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14 July 2009 : Column 25WH—continued
Hugh Bayley:
That is true, but as we have seen from the National Express East Coast situation, when there is a short-term squeeze on revenue, the company walks away from the franchise even though there is the prospect of long-term growth. A longer franchise period would
not prevent a franchise collapse of the kind we saw with GNER and appear to be seeing with National Express East Coast.
As I was saying, in answer to the statement by the Minister of State, Department for Transport in the Commons on 1 July, the shadow Secretary of State for Transport accused the Department of charging too much for the franchise. It was not the Department for Transport that wrote the bids, but hard-headed businessmen who had assessed what the franchise would be worth to their businesses. The National Express East Coast bid was not the highest cash bid submitted in the last franchising period, but the second highest. It was selected because the Government were not confident that the highest bid was viable. It is hard to take the Conservative party's complaints seriously. Franchising was a poisoned chalice that it imposed on the railways. It has brought some benefits, but at the cost of an unacceptable level of instability.
What are the alternatives? First, I would like the Government to re-examine the role of Network Rail. Should it remain the monopoly infrastructure provider, or would it be better to have a vertical railway whereby the Department franchises the track and the trains? If Network Rail remains as the sole national provider, should it be a public corporation rather than a public interest company? That would make it more accountable to the Government and the public. Should track access charges be variable? Network Rail is largely insulated from the economic downturn. Should the track access charges that it obtains depend on the revenue of the train operating companies? That would give Network Rail a vested interest in working with train operating companies to make them as efficient as possible and profitable.
Secondly, I would like the Government to examine what should be contracted out. Should they contract out a full franchise or something less? For example, they could contract out the top level management of a public transport service, possibly on a profit share basis. That would apply a cap and collar arrangement from day one.
Thirdly, I would like the Government to consider whether it is right to contract out the core service or entire service in a region or on a line to a single company, as under the GNER and National Express East Coast model, or whether it would be better to contract out train paths, such as with Grand Central and Hull Trains. Must there be a pre-eminent train operating company in a region or on a line? For example, Leeds has a half-hourly service to London. I note that the hon. Member for Leeds, North-West (Greg Mulholland) has now left the debate. Why should there not be two train operating companies each running an hourly service so that they compete with each other on quality and price?
Fourthly, should the public sector be able to bid when the Government put franchises out to contract? It is of course possible because Deutsche Bahn and SNCF can bid. Why should a British public sector transport company not be able to submit a bid? At a recent meeting between Yorkshire Labour MPs and the Prime Minister, my hon. Friend the Member for Morley and Rothwell (Colin Challen) asked why a public sector operator cannot bid. The Prime Minister rightly asked who that public sector bidder would be. I can think of three potential public sector bidders. The first is the public
sector company that the Government are establishing to run the franchise in the event that National Express East Coast defaults. A second possible public sector bidder is Network Rail. Finally, the residual British Rail Board could bid.
When the Railways Act 1993 was at Committee stage in the House of Commons, there were long and intense debates about whether British Rail would be able to bid for franchises. As far as I am aware, the relevant section has never been rescinded. Of course, British Rail did not bid at the time because it was under a firm steer from the Department for Transport not to do so. It was not a private sector company and therefore was not encouraged to bid, despite being permitted to do so legally. As far as I am aware, that provision is still on the statute book and there is still a British Rail residual body. It would be worth the Government's while considering whether it could put in a bid.
Fifthly, the Government should consider whether the publicly owned company that they are in the process of establishing to run this franchise in the short term should be given an extended period in which to run the line. It could be given seven years-the length of a typical franchise-in which to improve the service and to rebuild business and passenger confidence. That, of course, would be a return to nationalisation. I am not putting such an argument forward for ideological reasons; I am doing so because a period of public ownership would test whether a public sector supplier would compete well with private sector providers on quality and value for money. Of course, if the Minister has considered all those matters, he will tell us what the answers are. However, if he has not done so, I hope that the Government will hold back on the timetable for refranchising to allow those questions-and those that I imagine other hon. Members will ask-to be fully considered. I have seldom seen Westminster Hall as full as this for an Adjournment debate, which shows just how important this issue is.
Many people share my view that the Government should pause for thought. I asked Yorkshire Forward to consult businesses in my region and, at its prompting, the CBI has been consulting its members, whose views are coming back. One large plc that is based in my constituency suggests that the Government should
"get potential fanchisees to compete on a different basis."
Jonathan Metcalfe, a former managing director of GNER, supports
"publicly specified and privately delivered rail operations"
but advises it is very important that the Government
"reflect fully on the most appropriate re-franchising arrangements."
In the Commons on 1 July, the Minister of State, Department for Transport said:
"It is the Government's intention to tender for a new east coast franchise operator from the end of 2010."-[Official Report, 1 July 2009; Vol. 495, c. 425.]
However, at a meeting yesterday, the Secretary of State for Transport said that the new public sector company will run the service for "at least a year." I hope that the Government will not commit to having a new franchise in place by the end of next year because that would rush matters and run the serious risk of the east coast main line franchisee failing once again.
We need a serious public debate about these issues, and that will take time. Information about the costs of running the railway, the number of passengers carried and the quality of service should be in the public domain. Before the debate, I tabled a number of named day questions to my hon. Friend the Minister. I know that it is difficult to answer questions fully when one is up against the tight time constraint of a named day question, but the answers I received were sketchy to say the least. I will re-table the questions and invite the Government to provide more detailed information, because the details on passenger numbers, revenues and the surpluses made-both in the British Rail days and since then-need to be in the public domain to enable a wise and sensible decision on the future of the line to be made.
I have been reading the history of BR and, in the 1980s, the Conservative Government had difficulties in establishing the profit line for the BR intercity service, but it is clear that the profit line was of broadly the same level as that being made by the franchisees of intercity services at the moment. Therefore, it is possible for the public sector to make good money out of a commercial railway, although, of course, the social railway will continue to need Government support.
In relation to York, I say this to the Minister. On 1 July, the Minister of State, Department for Transport called me to explain what the Government were doing. At that time, I said to him that, when the publicly owned company takes over the franchise, it is important that it retains its headquarters in York. Geographically, York is at the centre of the line and, when there is a major incident, I have seen managers run out of the railway offices and jump on a train. Within two hours, they can be where they are needed-whether it is a train crash or some other incident. York is a geographically sensible place for the headquarters to be and it is, of course, where the service's headquarters have been for a century. I was pleased that when the Minister made his statement to the House on 1 July, he was able to give me an assurance that the headquarters would stay in York as long as the publicly owned company was running the service. For the sake of stability, to restore staff confidence and morale, and to safeguard hundreds of jobs in my constituency, I hope that, this time, if the Government refranchise the service, they will require the headquarters to remain in York.
There has also been great controversy about the establishment of ticket barriers at York station. When I spoke to the Secretary of State about that, he said that his hands were, in effect, tied because one of the conditions of the National Express East Coast franchise was that barriers could be installed. If National Express loses the franchise, which seems almost certain, that condition will, of course, no longer exist, so I ask the Government to consider that matter again. Among others, I have spoken to someone who was a manager of the east coast main line when InterCity was running the service. He took out the barriers in 1988 or 1989 and achieved a revenue increase by putting ticket collectors on the train.
The Secretary of State has talked about using a period of public sector consolidation to improve the quality of the service, for example, in relation to car parking, bicycle parking and on-train catering. Those are all good things, and I applaud him for taking those
matters on board. However, they do not deal with the strategic question, which is that this railway is of fundamental economic importance to Yorkshire, the north-east of England, the east midlands and Scotland. There has been a hiatus twice in three years; there cannot be another hiatus. The Government need to stop and consider how they have appointed the management of this railway line in the past. They also need to change how they have determined who will manage the service in order to prevent the vulnerabilities that have led to the two franchise collapses.
Mrs. Joan Humble (in the Chair): Order. There are several hon. Members who wish to speak in the debate. I advise those who wish to contribute that I will call Front-Bench speakers at 12 o'clock, so if hon. Members limit their contributions, I will try to allow as many as possible to contribute.
11.27 am
Mr. Stewart Jackson (Peterborough) (Con): It is a pleasure to follow the hon. Member for City of York (Hugh Bayley), not least because he speaks about the railways with passion and a degree of knowledge and experience. However, we must bear in mind the circumstances in which the decision was taken and the statement relayed. It is worth repeating the point that it is not acceptable for the Secretary of State for Transport, Lord Adonis, effectively to make the announcement on the issue at 7.22 am on the "Today" programme while we in the House of Commons had to wait until half-past 7 that evening to be told the same thing. So doing disregards the new Speaker's rules.
The hon. Gentleman failed to give us the context of the failure, or seeming failure, of National Express East Coast. He assumes that the matter is just about a commercial enterprise, that there is no greater Government or ministerial context and that the franchise system has failed. Obviously, in doing so he pays homage to the traditional visceral hatred of privatisation that we see among those on the Labour Back Benches. Two weeks ago, there was a knee-jerk reaction from various people who see what has happened as a green light to proceed with full renationalisation and an opportunity to roll back the progress made under privatisation.
The hon. Gentleman fails to concede that the micro-management and interference of Ministers, the Department for Transport and the Government generally have played a part in what has occurred over the past few months. He says that he wants a serious public debate, but so do we all. That is at variance, however, with his contention that the current situation will lead to instability and lack of clarity, which will be bad for business in Yorkshire and the Humber and along the east coast main line in the rest of the country, including my constituency.
I do not believe that we need a long period of 18 months or more of quasi-nationalisation, which would not be good for the industry, and certainly not for the east coast main line. It is, of course, a prestigious line, and we are all sorry that it is in its current position. I believe that Great North Eastern Railway was a good train operator, and were it not for the problems with the chapter 11 situation that afflicted Sea Containers in 2007, it would still be running a fairly good service.
GNER would have had to cut costs and cope with a difficult economic situation, but it would still be running the line.
Clearly, National Express overbid for the franchise in 2007 and its model's predictions for passenger numbers, revenue and similar data were faulty. However, we should remember that that franchising model was overseen by the Department for Transport and Ministers, and that there was no great difference of opinion on the predictive modelling, as the Department concurred with National Express's predictions, so it would be unfair and disingenuous to blame only the franchisee for its current situation.
The model was predicated on revenue growth of 10 per cent. and an estimated 4 per cent. increase in passenger numbers, but over the 18 months since then we have seen falling passenger numbers, fewer journeys and declining passenger revenues. In the period immediately before the recession kicked in, passenger revenues rose by about 11 per cent. during the quarterly period in the middle of 2007.
The success of the east coast main line and the long-term financial viability of the franchisee matters a great deal to my constituency, which has a strong heritage as a railway town-perhaps not as strong as York's, but close. For us, the redevelopment of the station quarter and the North Westgate development in Peterborough are an integral part of the wider regeneration of the city, and having a railway station that acts as a good, professional facility is vital to my constituents, not least because Peterborough's economic prospects are as a transport and logistics hub at the confluence of the east midlands, the east of England and the greater south-east. Hitherto, the availability of a fast and efficient service only 50 minutes from London has been of significant benefit to Peterborough's economic competitiveness in the travel-to-work area.
We are in the current situation because of the value judgments and decisions of the Secretary of State for Transport, Lord Adonis. He is responsible for the current situation. Two weeks ago he told the media-before he told Parliament, incidentally-that the Department
"does not renegotiate rail franchises".
That raises the question, why did the Department spend five months from February 2009 negotiating with National Express, the parent company, if it was not prepared, ultimately, to vary the franchise arrangements in any way? At the same time, other train operating companies, such as First Great Western and Virgin West Coast, have received taxpayer subsidy at an earlier juncture than was possible for National Express East Coast, which would have received that support from December 2011, as the hon. Member for City of York mentioned. We should remember that National Express has not yet defaulted on its payments with regard to the east coast main line operation and that before the downturn revenues were growing ahead of the target set when the franchise was awarded.
The Department for Transport had an opportunity earlier this year to maintain the franchise, with a cash sum to the Treasury, until the taxpayer subsidy could be given to the company in December 2011, but it rejected the offer and plunged the east coast main line franchise into uncertainty and confusion, and ultimately the inevitable incompetence of the Government running that vital railway franchise. Ultimately, taxpayers will absorb most of the loss if the revenue on the franchise is below target
growth. As we heard from the hon. Gentleman, growth in the first quarter of this year was down to just 0.3 per cent., which clearly does not auger well.
I disagree with the hon. Gentleman because it is imperative that the Government move quickly to relet the franchise as soon as possible, but he is right that we need to know the cost to the taxpayer of that likely process over the next 18 months. We have to ask what impact there will be on other budgets as a result of the public subsidy needed to keep the franchise as a pseudo-nationalised franchise. That is important, if other vital programmes are to be affected.
We also need to look at franchise length. As the right hon. Member for Berwick-upon-Tweed (Sir Alan Beith) said, it is no coincidence that the most successful train operating company, Chiltern Railways, has an exceptionally long franchise, compared to the others, so we must consider that. It is something that neither the Minister nor the hon. Member for City of York can disregard. We cannot go back to nationalisation, despite what some hon. Members might say. Even The Independent, which is not traditionally a great friend of private enterprise or the Conservative party, said on 2 July that
"there is no case for resurrecting the inefficient British Rail... the railways have generally improved in private hands over the past 15 years. Passenger numbers are at their highest levels since the Second World War and the quality of rolling stock is much higher."
We need to look at governance structures and review the cap-and-collar regime. We need to accept that there is likely to be some cost-cutting in the short term, but I believe that that is worth while if the medium and long-term financial viability of the franchise is preserved and can continue in private hands. We must remain focused on the strategic and economic importance of the east coast main line and ensure that we continue to deliver a professional, fast, quality and value-for-money service for the benefit of our constituents across the country.
I do not disagree with the hon. Member for City of York on the issue of disaggregated franchises, because there might be merit in that and we should look at it. Nor do I disagree that we should look at contracting out top-level management. The new Conservative Government, who I hope will be elected in the middle of next year, will undoubtedly look at that point, and my hon. Friend the Member for Wimbledon (Stephen Hammond), the shadow Minister, will perhaps refer to it.
Finally, we need further institutional disruption in Network Rail like we need a hole in the head. We should leave Network Rail well alone, because disruption will not work and there is no case for it. We are in a difficult position, so we should relet the franchise quickly, put away notions of renationalisation and get that service working for our constituents and the benefit of the whole country.
11.39 am
Mr. John Grogan (Selby) (Lab): It is a great pleasure to follow the hon. Member for Peterborough (Mr. Jackson), and I congratulate my hon. Friend the Member for City of York (Hugh Bayley), who is my constituency neighbour, on securing the debate.
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