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How the rail companies might react in the face of recession and possibly declining passenger numbers has been raised with my noble Friend the Minister of State in the Department for Transport. He told the Transport Committee on 25 February that no train operating company had yet told the Department that it wanted to walk away, abandoning its franchise, but he did not deny that up to five red warning lights about train operating companies were flashing in his Department. He told us that the train operating companies would be held to their franchise agreements, but that it is often unclear exactly which services the train operating companies are contractually bound to provide. One issue that has raised great public consternation is the plans to close booking offices. That is a matter of convenience for passengers, but it is also related to transport safety. My
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noble Friend informed the Committee that the Department had not agreed to go ahead with some booking office closures as requested, but there is still a serious question mark over those offices as well as over other services.

Norman Baker (Lewes) (LD): Can the hon. Lady confirm the information that I have heard, which is that the train operating companies have been told that if they abandon or walk away from one franchise they will be expected to walk away from all the franchises that they hold? Some, of course, hold multiple franchises. Whether that is the correct system or not, does she agree that there are significant doubts about whether there is a default mechanism in place for the Department for Transport, or any other mechanism, to run a franchise that has suddenly been abandoned? There is no expertise there to do that.

Mrs. Ellman: The hon. Gentleman refers to a key section of the financial arrangements between the train operating companies that hold the franchises and the Department. He raises serious issues about what would happen if one or more than one train operating company sought to enable such a change to take effect. My noble Friend the Minister of State reiterated before the Committee that his Department was the operator of last resort. It is legitimate to consider what would happen if a number of train operating companies withdrew from their franchises or were unable to follow the agreements that they have entered into. That raises big questions about how train services would operate and it also raises major financial questions. What provisions have been made to accommodate that and what credibility would there be for operators who took up the new franchises when they saw how people who did not want to continue with their obligations were being allowed to renege on the agreements they had made? Those are big, serious questions and a realistic reading of the economic situation suggests that a crisis in railways or rail funding might not be far away. I want to seek reassurance that the Department is ready for such a crisis and is ready to address it so that the travelling public do not suffer.

Kelvin Hopkins (Luton, North) (Lab): We have already had the experience of one franchise that was run for a little time in the public sector. During that time, it was more efficient and it produced a better service than it did in the private sector. If all the franchises collapse back into the public sector, will we not see an improvement in our railways and more efficiency? Could we not then simply take over the rolling stock leasing companies, which are now owned by the banks, which are now in the public sector, and recreate something that we might call British Rail?

Mrs. Ellman: My hon. Friend raises an apt question that gives much food for thought. I suspect that we will return to that issue in future—perhaps the near future, or perhaps the not-so-near future. I am sure that it will be a matter for future consideration.

Mr. John Redwood (Wokingham) (Con): Can the hon. Lady explain to the House the £7.5 billion increase for a non-cash resource provision under a new section for financial instruments, and does she think that that contingent liability will be called?

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Mrs. Ellman: I am not able to explain that item in detail, and I hope that the right hon. Gentleman will address that question to the Under-Secretary of State for Transport, my hon. Friend the Member for Gillingham (Paul Clark). Given the question marks over the operation of the rail service, and given the economic climate, it may well be that a number of items will be called.

Rail fares are another important issue, and the Select Committee’s report addresses the issue. Indeed, the Committee called on the Government to review their decision to change the funding balance between taxpayers and passengers so sharply. In 2006-07, Government support for the railways totalled £6.3 billion, whereas £5 billion came from passengers. Under the Government’s plans, by 2013-14, those figures will have been dramatically reversed. The Government project that their support will total £3 billion, while the projected support from passengers will reach £9 billion—a dramatic increase.

If we look at the whole of the next control period, which is 2009 to 2014, we see that it is projected that Government support will total just under two fifths of the money that is expected to be raised from passengers; the former will be £15 billion, and the latter £39 billion. If we compare that with the current control period, which is nearing its end, we see that between 2003 to 2008—the last period for which figures are available—the Government more than matched the revenue raised from passengers; there was £23 billion from passengers, and £24 billion from Government. In the next control period, which is due to start at the beginning of April, the Government plan a dramatic switch from the taxpayer to the passenger.

Kelvin Hopkins: I thank my hon. Friend for giving way yet again. Are those plans not absolutely astonishing? We already have the highest rail fares in Europe. If there is a massive shift from taxpayer or Government funding to the fare-paying passenger, at a time when a reduction in passengers is likely, rail fares will go through the roof. It will be beyond anybody’s capability to pay them. The exception, perhaps, will be those whose fares are paid for them, such as Members of Parliament.

Mrs. Ellman: My hon. Friend raises an important point to which I will refer a little later. In January this year, there was public outcry from passengers who experienced increases to regulated fares—ones over which the Government have some control. The increases were, on average, six or seven times the current rate of inflation, yet they followed the agreed formula. I am pleased to say that the Government have now rejected the request from train operating companies to abandon the formula when that formula might lead to fares being reduced; my noble Friend Lord Adonis informed the Select Committee of that when we questioned him very closely indeed on the issue. The formula means that regulated fares can be increased, on average, in a so-called basket of fares, by the retail prices index plus 1 per cent., although in reality that can mean increases that are six or seven times the rate of inflation. If inflation reduces next year, as is predicted, the application of the formula could mean a reduction in fares. I understand that the train operating companies made a request to the Government that the formula be not adhered to, and I am pleased to hear that their request was turned down. It was good to hear from my noble Friend that it is possible that fares will be reduced next year; I hope that that can happen.

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As my hon. Friend the Member for Luton, North (Kelvin Hopkins), suggested, it is important that people are not priced off the railway. It would be a double whammy if we combined reduced numbers of commuters on the railways as a consequence of the recession with falling numbers of passengers as a result of passengers being priced off the railways as an act of policy. We should be wary of that.

Norman Baker: I absolutely share the hon. Lady’s desire to see rail fares controlled; they are far too high, and are in danger of getting higher. There may be a different double whammy from the one that she mentions. There could be the double whammy of reduced income for the train operating companies, and a reduced number of passengers, if the recession kicks in. However, there would be the same overheads, over which they have little flexibility, although there may be a bit of flexibility at the edge, with regard to booking offices and so on. Under those circumstances, and given the architecture that is in place, is not the real danger that those circumstances make the defaulting of the franchise more likely?

Mrs. Ellman: The hon. Gentleman reinforces my point. His argument points to issues to do with the whole structure of the rail system and the way in which it is financed. The Government may well have to look again at the structure of our rail system and how it is funded.

My hon. Friend the Member for Luton, North, referred to ROSCOs—the rolling stock leasing companies. Those companies are already the subject of a Competition Commission inquiry. I ask the Minister whether the Government have given any consideration to the possibility that the financial institutions that fund the ROSCOs, perhaps already affected by the banking crisis, might consider retreating to their core business, thus jeopardising the future purchase of rolling stock. I do not think that that issue has been raised before, but we should at least give some thought to it in the current economic circumstances.

Hon. Members have referred to the important issue of securing value for money, a subject that the Select Committee’s report addressed. It looked specifically at Network Rail. Information on its expenditure was compared to that for similar European companies. It was found that there was an efficiency deficit amounting to £263 million per annum in relation to maintenance, and one of £846 million per annum in relation to renewals. Network Rail has now accepted the rail regulator’s decision to reduce the sum that it requested for the next control period from £31.1 billion to £28.5 billion—a reduction of £2.6 billion.

The chief executive of Network Rail recently wrote to me, confirming that the rail regulator has assumed 24 per cent. efficiencies in track renewals between 2009 and 2014. The letter says that Network Rail will now defer 25 per cent. of track renewals planned for 2009-10. It anticipates that there will be more efficient new plant and off-site assembly methods in place in 2010 for progressing those track renewals.

Dr. Andrew Murrison (Westbury) (Con): Does the hon. Lady agree that a graphic demonstration of the failure of Network Rail is the state of much of the infrastructure
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in and around railway stations for which it is responsible? Train operating companies have done their best in many areas to improve the state of railway stations, but they are often frustrated by Network Rail, particularly when it comes to railway bridges, which often look very shabby indeed set against a smartened-up railway station.

Mrs. Ellman: I am sure that there are examples of neglect by Network Rail, but while criticising it and rightly seeking greater efficiencies, we should all remember that it is infinitely better than the dreadful Railtrack, which it replaced. On the deferment of significant parts of the track renewal programme, is my hon. Friend the Minister satisfied that those deferrals are compatible with safety and efficiency considerations?

Daniel Kawczynski (Shrewsbury and Atcham) (Con): Pursuant to the point made by my hon. Friend the Member for Westbury (Dr. Murrison), there is sometimes a lack of clarity between Network Rail and the train operators as to which is responsible for painting, modernising and maintaining various parts of the station. Surely the Government could do more to help with co-ordination between the two.

Mrs. Ellman: The hon. Gentleman raises an important point. Better co-ordination is needed and, where appropriate, the issue should be addressed locally and regionally, as well as nationally.

Sir Peter Soulsby (Leicester, South) (Lab): I am delighted that my hon. Friend has reminded the House how infinitely better Network Rail is than its predecessor, Railtrack. Notwithstanding the enormous improvement that we have seen in the performance of Network Rail, does she agree that there is a fundamental problem with the way in which it is governed, and its accountability? There is a desperate need for an improvement in the governance structure and the accountability of the organisation.

Mrs. Ellman: I certainly agree with my hon. Friend in raising questions about the accountability of Network Rail and its structure. The matter was considered in the Select Committee’s report. I am pleased to note that the members of Network Rail commissioned a special report to look specifically at governance, but it is a matter of some disappointment that Network Rail apparently does not wish to release the report, although I note that somehow it has made its way to the newspapers, and I do not think it will be kept secret for much longer. It is important that Network Rail review the way it is run, improve its accountability and look again at the way its members operate, and the possibility of setting up a smaller supervisory board that could exert much more control and accountability.

Stephen Hammond (Wimbledon) (Con): The hon. Lady rightly says that the report is likely to find its way into the newspapers, for indeed it has. A number of comments appeared in the Evening Standard last week. On accountability, she will have noted that the report supposedly accuses Network Rail of stuffing its board with second-rate non-executive directors.

Mrs. Ellman: What matters is that Network Rail improve its accountability and revisit its governance.

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I wish to raise one specific matter in relation to the estimates before us this evening. The explanatory letter accompanying the estimates suggests that the bulk of the additional network grant—£404 million out of the £447 million increase—is a grant from the Department for Transport to Network Rail to fund capital investment. It states that the increased contribution from the Department will be matched by a reduced contribution from the train operating companies, which will pay lower track access charges, and that the net effect on the train operating companies will be nil, yet it is not clear from the estimates exactly how that will be achieved. There is no mention of reduced funding to the train operating companies in the estimates. I should be grateful if my hon. Friend the Minister would inform us how the matter is to be addressed.

In my remarks this evening, I have made a number of comments that go to the heart of the operation of the rail system in the current climate and point towards the way in which changes could be made for its future, but there is no doubt that rail has been and is a great success story for both passengers and freight, with a 40 per cent. increase in the past decade. The recession must not be allowed to set the railways back, and the Government must now rise to the challenge.

Mr. Deputy Speaker (Sir Alan Haselhurst): Order. I must remind the House that Mr. Speaker has placed a 10-minute limit on Back-Bench speeches, which comes into operation now. I call Mr. Norman Baker.

7.34 pm

Norman Baker (Lewes) (LD): Thank you, Mr. Deputy Speaker.

Mr. Deputy Speaker: Who is exempt from that ruling.

Norman Baker: I am even more grateful, Mr. Deputy Speaker.

I followed with interest the comments of the Chairman of the Select Committee, who raised a number of important points of detail about the estimates. She also raised some fundamental issues about the structure of the industry in years to come, and I shall be interested to hear the Minister’s response.

We have seen, as we will doubtless be told by the Minister in his winding-up speech, a renaissance in the railways in recent times, with passenger numbers now at their highest since 1946. In response to that, somewhat slowly but finally, the Government are moving towards the high-speed rail option that my party has been advocating for some years, and have adopted the electrification process that we have long advocated. However, I am concerned that the Department for Transport seems to be continually behind the curve and unable to deal with the problems that manifest themselves until they have been there for some time. Passengers suffer as a consequence.

In my contribution, I shall speak about the problems relating to fares, overcrowding, rolling stock, and the centralisation instincts of the Department for Transport and the consequences of that for the rail industry. It is not satisfactory—the Select Committee Chairman referred
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to this—for the balance of funding to be moved ever increasingly towards the passenger and away from the taxpayer. That is not sensible in economic, social or environmental terms.

Since 1997, the cost of travelling by train has risen 6 per cent. above inflation, whereas the cost of travelling by car has dropped 10 per cent. In case the Minister thinks I am particularly attacking the Government for that, I should say that that is a 30-year trend which, since 1977, has seen the cost of travelling by train rise by 52 per cent. and the cost of travelling by car fall by 10 per cent. over that period. Since 1977, regulated fares have increased by 43 per cent. on average.

According to Passenger Focus, a standard commuter season ticket now costs around twice as much as it would cost in France. My party’s research shows that for £10 one can get only 26 miles from London—that is, as far as Basildon—whereas in Serbia, which I admit is an extreme example, one can get 512 miles, which is equivalent to travelling to the Swiss alps, assuming that one could get to the Swiss alps by rail, which might be possible with high-speed rail opening up.

Hugh Bayley (City of York) (Lab): Yes, that is the case with top-line fares, but does not the hon. Gentleman acknowledge that many cheaper fares are available? One can get from York to London for £5 if one buys the right ticket.

Norman Baker: It is sometimes cheaper to go to New York than it is to go to York from London, given the way that the fare structure is arranged. Even with the off-peak return ticket in the UK, £10 buys 56 miles of travel on the railways, on average, making Britain’s off-peak returns more expensive than single tickets in more than half the European countries.

Mr. Eric Martlew (Carlisle) (Lab): I am grateful to the hon. Gentleman, who always speaks in railways debates. In the unlikely event of a Lib Dem Government, how much extra subsidy would his party put into the railways?

Norman Baker: We have set out in great detail in our policy paper the benefits of high-speed rail and other rail improvements. Those come down to a £30 surcharge on domestic flights—we have been very open about that—and a lorry road user charge, and we have indicated how we would get more money out of existing train operating companies. That is all in black and white. I am happy to send the hon. Gentleman a copy of our paper. We are the only one of the three parties to specify how we would pay for improvements to the railway service in this country.

Bob Spink: Before the hon. Gentleman moves on, does he accept that the Office of Rail Regulation speaks for passengers and that it needs to be given more teeth and needs to be more energetic in fighting for passengers, so that passengers get the better deal that he wants for the money that they have paid in fares, and for the benefit of the economy and the environment? I agree with him on most points.

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