Select Committee on Transport Minutes of Evidence

Examination of Witnesses (Questions 263 - 279)



  Chairman: Do Members have anything to declare?

  Mr Stevenson: Member of Transport and General Workers Union.

  Helen Jackson: Member of Transport and General Workers Union

  Chairman: Member of the Rail Maritime Trade Union.

  Miss McIntosh: Interest in Eurotunnel, FirstGroup, Railtrack and the RAC.

  Mrs Ellman: Member of the Transport and General Workers Union.


  263. Gentleman, can I welcome you to the Committee this afternoon and ask you firstly to identify yourselves.

  (Mr Steer) I am Jim Steer; I am Managing Director Strategic Planning at the SRA.
  (Mr Newton) I am Nick Newton, Chief Operating Officer at the SRA.

  264. Mr Steer, do you have something that you want to say to us before we begin?
  (Mr Steer) Yes, very briefly. We, the SRA, have a very strong commitment to railways in the north of England with major investment, as I am sure the Committee will be aware, taking place and further planning to take place over the mainline serving the region, and investment as well on freight routes to ports, particularly for South Humberside, and a set of smaller investments made available to the North of England and, through the various funding regimes, the SRA has established: rail passenger partnership, rail performance fund and freight facility grants. We do plan to deliver big improvements for the north with schemes, some of which have pretty much come to final fruition. Leeds first: new services between Leeds and London; new trains and extended trains on the Airedale and Wharfdale lines across Yorkshire; Pendolino trains, of course not in passenger service yet but they are coming; and a new cross-country timetable later this year. We do realise that a great deal remains to be done, but we are resolute in our determination to deliver the strategic plan to benefit the north of the country, just as much as we are elsewhere.

  265. You accept that there are such close relationships between the constituent services of the Trans-Pennine and Northern franchises but the Committee would like to hear from you why you have decided to award franchises of different lengths.
  (Mr Steer) The presumption, I think you can take it in terms of franchise length, is that the SRA is to favour longer franchises, 15 years for example, with appropriate review mechanisms unless there is some other good reason to perhaps consider a medium term length. In this instance, there was a view that, with the Trans-Pennine Express franchise, it would be helpful to be able to look at a successor to the new Trans-Pennine Express franchise, if you will, at around the same time as both the West Coast and the CrossCountry franchises are due to terminate. That would give flexibility and options for the next set of franchises which, if we did not arrange those times to be coincident, we would not have.

  266. And you think that that will provide sufficient benefit to justify splitting them?
  (Mr Steer) No. I think the question of splitting the two franchises is a very different question. That goes to the question of whether it is right—and the SRA believes that it is right—to specify a franchise which is focused on the particular opportunity that we believe the Trans-Pennine Express franchise represents as distinct from the region, which is to provide a very high quality intercity service between the major cities across the north of England.

  Mr O'Brien

  267. Northern Spirit had a shocking record of providing a service to the customers in the north of England. Were the problems with Northern Spirit properly understood by the SRA when it was re-let to Arriva? If so, why were better recovery partners not put in place?

  (Mr Newton) It is true to say that the full range of the problems were not fully understood; I do not think they were understood by Arriva or the SRA or SSRA as we were at the time. I think the priority in that situation was that we were faced with the imminent financial collapse of the existing franchisee and it was fortunate, in that context, that Arriva were able to move in and take over at relatively short notice but also maintain the then current funding level for at least a 12 month period. At the time, the prospect was that that 12 month period would be sufficient for us to put in place a revised alternative franchise as a policy developed in the concept of Trans-Pennine and Northern separate franchises, but that did not materialise and I think it was over that period that Arriva really started to address—

  268. Why did it not materialise?
  (Mr Newton) Because the concept of a separate Trans-Pennine and also, as far as I am concerned, the strategic planning of creating a Northern without Trans-Pennine with building the business units around the conurbations—

  269. The franchise did not only apply to Trans-Pennine, did it? It applied to a number of services in the north; so to say that it was because of Trans-Pennine that it created a problem ... I am putting to you that there were other issues that ought to have been assessed when Northern Spirit was failing to provide a service.
  (Mr Newton) I am sorry, I did not say just Trans-Pennine, I said Trans-Pennine and the strategic planning with just as important creation of a Northern focused on the conurbation through the business units.

  270. Is it not right that due diligence should be paid to the assessment of the business before it is undertaken? Arriva complained after they took over the franchise that there was a driver shortage; there were several shortages of other staff including conductors; there were insufficient driver training resources with a new programme being set out to recruit new drivers; and the franchise had access to insufficient rolling stock. All these issues impacted upon the lack of service to people in the north of England. Why were the SRA not aware of these issues?
  (Mr Newton) We were not aware of them but they contributed to the failure of MTL.

  271. Why were you not aware of them, Mr Newton? Tell us.
  (Mr Newton) Because the original policy which surrounded the original franchises was very much an arm's length policy, to place a contract or place a franchise at minimum cost and to stand back to a great extent and leave the franchisee to deliver the service. The situation when Arriva took over was that the key objective was to actually rescue the franchise from imminent financial collapse. It was an acquisition by Arriva of MTL and part of that process was their due diligence of the business they bought. It was not only Northern Spirit, it was Merseyrail and also Bus Businesses.

  272. I put it to you that the contracts were changed to cost-plus contracts in 2001. Why did you not put that in for the year 2002? If you understood the problems then, why did you not introduce the cost-plus contracts in 2000 instead of waiting until 2001?
  (Mr Newton) Because the proposition made to us by Arriva was that they would step in and assume the franchise responsibilities at no additional cost to the SRA. They would assume the subsidy profile that MTL enjoyed for a 12 month period. In terms of public expenditure, that was an attractive financial deal to us. When we realised that we needed to sit down with Arriva and extend the franchise, what became clear was that they having now taken over and assessed the real situation in the franchise, they negotiated that they were only prepared to continue on a cost-plus basis, which was a sensible thing to do under the circumstances. However, to have done that from the onset would have been to incur additional public expenditure when Arriva were not seeking to.


  273. Mr Newton, let me get it quite clear. You are saying that you did know and that you thought it was very difficult but, because Arriva had not done its homework properly before it took the franchise on and because to have pointed it out to them would have meant that you would have had to spend a great deal more money, you were prepared to go along with it but you were not surprised when they kicked up a fuss afterwards.

  (Mr Newton) No, Madam Chairman. What I said was that the problems were beginning to emerge around our dealing with the imminent financial collapse of MTL. Arriva came along with MTL and said —

  274. You said that, but what I am asking you is, are you really telling us that you knew that one of the reasons why MTL had got itself into all these difficulties was because of the business case and because of the problems but that you did not think it was your business to discuss this with Arriva because they were quite happy to take it on in the way that it was?
  (Mr Newton) Arriva were quite content and they, as far as we were concerned, reflected in their valuation of the MTL business the problems that were clear in MTL, which was the reason for the financial collapse.

  275. Arriva was asked last week whether it was anything to do with the business case assessment and they said that they did not know until they took it on what a mess it was in, and I do paraphrase; they were not quite as clear as that.
  (Mr Newton) Yes, but they conducted due diligence. They were keen on other parts of the MTL business as far as our perception went.

  276. So, you were convinced that they were perfectly well aware of what they were taking on?
  (Mr Newton) Yes.

  Mr O'Brien

  277. What material advantage have the passengers of Arriva received due to the financial penalties imposed by the SRA?

  (Mr Newton) I think the material benefit they have received is that it stressed the fact that it is a serious situation and we expected Arriva, as the management of the company, to address and, subsequently, the structure of the penalty arrangement has resulted in a major improvement in the recruitment of drivers which was a key problem.

  278. But we are having more services interrupted now than ever before. So, where is the action taken by the SRA to improve the services in the north?
  (Mr Newton) The cause of the service interruption now is industrial action. The driver shortage is less of a problem than it was when we took the action.

  279. Yes, but what benefit have the people received? The benefit is non-existent. The SRA have failed the people in the north of England in the way they have handled this matter.
  (Mr Newton) But the benefit to the passengers is that there are fewer cancellations as a consequence of driver shortage. There are other cancellations for other reasons, particularly around industrial relations at the moment, but our view is that without taking that enforcement action, we would not have put in place via Arriva a process to recruit more drivers and address the driver shortage.

  Miss McIntosh

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