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“the coming into force of section 6.”
During the intervening period a significant amount of taxpayers’ money will be spent supporting this scheme. I hope that the Government see the seven-year period not as a time scale within which the report will be brought before this House; I hope that they do not wait until the seventh anniversary and then report. The sooner we know how effective the scheme is, the better it will be. We will then be able to consider whether it is a good use of taxpayers’ money or whether changes need to be made to the matching payment, the maturity period or the range of eligibility to make it more effective in encouraging the savings culture.
The first of the two areas omitted from the Government’s amendment but addressed in that of my noble Friend relates to take-up. The Government amendment talks about the effect of saving gateway accounts on attitudes to saving, the behavioural impact of the accounts, the involvement of people who use them with the institutions offering the financial services and the barriers to opening the accounts, but it does not mention take-up, whether the take-up rate is adequate and whether that rate should be improved. I understand that an annual report will be made on the number of people who open these accounts, in line with similar statistics produced on the child trust fund, but it would be helpful to have an independent review of the level of take-up and of whether that rate is sufficient to justify the existence of the saving gateway account. The Minister will point out that subsection (e) of the new clause includes the opportunity to add other areas to the review and I hope that she will confirm that she will ensure—should she be in a position to do so in seven years’ time—that the take-up rate would be included.
The second area omitted is financial education. A series of pilots took place as part of the long evaluation of this idea, and they suggested that account opening should happen in conjunction with financial education. We are talking about a group of people who do not necessarily have bank accounts, and they may be sceptical about, or uncomfortable with, dealing with financial institutions. Support may be needed for people opening these accounts.
If we are to encourage a savings culture, we need to provide incentives to save and accounts that people are happy to save in, and we must provide financial education in parallel with that, to persuade people of the long-term
benefits of saving. I am disappointed that the Government have not taken the opportunity to include explicit reference to monitoring the financial education that is provided alongside the opening of the accounts. Perhaps the Minister can say whether financial education will be covered in the independent review and should be taken up under subsection (e).
We have called for independent reviews of the system, so we will not oppose the amendment, but the Government could have thought more broadly about what the independent review will cover and have been more timely about when it will be laid before Parliament.
Mr. Jeremy Browne: My party, for the reasons that have just been outlined by the hon. Member for Fareham (Mr. Hoban), supports this Bill, partly because it encourages self-reliance in people on very low incomes. It will encourage them to save in a way that gives them a greater stake in society and to interact with financial constitutions in a way that, in many cases, they do not feel able to do. Both of those objectives are laudable, and that is why we support the legislation.
Even though there have been pilot studies, we have had to made educated guesses about how the system will work in practice. We cannot be certain, for example, that the 50p matching rate will not be excessive and, therefore, place too great a burden on the taxpayer in achieving the scheme’s objective. On the other hand, it might not be a sufficient inducement for people who will be encouraged to take it up. We do not know whether the two-year period will be successful. We do not know whether the maximum contribution is set at an appropriate level—too high or too low. We cannot be certain about the cost or the penetration of the scheme—the two are linked. We may wish to increase the inducements, because the people whom the scheme is meant to attract are not sufficiently attracted on the existing terms. Or it may be that the costs prove to be prohibitive and the Government wish to scale back the scheme in the future.
It is important that the Minister makes a commitment that when this review comes to this House, it will be debated, not just noted. More importantly, the seven-year period is excessive. We will have at least two general elections between now and then. I do not mean to be unkind, but the Minister’s predecessor was in office for nine days, so while it is possible that she will be in post in seven years’ time, it is not unreasonable to expect some ministerial changes in the Treasury in that time. More importantly, we will have had more than enough time to review the issues that I have raised and for a reasonable opinion to be formed about the workability or otherwise of the legislation. Like the hon. Member for Fareham (Mr. Hoban), I would encourage the Government to think about the lifetime of a Parliament
as being a reasonable scale. Four years would be an appropriate amount of time to make a reasonable assessment, would fit into a natural political cycle and would also be sufficient to gauge the success or otherwise of the scheme.
As I have made the case previously for such a measure, like the hon. Member for Fareham we will not oppose the measure before us although it is not precisely that which we would have introduced had it been left in our hands. On that basis, and with those caveats, we are happy to support Lords amendment 7.
Sarah McCarthy-Fry: I welcome the support from both hon. Gentlemen for the amendment. Let me pick up on a couple of the points that were made. Both hon. Gentlemen made a point about the seven years. We must take into account the fact that any review of the effect of the saving gateways accounts will have to consider account holders’ attitudes and behaviour during the two years that the account will last and for a reasonable period afterwards. It would also be desirable for the research sample of participants to include both those people who opened their saving gateway account when the scheme was launched and those who opened theirs later, once the scheme was up and running.
We also have to bear in mind that within that seven year period, the researchers must have appropriate time to prepare their conclusions and findings and HMRC and HM Treasury must have time to consider those findings carefully and to prepare a report. We must remember that that is the latest time at which a report can be published, not the earliest. If there are benefits to conducting and publishing the review earlier, the new clause provides sufficient flexibility for that to happen.
The hon. Member for Fareham (Mr. Hoban) asked about take-up. My noble Friend Lord Myners announced in the other place that HMRC would be publishing data on the saving gateway at least annually. That will include data on the number of notices of eligibility issued by HMRC and the number of accounts opened, so take-up rates will be clear. The independent review can also consider that in the context of barriers to the opening of accounts under subsection (1)(d) of the new clause.
Finally, on financial education, the advice, information and education available to people who are seeking to open an account or whose account is nearing maturity can also be considered by the review when it considers barriers to the opening of accounts and the effects of the scheme on participants’ saving behaviour and their involvement with financial institutions. If a more detailed focus on advice and information on the saving gateway is considered appropriate, the new clause has the flexibility to allow that as part of the review. I hope that we will be able to agree to Lords amendment 7.
Speaker’s Statement
7.52 pm
Mr. Speaker: Before I call the Minister to make his statement, I regret that this House is the last to hear it. That said, if the statement had been made earlier it would have further constrained the time given to the main business of today. I hope that such circumstances are not repeated in the case of other Departments. In answer to points of order made earlier today, I acknowledge that a written ministerial statement was made today at 7 am, before the Secretary of State’s interview was broadcast.
National Express East Coast Franchise
7.53 pm
The Minister of State, Department for Transport (Mr. Sadiq Khan): With permission, Mr. Speaker, I wish to repeat a statement made a little earlier by my noble Friend the Secretary of State for Transport about the National Express east coast franchise.
“I will make a statement about rail services on the east coast main line. The House will understand that, because of the imperative for the Government to respond immediately to the trading statement made by National Express when the markets opened this morning, it was also essential for me to make a written ministerial statement earlier.
For some months now, National Express has been seeking to renegotiate the terms of the franchise agreement to operate services on the east coast main line between London, west Yorkshire, the north-east and Scotland that it signed in 2007. My position has been consistently clear—that the Government do not renegotiate rail franchises. That remains the position today.
This morning, National Express Group announced that it will not provide the further financial support necessary to ensure that its subsidiary, National Express East Coast, remains solvent. As a consequence, National Express East Coast is no longer able to continue operations to the full term of its franchise, and expects to become insolvent later this year.
The decision of National Express to break the contract is regrettable and disappointing. All other rail companies are fulfilling their contracts, despite the economic downturn. It is simply unacceptable to reap the benefits of contracts when times are good only to walk away from them when times become more challenging.
My first and overriding obligation in this situation is to ensure continuity of service to passengers, with no disruption or diminution of service standards. When the Government have had to step in to protect rail services in the past, there has been no such impact on passengers.
I have therefore established a publicly owned company that will take over this franchise from the point at which National Express East Coast ceases to operate. We will agree an orderly handover with National Express. Until that date, National Express will operate services on the current basis; after that date, the new public company will do so. There will be no interruption of services. Existing operational staff—who continue to provide a good service—will transfer to the new East Coast Main Line Company, and so will the assets necessary for the continuation of the service. I can assure the travelling public that services will continue without disruption and that all tickets will be honoured. I have today appointed Elaine Holt, until recently managing director of First Capital Connect, a major train operating company, as chief executive designate of the new East Coast Main Line Company.
The failure of National Express East Coast obviously entails the loss of some future premium payments to which the company was contractually committed. However, while the franchise is under public control, the Government will receive the full revenues of a business that continues to make an operating profit. We will also gain the
benefit of any premium payments from the new franchise once it is re-let. This represents a far better deal for the taxpayer than the only alternative course of action, which was to renegotiate the franchise in an exclusive manner with National Express, with no recourse to what is a highly competitive market for rail franchises. The cost of re-letting the franchise will be met from the performance bond of £32 million, to which the company is contractually bound in the event of termination.
National Express also operates rail services on the East Anglia main line and associated commuter routes. The company has said that it does not intend to default on its obligations in respect of these franchises. Notwithstanding this, the Government believe that we may have grounds to terminate these franchises, and we are exploring all options in the light of the group’s statement this morning. In the meantime, we expect National Express to meet its obligations on these franchises in full.
The Department’s procurement procedures test a company’s track record and its ability to deliver a franchise and to demonstrate value for money in doing so. It would clearly be reasonable not to invite a company to bid for future franchises in circumstances where it had recently failed to deliver on a previous franchise. A company that had defaulted in the way that National Express now intends would not have pre-qualified for any previous franchises let by the Department. I note that the parent groups of previous franchise failures are no longer in the UK rail business.
It is the Government’s intention to tender for a new east coast franchise operator from the end of 2010. The specification of the new franchise will reflect my concern to secure better passenger services and facilities. In particular, I will be seeking to secure significant further improvements to service quality, including to station security, bike and car parking facilities at stations, bus interchange facilities and train catering. This will ensure a step change improvement for passengers from a new east coast franchise. I intend to consult fully on the new franchise specification, including with passenger groups, parliamentarians and the Scottish Executive.
I have explained the action that I have taken to ensure that passengers are not affected by the decision of the National Express Group, and have explained the consequences for that group of its decision. Let me also put the events in a wider context. No other train operator has defaulted on its franchise or indicated to us any intention to do so. Nor has any other company sought to renegotiate its franchise. Today’s events do not represent the failure of the system, but the failure of one company. The rail franchising system was examined by the National Audit Office last year, and was found to deliver good value for money. The NAO also concluded:
“The Department’s arrangements for identifying and managing risks, including handling the failure of a train operator, are well planned and follow good practice.”
It is that good practice that we are following in today’s announcement, and I would welcome a further examination by the National Audit Office once the franchise is re-let.
Rail services at large are steadily improving. Passenger numbers are at their highest levels since the 1940s, punctuality is more than 90 per cent. and overall passenger satisfaction is rising, as was shown in the latest independent
national passenger survey, published yesterday. Moreover, the revenue from rail franchises is enabling us to make record investment in upgrading the network and services on it. We saw that as recently as last month, in the award of the new south central franchise for services on lines through south London, Surrey and Sussex. That process was conducted during the recession, yet it yielded a winning franchise bidder—the existing operator—that is committed to paying a premium of £534 million to the taxpayer over nearly six years. That will be in place of the previous contract, under which the operator was subsidised by the taxpayer. That bodes well for future franchise awards, including for services on the east coast main line.”
Mrs. Theresa Villiers (Chipping Barnet) (Con): Twelve hours after the stock exchange, 11 and a half hours after “Today” programme listeners, and some four hours after the House of Lords, we finally get to hear the news officially. What we have heard is evidence of the incompetence and failure that has characterised the Government’s handling of the rail franchising system. Two franchises have collapsed in the space of two and a half years on one of the nation’s most important transport corridors, on which millions of people and businesses rely, both in England and Scotland. To borrow a well-known phrase, to lose one east coast franchise might be said to be unfortunate; to lose two looks like carelessness.
The Secretary of State told their lordships that he hoped that the next franchise would be better than the last. Clearly, for Labour, it is third time lucky, or so it hopes. On the “Today” programme, the Secretary of State seemed to be saying that National Express East Coast was already in default of its contracts, yet that allegation was not repeated in the written statement, or the statement from the Minister today. Does the Minister stand by the statement made by his boss this morning?
The Secretary of State has claimed that the “Nat Ex” holding company is not prepared to “stand by” its loss-making subsidiary. Does the Minister regret that his Government signed up to a deal that caps the liability of the holding company, and apparently entitles it just to walk away when the going gets tough? Does he accept that the incredibly detailed—even invasive, some would say—due diligence process that the Department for Transport carries out in relation to the credibility of franchise bids and bidders has wholly failed in this case? How much will re-letting the franchise cost? How much did the original franchise process cost? What assessment has the Minister made of alternative solutions to direct Government control, such as getting another operator to run the line under a management contract? How much will the fiasco cost the taxpayer in total? Will the money come out of the control period 4 funding settlement? If not, which part of the DFT budget will be raided to cover it? National Express East Coast was due to pay £1.4 billion over the lifetime of the franchise to help fund CP4. What will be the shortfall on that income? How will the Minister plug the resulting black hole in the funding for CP4?
Can the Minister tell us whether he expects the Government to be able to exercise the cross-default clauses, either immediately or in the future, and will he guarantee that in that event, the Government will not let services be disrupted? How can the Secretary of State possibly say with credibility today that 15 out of the country’s 16 franchises are completely fine, and that
it is just a “Nat Ex” problem, when everyone knows that there is a red-light list of other franchises? Will the Minister come clean and tell us which franchises are on it?
In conclusion, this debacle shows that Labour learned nothing from the collapse of the Great North Eastern Railway franchise. It has continued to press train operators to make wildly over-optimistic bids. It has wholly failed to get a grip on rising costs in the rail industry and in Network Rail. It has tried to plug the gap by squeezing passengers for higher and higher fares. It cut a deal that capped the liability of holding companies and allows them to walk away from their subsidiaries with impunity. They cannot wash their hands of the problem by saying that “Nat Ex” got its numbers wrong. The extensive risk assessment by the Department for Transport of the business case underlying the franchise bid has wholly failed, and as a result we have had yet another accidental renationalisation by Labour to add to the lengthening list that began with Network Rail. It is yet another blow to the public finances, and yet another bill for Labour failure has landed with the long-suffering taxpayers, who have already received such punishment at the hands of this increasingly incompetent Government.
Mr. Khan: I had hoped to have the opportunity to become friends with the Opposition spokesperson before showing the disrespect in which I hold her comments, which lack vigour and do not reflect the facts. I heard Dermot Murnaghan say on “Sky” that he struggled to understand her arguments, and I know exactly what he means. She is the spokesperson for a party that privatised the railways, that led us to Railtrack— [ Interruption. ]
Mr. Speaker: Order. Mr. Jackson, we have heard your comments—we have heard perhaps too many of them—and a period of quiet would be helpful.
Mr. Khan: That led us to the mess that was Railtrack, but the hon. Lady has the audacity to tell us that the private sector is naive, and has been hoodwinked by civil servants to bid higher than it should for a contract to run the east coast main line. The idea that the chief executive who resigned today from National Express and Brian Souter from Stagecoach are patsies who have been hoodwinked by the Department for Transport to overbid for a contract beggars belief, as does making knee-jerk policy on “Sky News”, rather than looking at the facts.
I have talked about vigour. Anybody who has taken the time to read the National Audit Office report—not simply the research prepared by a researcher—entitled “Letting Rail Franchises 2005-2007”, will see that it says of the approach to running rail franchises:
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