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“The Department’s arrangements for identifying and managing risks, including handling the failure of a train operator, are well planned and follow good practice.”
Let us look further. [ Interruption. ] The hon. Member for Wimbledon (Stephen Hammond) chunters from a sedentary position, and says, “You’ve had plenty of practice.” Forty-one franchises have been given out—two have failed, or 4.97 per cent. When I want the hon. Gentleman’s advice, I will ask him for it. The NAO, which is the expert, rather than people who go for a cheap soundbite on “Sky News”, says of value- for-money assessment:
“The Department’s approach to rail franchising produces generally well thought through service specifications and generates keen bidding competition.”
I would have hoped, on a day on which a private company making lots of profits seeks to walk away from a franchise, and seeks to walk away from passengers who will receive a less good service unless we step in, that the Opposition party would join us, and stand side by side with us, and say to that private company, “This is not good enough. We need a holding company to protect the public and make sure that we have a calm period to reflect on the failures that have occurred, so that when the contract is retendered we have the best possible arrangements not only for passengers but for taxpayers.”
Mrs. Louise Ellman (Liverpool, Riverside) (Lab/Co-op): It is regrettable and unacceptable that the House is indeed the last place to be able to question a major decision. I am pleased, however, about the decision that has been made, and I am pleased that the Secretary of State has adhered to the commitment that he gave the Select Committee on Transport that he would not renegotiate a failed franchise. Will my right hon. Friend assure me that this is indeed a time of change, in which standards for passengers will increase, and in which a private company cannot benefit from the profits of its successor while, at the same time, the public purse picks up the tab for its failure? Can we have a public sector operator to act as a comparator with the private sector franchise operators?
Mr. Khan: I thank my hon. Friend for her comments. I am pleased that members of the Select Committee are able to be present to contribute to this important statement.
May I explain to my hon. Friend one of the reasons that the option suggested by Opposition that another operating company should take over in the interim is such a bad idea? It would cost us £12 million to start with, it would be a huge advantage to that company when it comes to applying for the contract later on, and the company would have to be incentivised to make the arrangement work. The Government’s course of action provides the best value for the taxpayer.
My hon. Friend raises an important point about the role of the holding company and who is best placed to run the franchise. I hope that, after a period of reflection, she will speak to the Secretary of State, to me and to others in order to put forward her views. We will speak to parliamentarians, passenger groups, other stakeholder groups and the Scottish Executive, and make sure that we have time for reflection so that we can get the best deal possible.
Norman Baker (Lewes) (LD): I mean no disrespect to the Transport Secretary, the Minister of State or you, Mr. Speaker, but it is not satisfactory that we are having the statement seven and a half hours after we would have had it, had the Secretary of State been a Member of this House, rather than of the House of Lords. We need to find a way of having Secretaries of State from the Lords in the Chamber to make statements. If that is not possible, the Minister of State should be able to make statements ahead of the Secretary of State, at the normal time.
In respect of the action taken today, first, it was the right decision not to give in to pressure from National Express for further handouts from the public purse. Had the Secretary of State done so, there would have
been a queue of train operating companies at his door wanting contracts renegotiated and wanting further handouts from the public. He had no option but to take the position that he did. However, there will be a cost—£1.4 billion was the premium that was to be paid. There will now be a loss of that premium payment, although a profit will be made from the operation in the private sector. However, there will be a gap. Can the Minister tell us what the gap will be between what National Express would have paid and what will now be recouped from the public purse?
Secondly, does the Minister agree that if National Express finally defaults, as now looks extremely likely although it has not defaulted yet, that will call into question its competence and commitment as an operator? Under those circumstances, would it not be right for the two other franchises that it holds to be removed from it? After all, why should National Express keep the franchises that it deems to be in its interest and lose the one that it wants to hand back to the public?
The matter has been under discussion for some time in the Department for Transport. The Department ought to have reached a view on whether it is legal for the two other franchises to be taken back by the Department, or whether they are deemed to be separate entities under the National Express heading. Can the Minister tell us what that legal advice is and whether it is possible, should the Secretary of State wish to do so, for the companies to be taken back into the public sector, or has that not yet been decided? If the Department ends up with all three franchises, can the Minister assure the House that it has enough qualified management to hand to run all three competently?
Lastly, I turn to the position that the Government have set out with the intention of re-letting the franchise from the end of 2010. I am delighted by the comments of the Chair of the Transport Committee. Instead of retaining the franchise temporarily before re-letting it, what consideration has the Minister given to retaining it for a much longer period as a public interest comparator driven by passenger-oriented targets, instead of the pure financial considerations of the Treasury? Would not such an approach provide a passenger-friendly benchmark that would drive up performance in the other franchise areas? Will he consider that proposal?
Mr. Khan: I thank the hon. Gentleman for his questions and for looking at the facts before asking them. Much as I am tempted to do so, I will not indulge in discussion of constitutional matters and where is the right place to make a statement and at what time. His comments about us not caving in to the private sector are welcome, and I appreciate his support.
The hon. Gentleman asked a number of important questions. On cost, we can recover some of the cost from the performance bond worth £32 million. We will be entitled to the premium until National Express walks away, which is its intention, as set out to the stock market today. Other premiums will become available once the contract is re-let. The revenues that we receive will depend on numbers of passengers who use the rail service, the class of passenger and the amount of fare that they pay, so I cannot give specifics, for reasons that the hon. Gentleman will understand.
The hon. Gentleman raised an important question about what we call cross-default—that is, the ability of the Government to take back dirty contracts that the parent company has in subsidiary holding companies. We are exploring all our options, but he will understand if I do not disclose privileged legal advice on the Floor of the House. I appreciate—I have read the quotation—that, if one wants a secret kept a secret, one should announce it on the Floor of the House, but he will appreciate that representatives of people whom we may sue may be watching the proceedings or may read Hansard. What I can say is that we will explore our options. We have tried to ensure that we preserve taxpayers’ interests and passengers’ interests. That means exploring all the options that are available to us.
The hon. Gentleman asked about our ability and the holding company’s competence, and that is a really important question. We have an excellent designated chief executive taking over, and we have an excellent team that we think will be able to take over the running of the contract as and when National Express decides to walk away.
On the question whether we want to keep the service in Government hands through a holding company or a permanent holding company, or to tender for a new franchise, let us be clear: one reason we are able to invest record sums in our railway service is the revenues that the franchises bring in and the premiums that they pay; one reason we are able to do the work on High Speed 2, which will lead to a high-speed link from the south to the north, is the system that we have in place; and one reason we are able to electrify lines as fast as we possibly can is the investment that we receive from that structure.
There are two ways of securing revenue in the rail sector, and the hon. Gentleman knows about them: one is via fare payers, and the other is via taxpayers. We are trying to ensure that we maximise as much inward investment in the rail sector as we can.
Mr. Speaker: Order. Twenty three hon. and right hon. Members are seeking to catch my eye, and I am keen to accommodate as many of them as possible, so I am looking to each Back Bencher to ask one brief supplementary question and to the Minister, of course, to offer the House an economical reply.
John McDonnell (Hayes and Harlington) (Lab): This is the second time that the franchise has failed in less than three years in private hands. When we had the same failure with Connex, we brought it into public ownership, it ran for two years as South West Trains, it was the most successful sector of the railway network and it gave us the public sector comparator. Why cannot we keep the franchise in public ownership? Or, why cannot we at least allow the public sector to bid when the tender goes out again?
Mr. Khan: I have no problems with anybody bidding for the contract when it comes up for tender. The Connex example that my hon. Friend gave is now doing really well. He will have seen the new Javelin train, which displays remarkable speed and reflects remarkable ingenuity on the part of Govia, the company that is running it.
Mr. John Redwood (Wokingham) (Con): How much money will be put in to the new company as share capital and how much money as working capital?
Mr. Khan: If the right hon. Gentleman means the holding company, I should say that the intention is for the holding company to take over the day-to-day running of the line until we are able to tender the contract, which we think will be in late 2010.
Mark Lazarowicz (Edinburgh, North and Leith) (Lab/Co-op): The decision to re-let the franchise will inevitably lead to a lot of uncertainty for the passengers and staff of National Express. Would it not be much better if we decided either to keep the franchise in public ownership or to have it operated by a not-for-profit mutual, so that the customers’ interest came first, not the interest of shareholders?
Mr. Khan: As a number of Members from all parts of the House have said, this is not the first time that a franchise has failed. On both previous occasions, we provided stability to passengers and staff. We have confirmed that operational staff will be transferred to the holding company and that passengers will not suffer. No one will suffer in terms of tickets or the timetable.
Mr. John Gummer (Suffolk, Coastal) (Con): The Minister must be aware that my constituents are served by one of the other franchises that National Express owns, and his announcement causes a good deal of concern, therefore, because he has not given any indication of the time that it will take him to make up his mind. Will he please do so as quickly as possible? My constituents have suffered under a nationalised system before; they get a much better service now; and they want to make sure that they keep it.
Mr. Khan: I undertake to make sure that I keep all Members with an interest informed of developments in relation to exploring all our options. I appreciate the right hon. Gentleman’s concerns about the rail service to which he refers, and that is why we will keep all Members updated either via the Floor of the House—this House—or via correspondence. I shall make sure that I do that.
Hugh Bayley (City of York) (Lab): I thank the Minister for calling me this morning to update me. There is great concern in York, not only because the headquarters of the company and hundreds of jobs are based there, but because the line is so strategically important to Yorkshire and, indeed, to the whole east of England and Scotland. Given that this is the second franchise to go belly up in three years, will the Minister use the time in which a public company is running the service to pause for thought and consider whether franchising—the poisoned chalice that we inherited from the Conservatives—is an appropriate way to determine the management of a service that is so strategically and economically important?
Mr. Khan: The consultations that my noble Friend the Secretary of State and I will carry out in the coming period will be interesting. The headquarters to which my hon. Friend referred are in York. I can reassure him that when the holding company takes over the running of the contract later on this year, the headquarters will stay in York.
Adam Afriyie (Windsor) (Con): The Minister complains that a private company has walked away, in the interests of its shareholders, from a contract with the Government. Given that the Government wrote the contract and capped the liability on the private company’s holding company, does the Minister accept that they have any responsibility for this mess up?
Mr. Khan: I direct the hon. Gentleman to the report by the National Audit Office, whose views he may respect far more than he does mine. If he takes the time to read it, he will be looking into the capital arrangements, when the taxpayer subsidises a rail company and when a train operating company pays the taxpayer back.
John Battle (Leeds, West) (Lab): I thank the Minister for his statement and welcome the Government’s action. My city of Leeds is highly dependent on a link with London, not least because it is this country’s second financial and commercial centre. We have taken a hit from the banking crisis, and without that link to London our city would find it difficult to recover. Will the Minister assure us that there will be no reduction in services, and that in the short term there could also be a review of high prices, to ensure that people have a chance to use the line?
Mr. Khan: I shall try to respond to those three points in one sentence. There will be no reduction or change in services; we are talking about a prestige line, and that is one of the reasons we are investing in high-speed links—not only to Manchester, but to Leeds, the west midlands and Scotland.
Malcolm Bruce (Gordon) (LD): Passengers from Aberdeen will very much regret this second debacle, and they always regretted the loss of GNER anyway. What can the Minister do in this interim time to ensure that we get competitive fares rather than the extra charges that National Express imposed? We need to compete with the airlines, because it is now cheaper to fly than to use the railways.
Mr. Khan: The right hon. Gentleman raises a really important issue. There are two issues, relating to regulated and unregulated fares. He will be aware that the train operating companies have agreed to increase their fares only by RPI plus 1 per cent. The pundits tell us that the RPI should be lower this July, when the figures are taken, so in January we expect regulated fares to reduce. However, we cannot escape the fact that unregulated fares can go up. We advise passengers who go for the cheap airline tickets also to look for cheap train tickets, which can be obtained if they are booked far enough in advance.
Colin Challen (Morley and Rothwell) (Lab): This time around, the public ownership option will not be brushed aside. In the period of calm reflection that we will now have, will the Minister undertake an urgent review of all the other franchises? He has said that none of them is about to default, but can we have a review so that we can understand how healthy they are?
Mr. Khan:
I reassure my hon. Friend that we are in regular contact with all the train operating franchises. We know their state of health; part of the franchise
agreement is that they have to keep us up to date about their position. I reassure my hon. Friend that no other franchise is in a position such as that of National Express.
Miss Anne McIntosh (Vale of York) (Con): This is a sad day for those who work on and use the east coast main line. Does the Minister accept that the model that GNER used for the bid, and National Express repeated, was based on a false premise—the number of premium fares that it was assumed would be paid at a time of credit crunch? Does he also accept that the franchise model will work only if the risk is passed to the private sector and does not remain with the taxpayer?
Mr. Khan: I do not accept that the former chief executive of National Express, who resigned today, and who was previously head of the Strategic Rail Authority, is naive and does not understand how the market works or how to predict the future. He made a bid with open eyes, and was successful; those who were unsuccessful were not far behind the successful bid, either.
Jeremy Corbyn (Islington, North) (Lab): I thank the Minister for his statement, and welcome what the Government have done today. However, surely this proves that only the public sector can be relied on to maintain and run the railway system. Can he therefore give us the good news that the line will not be handed back to the private sector but will remain a publicly owned, publicly run and publicly accountable railway, so that we will not have such debacles in future?
Mr. Khan: I hear what my hon. Friend says, but I do not agree with him. Fifteen of the 16 franchises are doing a good job; more passengers are using our railways than at any time since the 1940s; punctuality is above 92 per cent.; a survey published yesterday shows a high satisfaction rate among customers; and we have more investment in our railways than ever before.
Sir Alan Beith (Berwick-upon-Tweed) (LD): Does the Minister not recognise that the bidding process has produced two defaulting operators on this line? If he looks for the level of premiums that he has had from it in the past he will drive away not only passengers, because of high fares, but future bidders for the franchise.
Mr. Khan: There would be evidence for what the right hon. Gentleman says if the National Audit Office agreed with him, but it does not. As the Secretary of State said earlier, we welcome the NAO’s looking at the whole process of franchising once we have re-let it. He can be reassured that the process is not at fault: the company is at fault, and it is the company that is walking away from the contract.
Mr. David Anderson (Blaydon) (Lab): May I suggest to the Minister that the only thing that has happened in the past two years is that costs have gone up and services have gone down? The only people to come out of this with any real respect are the staff, who have tried to hold the service together. Will he ensure that when he talks to people, he asks the staff and their unions what they want to see? They will say that they want public railways in this country, and they will be right.
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