The Office of Rail and Road (ORR) Periodic Review Initial Consultation.
Freight on Rail thanks the ORR for the opportunity to comment on the Periodic Review Initial Consultation.
Freight on Rail, a partnership of the rail freight industry, the transport trade unions and Campaign for Better Transport, works to promote the economic, social and environmental benefits of rail freight to local, devolved and central Government.
Context for consultation
ORR support for the industry is needed during this transitional phase to provide stability after the steep decline in the past six months in coal traffic which had represented a third of the business. Furthermore, rail freight is sensitive to economic cycles so any fall in construction activity, due to uncertainty as a result of Brexit, will affect demand.
ORR should be clear that these changes mean that operators are not able to absorb any increase in costs. Increased costs for end customers will mean that traffic will revert to roads and this will mean that environmental and economic benefits will be lost to the UK. In addition road costs will increase as HGVs do not cover their costs in full.
Comments on the consultation
- We are concerned about the high level of detail and uncertainty in the proposals. In particular the proposal to change the method of regulating Network Rail (NR), with separate route-based settlements rather than a single settlement. This introduces unwelcome uncertainty as freight needs a national approach. Further detail from Network Rail (NR) is necessary before ORR can conclude how best to regulate.
We would urge the ORR to leave freight charges alone and retain nation charging as freight is a nation-wide service provider. There are serious risks and uncertainty for freight were geographical charging structures to be introduced.
- ORR must also act to keep freight charges affordable and simple.
- We ask the ORR to support the NR virtual freight route which gives freight the same status as the routes, which is crucial in both NR and political devolved structures.
- A centralised system operator function run by Network Rail with nationwide access, timetabling and possession planning, is crucial for rail freight.
- Recognition of market distortion between HGVs and rail freight
Because of the lack of parity between HGVs and rail freight it remains difficult for rail to compete, especially in consumer markets.The scale of subsidy to HGVs makes a compelling case for supporting rail freight equivalently as it imposes much lower costs on society and the economy. The Government’s mode shift grants recognise these market distortions and the wider advantages of the shift to rail and currently support a quarter of rail traffic. However, there remains a requirement to address the underlying distortion in the freight market to realise the full benefits of an optimal mixed modal transport sector. In addition the scheme is complex to operate and is subject to Government spending rounds and reductions as well as state aid rules, and we would not support proposals to extend the scheme to compensate for an increase in charges.
- Scale of lack of internalization of HGV external costs
The new cross modal duties of the ORR provide an opportunity for a more holistic approach, recognising the value equation between freight subsidy and the direct and indirect benefits to the UK economy.
Research carried out for the Campaign for Better Transport in 2015 using the latest DfT Mode shift values, found that HGVs receive a £6.5 billion annual subsidy which means that HGVs pay less than a third 1 of the costs associated with their activities in terms of road congestion, road collisions, road damage and pollution. These conclusions are in line with two other separate reports. MDS Transmodal study in 2007 found a very similar amount of underpayment: £6billion. Transport & Environment research 2 issued in April 2016 found that HGVs were only paying 30% of their external costs.
The latest findings from this research show that there is a strong case for equivalently supporting rail freight through lower rail freight access charges and Strategic Rail Freight Network upgrades in order to allow rail to compete more fairly with HGVs.
Whilst we recognise that the charging models for road and rail differ, this work is an important context against which options for rail freight costs and charges must be considered. If higher rail freight charges force flows back onto road, there are significant costs to the economy and society which should be factored into your calculations.