Copyright Rail Professional magazine. Reproduced with permission.

1. May 2015 Page 51
A
s the first speaker at a recent forum on developing
the UK rail network, Professor Chris Nash proved
to be one of the highlights in a day of bland
PowerPoint explanations marked at the half
way point by an ultra-safe discourse from Clare
Moriarty.
Nash’s talk was titled Competition, contracts and setting out
a future roadmap’ and relaying some conclusions based on
research he and his colleagues have done at the ITS, Nash began
by informing us that the main problem in the industry is that
costs are too high.
‘For all of my career’ said Nash, ‘I’ve taught my students
that rail has big economies of density, so if you have a massive
expansion of traffic on an existing network you can expect unit
costs to come down. Actually of course they have gone up –
since 1997 costs per train km have risen in real terms by 25 per
cent, which given that train kms are growing is not what would
be expected.’
Speaking to me in our subsequent interview, Nash points
out that a big part of that has been infrastructure costs, and
that’s all mixed up with the failure of Railtrack and then
Network Rail’s costs being above European best practice,
‘although they are coming down and that will continue’.
What is more surprising to Nash is that competitive
tendering hasn’t reduced train operating costs. ‘One would
be hard pushed to make the case that franchising has failed
to deliver good services, but in almost every other field,
competitive tendering gets costs down, in almost every other
country I’ve looked at it gets costs down. However in our case
costs per train kilometre is a bit above what it was when the
first round of competitive tendering finished.’
Some new evidence for the reasons why has come from
Nash’s colleagues Phil Wheat and Andrew Smith who did some
econometric work which suggests that actually our franchises
are typically too big, and that the medium-sized ones have been
more successful in controlling their costs. ‘In that context it’s
interesting to know that on average our franchises are ten times
the size of those in Germany and Sweden in terms of train
kilometres,’ points out Nash. ‘We know about the problems
of managing franchise failure, and I think the lesson has been
learned that negotiated management contracts are a way of
losing control of costs. We also know there have been totally
exogenous factors but there are two big issues; the rise in staff
costs, where real costs per train km are 30 per cent above where
Professor Chris Nash of the Leeds University Institute for Transport Studies (ITS) spoke
to Lorna Slade about industry costs, open access, Labour’s plans for rail, and what his
overseas students think of our industry
Chris
Nash
A lot of them [students] are from overseas and very often
they find it hard to understand how such a fragmented system
could work

2. May 2015 Page 53
they were at the completion of the franchise process, and the
trade unions, which have done very well out of privatisation –
fragmentation has made them stronger I would say.’
Franchise lengths are also a key issue, he believes: ‘My
impression is that train operators really tend to want results
for anything they do within four or five years, which is not
surprising given our current franchise lengths, so when it
comes to investment for instance, where the train operator is
responsible for choosing rolling stock, what they really want
is something they know they can rely on to work immediately,
rather than looking at innovations that will reduce life-cycle
costs. If you’re on a seven year franchise you’re really not
interested in what happens beyond the next four or five years,
and that’s a disastrous approach to rolling stock.
‘I see something of the same argument applies with working
practices, if changing them is going to mean a big struggle and
the results only really show in the longer-term, then there’s no
incentive for the current franchise holder, so that’s why I would
advocate longer franchises.’
Another factor that affects costs is a lack of alignment of
incentives between infrastructure and operations according
to Nash, who was part of a team which did some econometric
work for the Community of European Railways looking at data
for the past 20 years for all the countries of Europe and some
in Asia, including Japan and Korea. ‘Our work suggested that
this is a serious problem when we looked across the countries.
What we found was that on more densely used networks,
vertical separation tended to raise costs, and it’s not surprising
this happens because these networks are where the integrated
planning of operations and infrastructure matters most. We did
some interviews that showed that while to some extent access
charges and performance regimes and so on do give the right
incentives to the different partners, there are lots of respects
– despite all the efforts that have gone into sophisticated
track access charging systems and a sophisticated performance
regime – in which the partners don’t have an incentive to work
together for the best solution, and simply pursue what’s best for
them.’
Nash believes the South West Trains/Network Rail alliance
with its sharing of changes in revenue and costs is something
to be held up as a model that overcomes the misalignment
problem, ‘except, because of the length of the franchise it’s still
too short, but with longer franchises you can have much longer
alliances as well.’
While acknowledging that alliances ‘are not necessarily the
solution where there are a lot of different operators and where
you can’t design franchising regimes to avoid that,’ Nash would
like to see some arrangement to try to bring the incentives on
different operators together.
Open access not the answer
Open access competition is not the answer believes Nash, and
he is forthright about his scepticism. ‘We increasingly hear the
argument: ‘If franchising didn’t control costs surely allowing
much more open access will’, and that for intercity franchises
maybe we don’t need a franchise at all, that everything could be
open access. But there are some significant disadvantages.
‘The DfT is concerned that where it competes with
franchises it reduces their profitability and increases the total
subsidy bill for the railway, and I think there’s an argument that
it makes wasteful use of track capacity, but maybe that could
be countered by higher track access charges, particularly where
capacity is scarce. More importantly I think it fails to produce
a well-integrated timetable; Network Rail recently produced
a paper on improving connectivity in which it has gone for
the ideal solution which costs a lot of money in infrastructure
investment. We did some work at the Institute that suggested
that if you accepted less than ideal you could still get a lot of
RAILPROFESSIONALINTERVIEW CHRISNASH

3. May 2015 Page 55
benefits through a more systematic approach to timetabling.
Nash continued: ‘Despite having some criticisms of how
it’s been done I think the principle of franchising – profitable
services and unprofitable – is the best way of introducing
competition, however open access competition is certainly a
growing trend around Europe and the European Commission
seems to favour it for commercial services but with not
much evidence of a financially sustainable system of on-track
competition, and most of the entrants have lost money.
‘So I think the answer overall lies in looking further at how
we franchise, particularly at the length and size of franchises.
We definitely need longer franchises, where the train operator
is in the lead on planning and marketing, and Chiltern of
course is the model, I think everyone agrees it’s a success.’
Labour’s plans
Labour’s plans regarding franchising are well-documented,
and Nash is thoughtful on this. ‘They’ve spoken of allowing a
public sector operator to compete with the private sector for
franchises, which is the case in Sweden, Germany, Netherlands
and Denmark, and it seems to work. So I don’t think it’s as silly
an idea as some people are saying. It provides a public sector
comparator and ensures competitive bidding, although we
generally have had fierce competition for franchises so I’m not
sure that it’s necessary from that point of view, but it is some
sort of a safeguard.
‘The other thing Labour has spoken of is an enhanced role
for Network Rail although I’m not too clear what this would
be. Certainly in some respects if Network Rail did have a bigger
role things would work better, for example it recently carried
out a study of East Anglia on improving connectivity which
concluded that if the timetable were planned as an integrated
whole you could provide a lot of benefits, to smaller flows in
particular. So if Network Rail played a much more forceful role
in the timetabling that could improve the system.’
Overcrowding and fares
The industry is perceived by many to be mostly foreign-owned,
feeding profits back to countries’ native rail networks and
paying hefty amounts in dividends to shareholders. How can
that image be altered? ‘I think to a degree the Rail Delivery
Group, by providing a voice for the industry is doing something
to alleviate that needless to say distorted view. Generally
satisfaction with the rail industry is quite high and on the
whole we do now have good services, but I think the two big
causes of dissatisfaction are overcrowding and fares. The latter
partly because people think they’re high and partly because
the system remains very complicated. If there was more of a
common framework for fares between the different operators
that would help – currently we have things like off peak returns
but they mean different things for different operators and it
just confuses people.’
Rail Professional columnist Andrew Meaney of Oxera
recently pointed out that regulated fares are no longer serving
passengers in a transformed rail market, especially in the area of
consumer protection. I wondered if Nash believes they should
continue to be regulated? ‘I think they should, but with changes
in how it’s done.’ There are currently strong incentives on Toc’s
to market all their cheaper offers as advanced purchase tickets
for specific trains, and if walk-on fares became extremely high
that would be a significant disadvantage for consumers who
don’t always want to tie themselves to a particular train or who
have to travel at short notice. So I think some regulation is
needed although it’s currently working to create artificial peaks
and that needs to be avoided.’
One possibility, he suggests, ‘would be to regulate a basket of
walk on fares rather than simply the saver fare – for the longer
distance services. For shorter distances there are major issues
involved regarding transport and land use planning as a whole.
To what extent do we want to encourage rail commuting into
large cities? To what extent do we want flexible ticketing
covering bus and rail? I think it’s sensible for the franchising
RAILPROFESSIONALINTERVIEW CHRISNASH

4. May 2015 Page 57
authority particularly where the franchising is devolved, to set
the fares, not just regulate them but actually set them.’
Widespread activities
Nash has had a long and illustrious career in transport
economics, much of it connected to the University of Leeds
where he started in 1975 as British Rail Lecturer in Rail
Transport. He became a professor of transport economics in
1989 and then a research professor at the University’s Institute
for Transport Studies in 2008. Now semi-retired he plays more
of an advisory role but in outlining his activities, by most
people’s standards he is extremely busy.
In terms of current research, one of Nash’s big interests
remains railway reform, and what works best in different
circumstances, and there are plans for further work on this
with Japanese and Korean colleagues. He continued: ‘I am
also contributing with colleagues to an examination of the
effectiveness of track access charges in encouraging efficient
design of rolling stock, as part of the SUSTRAIL project for the
European Commission which is just reaching its conclusion.
The wider SUSTRAIL work also involved carrying out a
business case appraisal of the proposed technical innovations,
as well as new work to understand the marginal wear and tear
costs of rail infrastructure usage, combining econometric and
engineering methods.’
Nash also recently prepared a review for the International
Transport Forum with colleague Andrew Smith of the
measurement of rail efficiency, ‘an area in which ITS has done a
lot of work both relating to infrastructure and operations.’
He serves on the HS2 advisory panel and also a Transportation
Research Board committee in the US which is examining high
speed rail as a part of a general review of intercity transport.
‘That keeps me involved on the debate on high speed rail, where
the work of my colleagues on demand forecasting and valuing
time savings is playing an important role.’
As well as that he is still does some teaching, including
leading a short course on rail economics for staff of the DfT’s
Rail Executive in the near future.
Speaking of the Rail Executive, I mentioned that I had
interviewed Peter Wilkinson, head of its Passenger Services
directorate, who is disappointed at the lack of true market
liberalisation across Europe, with countries ‘spending nearly
all their time resisting and fighting it’, as he put it, despite
having their national operators here. Without overtly agreeing
Nash observes that although British Toc’s such as National
Express are making some gains in Germany, ‘either they’ve not
been bidding or they haven’t been successful even where they
have had the opportunity, which is a bit surprising given the
experience they have.’
An overseas view of us
I wondered what Nash’s doctoral students think about UK rail?
‘That’s an interesting question. A lot of them are from overseas
and very often they find it hard to understand how such a
fragmented system could work; for instance when I talk with
Japanese doctoral students and other academics, the Japanese
view is absolutely that track and services need to be provided by
the same company. I would say the same with North America –
almost all North American transport economists believe vertical
integration is absolutely essential to a railway. That’s certainly
one thing that comes out.’
Our rail regulator is well-regarded though: ‘I have a foreign
student working on regulation and can say that in terms of the
role of the rail regulator Britain tends to be looked upon as a
model of how to do it. I’ve criticised some of the things we’ve
done but in terms of regulation I think we’ve pretty well got it
right in terms of independence and in terms of putting pressure
on the infrastructure manager, which in many countries the
regulator doesn’t do and has no powers to do.’
In his free time, Nash enjoys hiking and is chairman of
the ‘rather unusual’ Dales & Bowland Community Interest
Company, which procures the Sunday Dales bus network – ‘we
get funding from various sources and contract out the actual
operation but we plan and market the services, so I’ve got a foot
in the bus industry and that’s an area that’s harder than rail,
certainly in terms of funding.’
Needless to say, I’m certain Nash will put his mind to a
solution.
RAILPROFESSIONALINTERVIEW CHRISNASH
‘I’ve got a foot in the bus industry and that’s an area
that’s harder than rail, certainly in terms of funding’