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Westminster Hall

Wednesday 3 June 2009

[Hugh Bayley in the Chair]

Rail Industry

Motion made, and Question proposed, That the sitting be now adjourned.—(Steve McCabe.)

9.30 am

John McDonnell (Hayes and Harlington) (Lab): I sought this debate because the economic recession is hitting the rail industry hard. Despite Government efforts to develop long-term infrastructure investment plans and the exhilarating tour of the rail system by Lord Adonis, most commentators are now reporting a rail industry in crisis. The falling demand in the economy is resulting in a falling demand for rail services—both passenger and freight. The drying up of revenue resources or income is leading to cuts in jobs and services and the curtailment of some potential investment. There is a concern among many in the industry that unless the crisis is addressed, we could be going into a spiral of decline for the long term.

Some commentators this week have suggested there is evidence that the recession is bottoming out. I have serious doubts about that, particularly given the analysis of the US economy. However, if we look at the Left Economics Advisory Panel’s analysis of the evidence of the 1990s recession, we see that even though the rail industry was hit hard at the bottom of that recession, passenger numbers still fell for three years after the economy reached its lowest point. The evidence suggests that for the rail industry, although there is a potential crisis at the moment, worse is yet to come both for the rail and the underground.

Bob Spink (Castle Point) (Ind): I congratulate the hon. Gentleman on bringing this issue to the House. I am sure we all agree that investment in rail infrastructure would help us to climb out of recovery, and that we should take that opportunity. Such a strategy would also help to tackle some of the very serious problems such as the overcrowding on, among others, the c2c Fenchurch Street line into London, which is becoming intolerable and is a major safety issue. There are many reasons why we should make more investment in rail infrastructure and rolling stock.

John McDonnell: I shall come to the impact on passengers, but I agree that overcrowding is a key issue. Some of the figures that we are identifying on particular lines are staggering in terms of the impact of some of the cutbacks, and of the overcrowding problems that passengers experience.

The recession is not just impacting on jobs and services; it is exposing the inherent and disastrous failings of the privatised railway system based upon the franchising mechanism that the Government created, which, in turn, has created a dependency of the railway sector and the railway companies on the Government and the travelling public. That dependency has created extensive public subsidy for what some would consider fairly rapacious profiteering by private companies themselves.

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The franchising system that the Government introduced is good for those companies when the economy is booming, and they raked in immense profits during that period at the expense of taxpayers and the fares and charges on passengers. However, in an economic downturn, the franchising system is enabling those companies to pass back virtually all the risk to the public purse and the travelling public.

The rail industry could and should be one sector of the economy that is readily usable to increase demand and stimulate the economy. It should be usable as an investment tool for counter-recessionary measures through which public investment, particularly in the modernisation of the railway system infrastructure, could protect jobs, stimulate demand in the economy and assist in driving the economy out of recession. Rail could be used to set the Government firmly on the path of meeting climate change targets, as well as being part of our overall “greening the economy” policy. However, the Government have handed over to private profiteers effective control of the system. Private operators have made their profits and passed on their high dividends to their shareholders in the good times, and now, having milked the system for all it is worth, they are passing back the liabilities and problems to the Government and the travelling public.

David Taylor (North-West Leicestershire) (Lab/Co-op): My hon. Friend is referring to the counter-cyclical potential for investment in rail infrastructure and also in the rolling stock. Four months ago, the Secretary of State announced that the £7.5 billion contract for the replacement of high-speed trains should go to the Agility consortium, which has two possible sites in North-West Leicestershire. Does my hon. Friend agree that the Secretary of State was unable to be absolutely clear about the make-up of the 12,500 UK jobs that were said to be preserved or created by the award of that contract? Perhaps the Minister will put more flesh on the bones of that announcement.

John McDonnell: Many of us hope that the planned rail industry investment will protect jobs and stimulate job growth. We need to be very particular about how that investment is developed so that jobs are created, and created in this country as well. However, there is a lack of specific commitment, which has led to fears that a lot of the investment will not stimulate or protect jobs in this country. Workers in the industry, passengers and taxpayers are now paying for the new recession within rail.

I should like to outline how the rail recession is impacting on jobs. In recent months, we have had 7,000 job cuts in the rail sector, London Underground and Transport for London. Let me put on the record some of those job cuts. We have seen 750 jobs go at the National Express group across East Anglia and the east coast franchises. Network Rail, which is deferring 28 per cent. of rail renewals, says 800 jobs are at risk. Workers at other maintenance companies may also be in jeopardy because of the proposed withdrawal of track machine contracts by Network Rail itself.

Mr. Edward Timpson (Crewe and Nantwich) (Con): I congratulate the hon. Gentleman on securing this extremely important debate. On recent job losses in the railway
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industry, is he also aware that a fifth of the jobs at the Bombardier plant in Crewe have been lost since December? Bombardier was one of the bidders for the Hitachi contract. Does he agree that if the Government are to help with the continued investment in jobs in the railway industry, the future contracts that are up for tender, including the Thameslink contract, should give credence to the position that Bombardier is in?

John McDonnell: I certainly concur with the hon. Gentleman’s remarks, and I will come on to issues relating to the supply chain.

Let me run through some of the other job losses. Some 530 jobs are to go at the UK’s main freight operator DB Schenker, which was formerly English, Welsh and Scottish Railway Ltd, and it looks as though there may be further significant job losses there as a result of Network Rail’s announcements. Some 480 jobs are to go at South West Trains, including a large number of ticket office and platform staff, 300 jobs are to go at Southeastern, 162 jobs at East Midlands Trains, 40 jobs at First ScotRail, 30 track welders at Amey, 37 signal and telecoms jobs at Colas Rail, and 86 jobs at Bombardier. Those have already been announced but tragically, more are to follow. There has been a proposed cut in ticket office opening times at First Capital Connect, which has put 20 posts at risk. On top of that, 1,000 jobs are potentially at risk at London Underground and, as a result of some of the Mayor’s announcements, some 2,000 jobs are to go at Transport for London. That has had a significant impact on the rail industry itself. Hon. Members can understand why we have received reports from those on the front line of this industry that the sector is in crisis.

Freight has been affected as well as passenger services. We are told that the 530 jobs at DB Schenker that I mentioned could be just the first announcement. In the words of the company, there are further jobs at significant potential risk. There are also rumours of jobs at risk at Freightliner. However, the demand for freight has held fairly steady—Network Rail said that there has been only a 0.5 per cent. drop. It seems that a number of companies are using this opportunity to shed labour and reorganise, and there are sometimes threats to tear up union agreements.

Network Rail’s decision to defer 28 per cent. of rail renewals work, which includes the laying of new tracks and new signals, means, in the assessment of the unions involved, that 200 miles of track work has been put on hold. That is 1,000 jobs at risk. The company admits in its business plan that that will have consequences further down the supply chain. It has estimated that 20 to 30 per cent. less heavy materials—for example, from quarrying and steel production—will be demanded over the coming year as a result of the deferral of the work. That runs counter to everything that the Government are seeking to do in investing in the long term and in infrastructure to stimulate demand in the industry and, of course, in the economy overall.

I am the convenor of the National Union of Rail, Maritime and Transport Workers parliamentary group. We have received reports from members expressing their fears about the impact on health and safety. The union has asked Network Rail for risk assessments of
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the deferral of some of the works, but has been denied them. We do not want to return to the days of Hatfield, Potters Bar or Greyrigg.

There are concerns about the impact further down the supply chain. On train manufacturing, as has been said, Bombardier in Crewe is proposing that 86 staff be made redundant, on top of the job losses at Washwood Heath, Eastleigh and Derby. The company is now saying that a number of its existing contracts will come to an end by the end of 2009. It is critical when contracts are being considered and developed to have some understanding of the impact on jobs in this country and the possible loss of expertise and skills if contracts are not awarded to companies such as Bombardier, which has skills that have been built up over generations of developing our train infrastructure and manufacturing for the needs of our industry. Concerns have been expressed across the House that the Bombardier situation has not been helped by the award of the contract for the new super express trains for the east coast main line and First Great Western to Hitachi in Japan.

On London Underground, the objective of saving £2.4 billion announced by Mayor Johnson in November 2008 has been achieved mainly through large-scale job losses and the scrapping of projects. Up to 3,000 jobs could be at risk, and the Mayor has moved to compulsory redundancies and tearing up some existing union agreements. That has provoked strike ballots, which have come in at five to one in favour of strike action to demonstrate the strength of feeling of London Underground and TfL workers. The unions are seeking negotiations with the Mayor to examine the way forward to protect jobs and ensure that services are maintained.

There is no better example than London Underground of the recession combined with the privatisation proposals of past years producing a toxic cocktail of policy failures. The Government’s public-private partnership on the underground will go down as a memorial to the Prime Minister’s bloody-minded refusal to listen to expert warnings about the privatisation mechanism that has been used. It is a monument to dogmatic incompetence. London MPs went through the experience of Metronet, which milked Londoners for £800,000 a week in profits before it went under. The contract had to be brought back in-house, with a resulting £2 billion debt legacy. We are now told that Tube Lines, which in the past few years has been making £1 million a week in profits, is in jeopardy because its estimate of its work on the contract it was awarded has left a £2.1 billion funding gap. Again, the private sector has failed and the public sector must pick up the tab as administration looms for that company.

It is ironic that the system that was imposed on London Underground is now being imposed on Tyne and Wear Metro. The £300 million of investment that the Government have promised will be delivered only if the company’s services are put out to market testing. In effect, it is threatened with privatisation despite the opposition of local Members. In surveys, members of the public have demonstrated their absolute opposition to private sector involvement in the system, in opposition to local authorities in the area.

That is the impact of the recession on jobs in the rail sector, and it is a devastating appraisal of what is happening to those people on whom we have relied to deliver our rail system. The impact is not only on
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workers, but on passengers, who are paying for the crisis through high fares. They are paying because of a combination of the recession and the privatised franchising system. British commuters pay twice as much as those in all other leading European countries to travel the same distance. Annual season tickets for journeys of between 11 and 25 miles cost an average of £1,860 in Britain, compared with £990 in France, £944 in Germany and £788 in Spain—Italy has the cheapest season tickets at £444—yet our fares are still going up. In January 2009, average regulated and unregulated rail ticket prices increased by 6 and 7 per cent. respectively. Arriva CrossCountry, which will receive public subsidy in excess of £1 billion over its franchise term, raised unregulated fares by an average of 11 per cent.

Jeremy Corbyn (Islington, North) (Lab): My hon. Friend makes a very strong point. Does he agree that one of the problems is the excessively complicated fare structures in Britain, which means that travellers who have to travel at short notice because of a special commitment often pay ludicrously high fares? That does not happen in almost any other country in Europe.

John McDonnell: Time and again the Transport Committee has referred to the complicated fare system and the discrimination against passengers who have no access to the internet, where they might be able to make savings by advanced booking. There have even been increases recently in the prices of special arrangements for savings, such as the young persons and family and friends railcards—on 18 May, there was a 50 per cent. increase.

Other concessions have also been hit, which I find extraordinary. Members of the armed services face the same increase in the minimum fare using Her Majesty’s forces railcard. Pensioners have had the price of their railcards increased by 8 per cent. recently. The minimum cost of using a network card, which offers discounts on journeys in London and the south-east, has risen by nearly a third. The card now costs £25 a year, which is a 25 per cent. increase on last year’s price. Passengers as well as workers are getting it in the neck.

Hidden, stealth charges have also been introduced. For example, we found that one franchise—National Express east coast—has introduced a booking fee of £2.50. That was condemned by local passenger groups. Mr. Ashwin Kumar, a director of Passenger Focus, said:

Recently, people have been paying more, but have increasingly received a poorer service.

Overcrowding has been mentioned. According to Department for Transport figures, 70 people stand for every 100 who sit on Southern and South Eastern. I feel sorry for people who travel on the most overcrowded train in the country, the 7.15 from Cambridge to King’s Cross, which carries an average of 870 passengers, but has only 494 seats. That sounds like the Chamber of the House of Commons.

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Kelvin Hopkins (Luton, North) (Lab): My hon. Friend makes a powerful point. My daughter-in-law used to travel regularly on the train from Cambridge. When she was pregnant, she had to sit on the floor. That is what is happening. Does he agree that the railway industry is sweating the assets to maximise profits and ignoring passenger comfort?

John McDonnell: That has been a consistent process in the privatised system and particularly in these franchises. Companies can maximise their profits by increasing fares and gaining public subsidy, while not rewarding the passengers with sufficient improvements in services.

Stephen Hammond (Wimbledon) (Con): I am listening carefully to the hon. Gentleman’s speech. Does he agree with the Public Accounts Committee that it is the Government who do not consider the damaging side effects on passengers of the rail franchising process and that that process is causing the problem?

John McDonnell: I will come on to the rail franchising process because it is at the root of the system. That relates to this Government’s dogmatic commitment to privatisation, which the hon. Gentleman’s party probably shares.

Another issue passengers face is delays. I am sure that hon. Members will exemplify that with what is happening in their areas. We all remember the delays on First Great Western that produced a passenger strike only 18 months ago. There were demonstrations in which passengers refused to pay their fares because of the company’s failure to deliver services on time.

There have been front-line staff reductions. There are regular reports of ticket office closures. There are fewer platform staff, which increases people’s fear of a lack of safety. There are reductions in catering facilities. This week, I heard about the scheme companies have come up with for shorter trains, which beggars belief.

The service is no longer based on responding to passenger needs. The public service ethos that existed in British Rail has gone as a result of franchising and privatisation. The service is concerned not with passenger needs, but with cost cutting to maximise profits. That is a failure of franchising. At the heart of the crisis is the privatised franchising system. There is profiteering by converting fare increases and subsidies into profits and dividend payments for shareholders. That occurred even up to the edge and into the current economic crisis.

In December 2008, the RMT published research showing that the big five transport operators were converting above-inflation fare increases into profits and dividend payments of between 10 and 33 per cent. Arriva’s operating profit to 30 June 2008 was £14.8 million. The dividend payment was 10 per cent. First Group’s operating profits to September last year were £48.3 million. The interim dividends were 10 per cent., with £55 million paid out in 2007. Go-Ahead’s operating profits in the 12 months to September were £77.2 million and the dividends paid out £48 million. In the six months to June last year, National Express’s operating profits were £28 million and the dividends paid out £40 million. Stagecoach’s operating profits to October last year were £31.7 million, with a 33 per cent. increase in dividends paid out to shareholders.

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Interestingly, the franchises are now floundering. The Government attempted to increase some form of control over the profiteering by introducing premium payments to the franchises. There had to be a repayment to the Government, but that was calculated using extremely bullish passenger usage figures. Many of us—people inside the industry and outside commentators—warned at the time that the bullish passenger growth predictions were not likely, particularly with the threat of recession. It is on the record in the trade and financial press that the Government were warned by the RMT that any downturn would jeopardise the premium payments. That is exactly what happened.

The situation has been made worse by the bizarre cap-and-collar arrangements introduced to the franchises. Many hon. Members have been involved in financial arrangements in the public or private sector. I was chair of the Greater London council finance committee and have worked in the private sector. I have never seen contracts like these entered into before by the public sector or others. The agreements offer protection to the private sector by committing taxpayers’ money to part-fund any shortfall if the revenues fail to reach levels predetermined in the franchise negotiations. Basically, that means that even if the private sector does not make the profits it wants, the Government have to intervene to subsidise it. That is an extraordinary agreement to enter into. As hon. Members across the Chamber have said, this is about privatising the profits while the risk is nationalised.

It has been reported that private sector franchise agreements in many areas are falling apart at the seams. The franchise operators are coming to the Government for further support and are trying to renegotiate the franchise. In some instances, there is talk of handing back the keys. The best example is the east coast line. In various meetings, Ministers have categorically denied that they are renegotiating the franchise or offering a management contract to the National Express Group that runs it. However, the National Express Group has made it public that it is in talks with the Government about the repayment terms, which it describes as too onerous. On the day when National Express Group announced that publicly, its shares shot up by 17 per cent. and by 29 per cent. the next day.

Norman Baker (Lewes) (LD): On that point, I received a written answer from the Minister on 8 May about press speculation on the replacement of a franchise by a fixed-fee agreement for National Express on the east coast. When asked what his policy was, he replied:

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