we are at the moment. Do you welcome that?

Mark and I both welcomed it. We’re quite happy to see that Rob Brighouse has just sent his report to the secretary of state. I would say it’s primarily an economic development project. There’s a forecast of building well over 100,000 houses in the arc between Oxford and Cambridge, and it’s on the money that can be gained from those houses, either through land value or from builders or purchasers, that a proposition that it should be largely or wholly paid for by private finance is made. And I think if Rob can find cheaper, better and quicker ways of building it then we’ll learn the lessons from that, as we will from the report that Professor Peter Hansford is giving us, which is not wholly on the same subject but is designed to test the contestability of railway enhancements, and so some standards associated with them in how we get private money in.

So you wouldn’t be embarrassed if they went much quicker in building the line?

No, if there are lessons to learn we’ll learn from them.  The only difference is that apart from the new bit between Oxford and Bicester, which is already open, the only part of that route which is an existing railway is between Bedford and Bletchley, which is 20mph one coach trains through level crossings, semaphore signals and flower tubs on the stations. I said to Rob I think the most difficult job he’ll find is to do up that bit of the railway when it’s running. He might decide that it’s worth closing in order to do it up, in which case it’ll be quicker and cheaper. But quite a lot of East West Rail is new build. Don’t let anybody think that Bedford to Cambridge is re-opening an existing railway – quite a lot of the track that it’s been built on has been closed for 50 years so it’s going to be a new railway, and new railways are easier to build because you don’t have to put them back together for people to travel on the next morning at 5.30am.

Do you believe Network Rail in Scotland should be fully accountable to the Scottish government?

I believe it should be fully accountable. I don’t think it should be a separate entity, and indeed were it to be a separate entity or were the Scottish government to want to take over the assets, if they are assets and not liabilities, what they would have to do is also take on a proportion of our debt, which is well over £50 billion; you can’t have the assets without the debt. My personal recommendation is to have neither but like other devolved authorities in various different ways what I think what they really want is to specify what they want from the railway and expect it to be delivered.

Mark Carne in a recent interview said electrification of Britain’s railway lines should be scaled back in favour of cheaper alternatives. He referred to the possible use of battery powered trains, other countries’ use of rolling stock run on hydrogen, and liquefied natural gas as an alternative to diesel engines, and of course the large number of trains being built in hybrid mode. Carne sees electrification as less important and that we now have the opportunity to leapfrog it and so something different. Do you agree with this or is it a way of fudging the fact the electrification programme has been so problematic?

I agree with him. The Great Western was dreamed up by Andrew Adonis, in  2007/8, who made an announcement about it without knowing what it was, how much it would cost, where it all goes and how long it would take. Then the DfT ordered some new trains. The technology has moved on in ten years, hybrid trains are fairly commonplace where there weren’t any ten years ago. Hydrogen LPG and other forms of propulsion are definitely in vogue now and batteries are a fraction of the size, weight and cost they were 10 years’ ago.

I think Mark is absolutely right: if you look at the physical costs of electrification, what you should start with for a project is the outcome that you want. When Andrew Adonis announced electrification, what he meant was I’d like new, faster, high capacity, more comfortable more frequent trains through the West of England. If he’d set that as a target then electrification is one of the ways in which you would now deliver it. And the days in which you prescribe the method of propulsion and not the outcome you want ought to be over. The only thing you would say about electrification is when people demanded it they demanded it because they knew on a new line you’d have to get new trains, but as a matter of fact you can get new trains without electrification.

What will be the impact of leaving the EU on the UK rail industry?

One of the questions is the extent to which EU interoperability regulations ought to apply, both now and in the future, and whether any other EU standards are the right standards or not. It’s quite likely that a lot of them are, simply because the supply industry is a worldwide industry and the more standards you set the more it will cost you for different versions of the same thing. But I think there’s an opportunity for us at least to re-visit which standards we’re using, how many of them are applicable, and whether or not we would now like to seek, for good reason, derogations from some of them, which may not have always been asked for politically before.

Referring to the Digital Railway and looking for technology from the supply chain, you said ‘Even if they’re not British’ and you talked about extending the concept globally. What do you see as the potential future there, and should we be more global in our outlook?

We should be more global. The reason for the Digital Railway is because we’ve got the most crowded railway in the world, so we’re going to have to use ETCS technology first before most other people. Since we’re going to have to do that the opportunity of selling that expertise to the rest of the world, acquired by British people or people in Britain even if the companies they work for are not necessarily owned by Britons, I think is a fantastic opportunity.

Several senior staff have left Network Rail for HS2. How do you feel about that? Some say it left the organisation vulnerable and reflected its tarnished reputation.

Good luck to them. I mean people come and go all the time and HS2 is one of the next great world engineering projects. Quite a lot of people left TfL when we started Crossrail for the same reason – that’s OK.  On a wider basis what the industry needs to do is have enough capacity within itself to create sufficient skills and jobs so that we can do everything. Crossrail, Thames Tideway, HS2 they’re all mega projects and I think it would be foolish and futile to say at any stage we can’t do any more because we don’t have enough people. Both the industry and the supply chain have got train enough people.

There are rumours that Network Rail plans to cut up to 1000 jobs. Is that the case?

No. All of that is an internal email leaked by the RMT because it doesn’t suit the union’s purpose. We may cut some jobs. I don’t think we know how many we would cut. If we can cut them while keeping the railway safe and costing less money to maintain it, my view is that actually as a public body we’ve got a duty to do it. The other thing which is really important is, bearing in mind it’s doubled its passenger capacity in 20 years, there are jobs on the railway for anybody who wants one for the rest of their life if they’re prepared to move who they work for, when they work and what they do, and you can’t say that in many other industries. So the extent to which we took away jobs in high output, or wherever we took them away in order to save money, the railway industry as a whole has plenty of jobs for people to do if they’re prepared to be flexible. And one pension scheme for everybody. It’s a remarkably good place from that point of view. Some huge proportion of the total number of train drivers retire because they’re over 50 – that’s an opportunity. So short-term changes in the numbers of people employed by the industry have gone up and down a few years but so has the staff turnover, and there are plenty of jobs for everybody who wants one, even if it’s not here.

In July last year, Mark Carne launched a new campaign, Spaces and Places for Everyone, that aimed to have access for the disabled as part of the initial design strategy for the railway rather than bolted on at a later stage. He was apparently ‘shocked’ when he realised how incredibly difficult we were making life for wheelchair users after joining NR. Yet in your review, you recommended that NR re-plan its investment programme to defer Access for All works from CP5 to CP6. Why is that? 

My report did defer some parts of some of the funds. I’m not seeking to evade the blame but actually they were choices made by government because it’s their money, and if you’ve got too many things to do and not enough money something’s got to give somewhere.

Have there been tremendous improvements made? Yes, because you can see around the country a whole load of disability access that wasn’t there five to ten years ago. Is there more to do? Well yes because until every station is accessible it’ll never be good enough.

What Mark said is right, but actually the real problem is that we’re trying to adapt a 19th century railway to 21st century living standards.  If we were brighter in some cases we would have designed-in the things that had to be retro-fitted when the designs were made, and that’s the right thing to do.

If you look now at some of the big works they’re doing at stations they always include lifts, they’re not put in afterwards. And Mark is right, it’s not only lifts, it’s smaller things like braille signage, like thoughtful ramps at the right incline for people who can’t walk terribly well, like the right height steps – because a lot of steps are sub-standard, they’re either very small or very large rises; if you’ve got, like I have, arthritis in my ankles, I can’t bear high rise steps because I can’t manage it sometimes, and they’re all things that really inconvenience people.

And Mark is right to say that we should be much more inclusive in the things that we’re designing as we design them. But will it be done overnight? No it won’t. Actually the surprising and interesting thing is that the railway is quite accessible already, and in fact my view, an untutored view, is that it’s more accessible across the country than the tube is, where each station costs a fortune to do because all the difficult ones are underground.

The Adam Smith Institute said last year that Network Rail should be sold off and referred to it as an ‘unwieldy beast’ that was a ‘historical fudge anyway’. What do you believe is Network Rail’s very long-term future?

I’m ambivalent about ownership actually. I’m interested, in my remaining time here – I’m 64, I’m not going to be around in 20 years’ time – I hope not anyway, not here. But, I’m not much interested in ownership, what I’m really passionately interested in is two things: one is reminding people what the railway is for, which is creating economic growth and jobs and houses, and the other is making it work properly so that it is actually able to fulfil that.

I regard quite a lot of the arguments about nationalisation/no nationalisation/selling things off as being political froth.  I think most politicians don’t actually…no that’s not true…some politicians at least, don’t really understand even that we are publicly owned and what that means, and I’m certainly dead keen on having private money into the railway because it’s the only way we’re ever going to get enough to do what we need to keep the place going.

If you look at what I did at TfL, where I was in charge for nearly ten years, apart from things that had to be done I didn’t really change any of the ownership structures or the fundamental structures of the things that we did, because that struck me as being not half as useful as making it work properly. And I would rather we all concentrated on making devolution work by getting working together with the train operating companies – I don’t care who owns them either. Because what people waiting for a train want is what they expected when they bought the ticket; they’re not really interested in who owns it.

Are you enjoying the job?

Yeah it’s great, I’m loving it.

What do you like about it?

I can go around the country travelling in the cab of trains, it’s brilliant.

What don’t you like?

There’s nothing I don’t like. The truth is actually the one thing I think is really important to do as chairman of this place, apart from support the management, is to keep on talking about what the railway is for.  It’s about jobs, growth and houses. Not what it does, that’s Mark’s job and the executives to make it work as well as it can. But the railway is so complex and there are thousands and thousands of people working really, really, hard to make all these different bits join together, but it’s not very good at talking about what it’s for, and it’s so valuable for people to know what it’s for and why connectivity is important. That’s what really motivated me and that story is well worth telling because that’s what gets you the investment; it’s what will encourage the parties to invest in the railway and it’s what will give it a future.

I’m only being half serious, I do like travelling around the country, I like meeting people that work for us and people that work for the railway, but actually the real passion is to make sure that people know what the railway is for, because if you’re in any one of the operational, maintenance, engineering, project jobs that we’ve got, you’re totally focused on what you’re doing, not why we’ve got the end result, and I think that is a job for somebody like me to do, so I think that’s quite a good job.