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14 July 2009 : Column 38WH—continued
12 noon
Norman Baker (Lewes) (LD): I agree with all that my right hon. Friend the Member for Gordon (Malcolm Bruce) has just said, so I will not repeat any of it. Instead, let me pick up on the statement by the Secretary of State for Transport on the "Today" programme, which has already been referred to. I want to be very fair about it. The Secretary of State was responding to a press release from National Express; that is entirely different from a Government-oriented release coming ahead of a parliamentary statement. Therefore, I clear him on that count. However, there is an issue about Members of the House of Lords being in the Cabinet and there not being a statement in the Commons until half-past 7 that evening. The Government either need to have the Secretary of State making statements in the Commons, even though that would break procedure, or we must have the Minister of State making a statement in the Commons ahead of the Secretary of State making a statement. We cannot be treated like that again on major statements about this matter.
On the franchise offer, it is a sad state of affairs for Members along the east coast line and for others who are rightly concerned about the disruption, the uncertainty and the hiatus that is being caused, as well as the message that is being sent to the travelling public and, indeed, the consequences for public finances of yet another failure of the franchise. Clearly, there are lessons for National Express, but there are also lessons for the Treasury and the Department for Transport on how the franchise process works.
Richard Bowker said on behalf of National Express, when he launched the bid for the franchise:
"We will not bid at levels that we think are unsustainable or undeliverable. There is no point in being a hero for a day and a villain forever more afterwards."
He seems to have got that calculation slightly adrift.
The DFT recognised that there was an issue about the level of the National Express bid, even if the Treasury did not. Dr. Mike Mitchell, the director general for rail in the DFT, told the Public Affairs Committee on 21 January that the east coast franchise had been placed at the Government's highest "red" financial risk and the DFT was quite rightly making provision for what would happen if the franchise fell over. As I say, that was way back in January. We then had further indications from National Express that it was in financial difficulty. As
the hon. Member for Peterborough (Mr. Jackson) has already said, there were discussions over quite a long period between the DFT and National Express about the way forward.
In those circumstances, it is rather odd that the DFT is still not able to say whether or not it will invoke cross-default procedures for the other two National Express franchises. One might have thought that, after a number of months of anticipation, it would have the answer immediately to hand. Will the DFT invoke cross-default procedures for the other two National Express franchises, for East Anglia and c2c, which runs out to Southend and Shoeburyness, or will it not do so? We still do not have an answer to that question, so let me ask the Minister now when will we have an answer, because the uncertainty that applies to the east coast line is now affecting other franchise areas.
The Parliamentary Under-Secretary of State for Transport (Chris Mole): I just want to draw the hon. Gentleman's attention to the fact that cross-default does not come into play until the current franchisee hands the keys back, which has not yet happened.
Norman Baker: That is true, of course, but it means more months of uncertainty for people in East Anglia-including people in the Norwich, North area-and for people who live along the line out to Southend and Shoeburyness.
Indeed, there is an oddity about this business of whether or not National Express has defaulted. The National Express statement on 1 July made it plain that it had failed in discussions with the DFT-that is what National Express said-and it expected to hand the keys back, as the Minister puts it, late in 2009. Lord Adonis then made a statement, effectively saying that National Express had defaulted in all but name; he certainly gave the impression that it was a cast-iron case of the company defaulting. National Express then said, in a further statement in response to the Secretary of State:
"National Express East Coast is continuing to run the East Coast business... Despite suggestions that the Government is taking over the running of East Coast today, this is absolutely NOT true. Further comments that the National Express Group has "financial problems" which have led to it "defaulting" on its commitments to East Coast are also NOT true."
There appears to be some dispute between National Express and the Government. Of course, the possibility therefore exists that we will not have a default-at least, National Express maintains that that is a possibility-and that it will continue to run the east coast service, so that this debate will, in a sense, become unnecessary.
What is clear, however, is that the passengers on the east coast line, the members of the staff employed by National Express on the line and all those who depend on the line for economic reasons are in a period of uncertainty, which is causing disruption and problems for the economy, the future of the railways and those of us who believe in attracting people on to the railways and away from more carbon-intensive means of transport. The sooner that the matter is sorted out, the better. We cannot drift on with it for several months, although, unfortunately, that appears to be what will happen.
I believe that, if we are to have a default, it is right that we should have a cross-default invoked. Otherwise, the message certainly goes out to the industry that it can walk away from that which it does not like and keep that which is profitable. That would not be a satisfactory outcome for the taxpayer-we cannot have that. So the company has to pay a penalty if it walks away from the east coast franchise.
John McDonnell: National Express has released a statement that says:
"The Group would oppose any attempt by the DfT to cross default, in order to protect shareholder value."
Perhaps we can send a message from this debate that we will take National Express on, if necessary.
Norman Baker: I very much hope that the Secretary of State is looking at that issue. Indeed, reading between the lines-I do not know whether or not this is a fair assessment-the officials in the DFT were willing to look at a business arrangement involving a management contract and negotiations with National Express. To be fair to the Ministers, they said no to that. That is how I read the situation; perhaps the Minister can clarify whether or not that happened.
We have a cost in place already, of course. A new public sector company has been set up-the East Coast Main Line Company. Elaine Holt has been appointed to run that company and, no doubt, an infrastructure is in place. Therefore, can the Minister tell us how much has been spent already on the public sector body that has been set up to run the east coast main line in the event of a default? Is Elaine Holt already being paid for her job? What are her terms of employment? Furthermore, if National Express does not default, how much money will be wasted in the shadow process that has been established to date?
To pick up on an important local point, it is also vital, for stability, that the headquarters of the line remains in York. The hon. Member for City of York (Hugh Bayley) made that point himself and Andrew Waller, the Liberal Democrat leader of the city council in York, has made a similar point to me, so there is cross-party agreement on that important issue. As other Members have already said, if National Express finally defaults, we must look long and hard at where we go with that franchise and the franchise process more generally.
As other Members have already said, it seems quite clear that the idea of a public service comparator is sensible. First, it gives stability to that franchise; it lets people have confidence that there will be no further change of ownership, delivery and everything else within another 18 months to two years. Secondly, it enables the DFT, with those in the industry, to say, "How can we rearrange the franchise, so that we put passengers first? Let's have some passenger-oriented outputs, rather than simply having Treasury-driven outputs. What do the passengers want out of this?" That would drive up performance and not just on the east coast main line. By the way, I do not think that National Express is particularly bad, which was the point that the hon. Member for Angus (Mr. Weir) made. None the less, that process would still drive up performance and get rid of these nonsensical own goals, such as £5 reservation tickets and getting rid of some of the buffet facilities.
Some of those actions have cut costs but damaged passenger confidence in the service. We should therefore use that public service comparator to tell other franchise holders, "Well, this is happening on the east coast main line. It is very popular. Why don't you extend it to other areas of your operation as well?" Without that public service comparator, I do not think that we have the tools or the leverage to pull up the rest of the industry in a way that I would like.
There is a case for longer franchises, but they must be based on a five-year review period, to find out whether passenger-oriented targets are being met. If we drive things towards the passenger rather than towards the Treasury, we will end up with a better railway system than we might otherwise end up with. It is very important that the Government, having got in this situation partly but not entirely through their own making, now set some very clear signals about where the east coast main line is going, in what time scale and at what cost. The longer that we delay, the more uncertainty that we have, the more that the railway suffers, the more that the train passengers suffer and the more that the people employed by the railway suffer. Those are not outcomes that I wish to see.
12.9 pm
Stephen Hammond (Wimbledon) (Con): This is an important debate, as several hon. Members said, and I congratulate the hon. Member for City of York (Hugh Bayley) on securing it. He made some comments about the Conservative party and the view on franchising. He will know, if he has read our documents, that we have indicated that we think that there should be a quantitative as well as a qualitative judgment, and we agree that franchises should be longer.
The hon. Member for Selby (Mr. Grogan) quoted Lord Adonis and his wise words. I think that he will find, if he reads the rest of the article in the New Statesman-I do not have it with me today, but I read it last night-that Lord Adonis said that he was not starry-eyed and no one would want to go back to the bad old days of British Rail and a nationalised industry. I am sure that the hon. Gentleman will correct me if that is not quite what Lord Adonis said, but I am pretty certain that that is what the wise words are.
The hon. Member for Lewes (Norman Baker) says that he clears the Secretary of State on the point about the procedures, the announcements and the technicalities at 7 o'clock. I cannot agree, because if the Secretary of State was only responding to a statement from National Express, he assembled in 22 minutes a panoply of apparatus to put in place a takeover. If he was only responding-I know how the process works, having worked in the corporate world-he would almost certainly have seen that statement the night before and could even have instructed one of his Ministers to come to the House at 10 o'clock the night before and make a statement. The reality was that 12 hours after the stock exchange, eleven and a half hours after the "Today" programme and four hours after the House of Lords, the House of Commons heard about it-then and only then. I am sure that the Minister will say, "Ah, but the House of Commons could have accessed the statement at 7 am." Will he tell us exactly what was open at 7 o'clock in the morning? Was it the Library? Was it the Vote Office?
Where could a Member of Parliament have obtained the statement from Lord Adonis at 7 o'clock in the morning?
Shona McIsaac: It is only fair to put it on the record and try to get the hon. Gentleman to acknowledge that there were plans to make the statement in the House of Commons much earlier. Several attempts were made to make the statement earlier in the day, but the Opposition-his party-objected to those timings.
Stephen Hammond: No, without wishing to pull the hon. Lady up, that is simply not true. It was indicated by her own side that the statement in the House could happen at 5 o'clock and Mr. Speaker rejected that. Also, as the Minister of State attends Cabinet, he is surely competent and should have been able to make that statement at 12.30.
The one thing about which we can all agree is that the Government rightly say that they do not want any impact on passengers. However, much of what is happening and much of this debate is still clouded by a huge lack of clarity and huge uncertainty. As the hon. Member for Lewes said, there is some dispute about what the company actually said and what the Government actually said. Can the Minister therefore confirm that the east coast main line franchise has not been nationalised, that National Express Group has not yet been stripped of its franchise-I think that he confirmed that in an intervention a few moments ago-and that it is still running the franchise until it fails to meet its obligations? When does he anticipate that those obligations will fail to be met? If, in the mad world that the Prime Minister seems to believe in, there was a huge bounce in the economy in the next month and National Express East Coast started to meet the obligations again, would all this be an irrelevance?
The statement that has been made requires careful examination. Are the Government convinced that the way in which they made the statement that they intend to take National Express into a public special vehicle, rather than allowing the franchise to go into default, will not have adverse legal consequences? The Government rightly said that they would not renegotiate the terms of the franchise. Can the Minister confirm today what meetings the east coast group had with the Government before 1 May? Can he confirm the report published in The Sunday Telegraph on 5 July that, if the Government had taken the options offered to them by National Express Group at that stage, the liability for the taxpayer would have been between £120 million and £200 million, not £1.4 billion?
Can the Minister confirm that there was a letter between the Department and National Express Group? There was an allegation in that regard in the 15 to 28 July edition of Rail magazine. It stated that
"a letter of May 1, on Adonis' behalf, allegedly discussed a deal which would have seen NEG renegotiate on and hand over a £100m compensation payment."
Can the Minister confirm that that letter exists and that there would have been a compensation payment of £100 million?
Hugh Bayley:
I think that it is misleading to suggest that, if National Express defaults, that will cost the taxpayer £1.4 billion. It is clear that a publicly owned
company running the service will make broadly the same surplus as National Express. I have talked to Andrew Adonis about that. There is no prospect whatever of the Department losing £1.4 billion.
Stephen Hammond: I will come on to the hon. Gentleman's point about exactly what the Minister thinks the forgone income and the income gained might be.
Are the Government satisfied that, as they will take over the franchise, the holding company's liabilities-the £40 million loan and the £32 million performance bond-are still liable? Can the Minister confirm that that is the cap to the holding company's liability? This is very important for the point about cross-default: can he confirm that the contract in existence is with National Express East Coast, not National Express Group? If so, there is a financial firewall between the holding company, National Express East Coast and the Government. That will certainly protect the company and adversely impact any possibility of the taxpayer or the Government being able to initiate cross-default.
The statement says that all other rail companies are fulfilling their contracts, but we know that there is a watch list in the DFT; that has been widely talked about. Can the Minister today talk about the arrangements that he is putting in place to ensure that the Government are doing their due diligence? If, in similar circumstances, they find another holding company making the same announcement, is it their intention to do the same thing?
On the point made by the hon. Member for City of York in his intervention, did the Government analyse the option of offering a management contract to National Express or any other operator? What would have been the cost and what potential income would have been generated? What is the total cost of the new public liability holding? The special vehicle-the public liability holding company-is to take over the day-to-day running of the east coast franchise. That is what the Minister of State said, but he failed to tell us exactly what capital the Government intend to put into that body. Exactly what working capital will they put into that body?
Clearly, in the period after National Express is taken over by the public liability holding company until the franchise is taken over, some income may well be generated. Does the Minister expect that the new company will derive substantially the same revenue and the same profit as the holding company? If not, will the Government say exactly how the shortfall between the total premium payment of £1.4 billion and whatever is derived will be made up? Has the Treasury given a commitment to pay extra money? Will fares increase, or will public transport be cut elsewhere?
The Government have rightly said that franchisees should not be able to run profitable franchises and hand back non-profitable franchises and that that would be the worst of all worlds, certainly for the user-the passenger-the taxpayer and other rail companies, because it breeds uncertainty. So far, threats have been made, but no action has been taken. We have had talk of other defaulters not remaining in the rail industry, and the Minister of State has talked about keeping all options open.
I accept that there is commercial sensitivity about whether we might want to exercise the cross-default option, but the same clearly does not apply-this is where I agree entirely with the hon. Member for Lewes-to legal advice that is not commercially sensitive and that relates to the circumstances in which the cross-default option may or may not be exercised. Crucially, if the Government have a contract only with the operational company, not the holding company, is there any potential liability for cross-default?
In a moment, the Minister will undoubtedly talk about the franchising system and use the fig leaf of the National Audit Office, which said that the system is "generally well thought through". Although the NAO uses the word "generally", we should be clear that that does not apply to the way in which the franchising process worked with the east coast main line.
How much blame can be attached to the Government? They introduced the franchising system; they specified the current franchise; they wrote the contract; and they capped National Express Group's holding company liability. They must therefore accept an amount of responsibility. We are not sure quite what the cost to the taxpayer will be, and we will be able to assess that only over the weeks and months to come.
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