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29 Nov 2006 : Column 99WH—continued

I should like to respond to the issues that my hon. Friend raised about human rights, democracy and the rule of law. The Government regularly discuss the progress of democratic reforms and human rights in Russia with the Russian authorities, including issues of media and religious freedoms. As he reminded us, the annual report on human rights sets out some of our major concerns about human rights, democracy and the rule of law in Russia. It details a number of occasions when Foreign and Commonwealth Office
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Ministers have raised the issues with the Russian Government during the past 12 months.

My hon. Friend expressed concerns about the ban imposed on a gay parade by the mayor of Moscow in May. In response, the United Kingdom Government took concerted action with its EU partners to present a démarche to the Russian authorities detailing our concerns about the event, at which demonstrators were attacked by extremist groups.

Another example of the Government’s commitment to human rights issues was the meeting between the Minister for Trade, my right hon. Friend the Member for Makerfield (Mr. McCartney), who has responsibility for human rights, and the Russian-Chechen Friendship Society in June. Representatives of that non-governmental organisation have documented alleged human rights violations committed by federal and Chechen military forces during operations in the republic. I am sure that my hon. Friend will agree that the more transparency on that issue, the better for all of us, whether in the United Kingdom or Russia.

More recently, the prominent Russian journalist Anna Politkovskaya was murdered in her Moscow apartment block. My right hon. Friend the Foreign Secretary condemned the murder at the launch of the annual report on human rights on 12 October, and my right hon. Friend the Minister for Europe issued a statement of condemnation on 9 October expressing sympathy to Anna Politkovskaya’s friends and family and calling for the Russian authorities to bring her killers to justice.

Foreign and Commonwealth Office officials raised our concerns about the killing with the chairperson of the Civil Society Institutions and the Human Rights Council under the President of the Russian Federation, Ella Pamfilova, on 18 October. The journalist’s murder and wider concerns about freedom of expression were discussed with the Russian authorities at the EU-Russia human rights consultations in Brussels on 8 November.

In addition to engaging critically on human rights issues, we support projects in co-operation with local and international NGOs and the Russian Government to protect and promote international human rights standards in Russia and to improve access to justice at the European Court of Human Rights. We also promote the Foreign and Commonwealth Office’s objectives on economic governance, climate change and energy through co-operation projects in Russia. This financial year, the FCO has committed £1.8 million to such project work in Russia.

The Council of Europe is another key forum in which it is possible to engage with Russia on human rights, democracy and the rule of law. Russia’s membership of the Council of Europe gives its 140 million citizens access to the European Court of Human Rights in Strasbourg. Russia has held the rotating chairmanship of the Council this year. We also engage Russia regularly in discussions on its human rights and democracy commitments, frozen conflicts and other cross-cutting security issues as part of its participation in the Organisation for Security and Co-operation in Europe.

Mr. Hands: Could the Minister say something about corporate governance, which the hon. Member for Rhondda (Chris Bryant) mentioned? I had breakfast
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this morning with the Russian ambassador, although I must say that I had the breakfast here in Parliament. The Russian ambassador was quite adamant that Russia has a very good record on corporate governance. He gave as witness the fact that 90 per cent. of all equity investment in Russia is directed through the London stock exchange, saying that that was evidence of strong corporate governance. Does the Minister agree?

Dr. Howells: If 90 per cent. goes through the London stock exchange, it comes as a surprise to me, but it may well be correct. I cannot confirm it.

The hon. Gentleman is absolutely correct. As my hon. Friend the Member for Rhondda pointed out, Russia occupies such a strategic position—even in just the one area of world energy supply—that corporate governance must be got right. I am glad to hear that the hon. Gentleman found the discussion satisfactory. I think, however, that some companies—including Shell, which is experiencing great difficulties with the Sakhalin 2 project in eastern Siberia—might have a different analysis.

Mr. Clifton-Brown: Next year, Germany will have presidency of the EU. Putin speaks fluent German. Will the British Government do all that it can to co-operate with the German Government to raise human rights issues, particularly the matter of a failing democracy in Russia?

Dr. Howells: We will certainly continue to do all that we can to raise human rights issues. Germany is in a very particular situation. I hear that Gazprom is providing 60 per cent. of its natural gas at the moment, which means that Germany is very dependent on getting its relationships with Russia right.

11.30 am

Sitting suspended until half-past Two o’clock.

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Rail Franchises

2.30 pm

Dr. Vincent Cable (Twickenham) (LD): I appreciate the opportunity to discuss this topical subject. My reasons for seeking the debate were partly parochial. My constituency is served by the South West Trains franchise and about 10,000 of my constituents use the railway system daily from eight stations. I have deliberately couched the debate in rather broad terms to give party spokesmen and other hon. Members the opportunity to speak.

I shall focus on the terms of and background to the South West Trains franchise, which was announced on 22 September. It is one of the biggest franchises and has been let again to Stagecoach, which has held the franchise since privatisation. It is fair to say that the company has had a rather mixed experience—initially it was utterly disastrous. The company came from the bus industry and did not have any rail experience. In the mid-90s, it decided to make a quick, cost-cutting attack on the business and laid off large numbers of drivers but then discovered that there were not enough left to drive the trains and we had months of mayhem. That was probably a main contributory factor to my being elected in 1997.

There have been improvements on different levels since then. Punctuality has been improved, partly by lengthening journey times and thus making targets easier to hit. None the less, there has been an improvement and the franchise is now one of the better ones. There has been an increase in the rolling stock and its quality has improved on both long and short-distance routes. There are now 40 per cent. more passengers than in the mid-90s, and there are a variety of reasons for that large increase: congestion on the roads, increased economic activity and the rising population. However, we are undoubtedly now dealing with the problems of success rather than the problems of failure. The system is much bigger and is growing, and the problem is with accommodating that growth.

When the franchise was announced in September, my first reactions were positive. There were some good news stories, there was commitment to improved station facilities, and the Oyster card system was extended to outer London making it easier to interchange between London Transport and the commuter system. Above all, there was the prospect of some easing of the chronic overcrowding that has been the condition of the rail system locally with the promise of a 20 per cent. increase in the number of seats. I asked the Minister about that in Transport questions last week, and he confirmed that there would be an increase in exactly the same terms as the Government initially said and that South West Trains had confirmed that we will have a 20 per cent. increase in seating capacity.

What has happened since has created a major mystery around those assurances. It became clear from a freedom of information request that was published in the Evening Standard that the company does not interpret its franchise in that way. Indeed, it is currently ripping out large numbers of seats from its existing stock—approximately 160 seats per train. I was surprised by that and went to speak to the company in person, and it reiterated the explanation that it gave on the record in the national
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and regional press. There is no question of the seats not being taken out. The people at the company are perfectly honest, open people. They are hard-nosed businesspeople, but they are straightforward.

The company has stated explicitly that its policy is to

It wants to clear away seats with the specific objective of getting people away from the doors because it is dangerous and time-consuming to have people standing there. It wants to move people down the carriages and get more people in to stand.

Overcrowding is officially defined by the Department for Transport as

The implication of the company’s decision to take out seats is that overcrowding is being increased as a matter of policy, not as a by-product of growth. Its deliberate policy is to have more people standing relative to those sitting.

One of my main aims in securing this debate was to obtain from the Minister a clear understanding of what is going on. It is clear from his statement in Parliament last week that his understanding is quite different from those of the company and the general public. I do not imply that there is ill will or that anyone is trying to mislead anyone else. There has obviously been a terrible misunderstanding. It may be that when the Minister talks about increasing the number of seats or the stock, he is talking about the improvements of recent years that are now in operation. The company categorically denies that what has been promised will be the end product of its franchise; indeed, there will be less seating and more technical overcrowding. It is important to establish how that misunderstanding arose, so that the general public will no longer be in their current state of alienation and confusion.

Kelvin Hopkins (Luton, North) (Lab): Is it not an inherent problem of privatisation that profit maximisation means getting as many passengers on as few trains as possible?

Dr. Cable: Profit-making companies have different ways of making profits. It is fair to say that the franchise is highly constrained, and I am concerned by what those constraints are and how the Government have specified them. I do not think that the private company is trying to go outside of the rules that have been set. The question is whether the rules and parameters were precise enough. That concludes my first set of questions to the Minister. There is an enormous amount of confusion and ill will. Will he clarify what has happened so that we do not perpetuate this story?

My second set of questions is about future investment in the franchise. The company is paying a substantial premium. It was receiving a subsidy but will now put in a premium. One could argue that that is a measure of good performance. Perhaps it opposes the point that the hon. Member for Luton, North (Kelvin Hopkins) made, because here is a company that believes that it can deliver an increasing service, make money out of it and contribute more to the Government. But where is
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that premium going? Will it be invested? I shall raise several issues that have not so far surfaced in discussions about the franchise.

The franchise is for 10 years, so one would think that there was some prospect of significant investments taking place. One key to improving the number of trains, the provision of services and other requirements of growth is the freeing up of Waterloo International when Eurostar departs in 18 months or 2 years’ time. I asked the Secretary of State about that in October 2005, and he gave a constructive and helpful response that was well received. He said that the Government had grasped the issue and had headed off Network Rail from the initial proposal—a property development project, I believe. The Secretary of State made it absolutely clear, and later reaffirmed, that there would be a rail use for Waterloo International. That was very welcome and creates a great deal of potential.

I subsequently received a helpful letter from the Minister’s predecessor, the hon. Member for Halton (Derek Twigg), in which he sketched out the process. He said that the franchise negotiations would not incorporate the use of Waterloo International but that there would be a separate costing and it could later be added once agreement was reached. I want to press the Minister on that. Will he give us some indication of what kind of time horizon is envisaged? In the short and medium term, this might be the most fruitful way of increasing capacity and improving the number and frequency of trains.

Beyond that, there are other objectives. There is a general acceptance in the railway system that there will have to be longer platforms and more coaches, particularly on the very congested commuter routes. There is no indication in the franchise about how and when that will happen, so it would be useful to have some indication from the Minister as to how he sees this matter evolving in the medium term.

My third set of questions relates to fares, which is a highly topical issue in view of the announcements of the new fare structure in the past 24 hours. The franchise makes a specific commitment, stating:

The objective is clearly desirable: to reduce crowding at the peaks and spread the load.

It is fair to say that the company has already announced one positive step in that direction, because the season tickets will make it relatively more attractive to travel off-peak. The problem with the fare structure is a built-in tendency to create exactly the opposite incentives from the ones that are being sought in the franchise. We saw that yesterday in the announcement of the fares for South West Trains—I believe that this applies to all of the other operators—because the regulated fares are increasing by 4.3 per cent. whereas the unregulated fares are increasing by 5.3 per cent. The unregulated fares apply predominantly off-peak, so in a sense the incentive is being created to travel at peak times rather than at off-peak ones.

The finances of the company will come under a great deal of pressure. It might well have made money out of the railways, but most analysts think that it is now operating on a 3 per cent. margin rather than a 10 per cent. one. The one way that it can create breathing
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space for itself in terms of profits is to jack up its unregulated fares. There will be strong pressures to widen the differential between unregulated and regulated fares, which would create the opposite of what the Government intend. I do not just want to make a political point about fare increases being a bad thing, but I must ask them how they think the pattern of fare increases will reinforce sensible incentives.

My fourth set of questions relates to the broader political points that the party spokesmen will want to make and is on the rather damning comments in the Select Committee on Transport report on passenger rail franchising. I understand that it is a consensus report, and it talks about the “self-contradictory muddle” in the current franchising structures.

One can see some of that self-contradiction in the South West Trains franchise. On the one hand, companies are being insulated from risk. I think this is true of South West Trains, but I know that it is generally the case that the franchise operator does not have to pay the risk of industrial action, even though some of their managers may tend to provoke it.

Kelvin Hopkins: I am interested in this issue of risk. Does not a proportion of the risk always remain with the Government, because they cannot allow the railways not to operate? Risk is always, to an extent, with the Government and not with the operators.

Dr. Cable: That is the argument for the direction in which the Government are going, but it raises the question of why the private operators are in place. The whole purpose of having private enterprise is that someone will carry the risk and act in an entrepreneurial way.

Some aspects of risk are clearly not being carried by the franchisee. Industrial disputes are one such aspect, but a more important one is uncertainty over revenue growth. This particular franchise has a formula built into it, under which if revenue growth is exceptionally strong, a large part will go to the Government, but if the revenue growth falls below expectations, the company will be protected from the loss.

I have outlined two aspects in which risk is being removed from the private company, but in other respects it carries considerable risk. It is not clear why some forms of risk are being carried and others are not. Perhaps the Minister will clarify something. One of the main elements of risk relates to open access to the track and competition, upon which I believe the regulator can insist. I am sure the Minister is grappling with the tricky issue of the problems that are being caused for Great North Eastern Railway by the entry of new competitors on to the east coast main line track. I believe that the position is so serious that GNER is thinking of returning its franchise. Will the Minister spell out how he expects that awkward problem to be addressed?

The same problem could arise on the South West Trains franchise, because other operators are keen to use the track. Bubbling away in the background is Airtrack, which is a proposal by BAA plc to run a new fast service between the new terminal 5 and Waterloo, and possibly other major stations. I do not know the details and have no idea whether it is a good or a bad thing. However, it has the potential to cause competition for scarce track and would probably
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disrupt the services of South West Trains unless additional capacity was provided. It could cause the same kind of difficulties on the South West Trains franchise as are being caused by competition on the east coast main line. If BAA plc was to come forward with a plausible set of proposals, would the regulator be obliged to let it have access to the track and to compete on it at the expense of the existing franchisee? How would the allocation of risk then evolve?

A few years ago, Stagecoach made a set of proposals for a general improvement in the financing of the railways. In a way, it went out ahead of the pack in arguing for vertical integration as a way of cutting costs. We all know that one of the big problems is the way in which the companies that do the maintenance have been greatly inflating the cost structure.

I know that the franchise report deals, albeit rather briefly, with vertical integration. The idea seems to have rather run its course, at least for the time being. Does the Minister still see any scope for it, at least in self-contained parts of the network? It would be hopeless in areas such as Clapham Junction, where different franchisees operate, but do the Government still intend at least to entertain experiments? Since this company has shown an interest in pioneering such work, is it something to which we can look forward? I hope that I have raised a series of questions to trigger both further debate and a response from the Minister.

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