Examination of Witnesses (Questions 180-199)|
4 FBRUARY 2009
Q180 Chairman: If the current franchise
system is retained, and clearly it is here for the short term,
are there any changes in the rules about permitted fares increases
that you would like to see, and that you think could be put into
Mr Doherty: That is a given that
we are going to continue with the current system. If the system
was wrong, if people were taking risks, for example in order to
ensure that they won the franchise, how much different was it
from the bankers who were taking risks and giving out toxic loans?
They were taking risks on the economic circumstances. The whole
industry was questioning the bases of some of these franchises.
For example, when GNER handed back the keys and then National
Express came in with an even tighter financial bid, certainly
the whole industry, certainly the people I was talking to within
the industry, were questioning how that was going to stack up.
Mr Bowker at the time, I recall, was saying that they had factored
in if a recession came in. Well, the chickens have come home to
roost now. If the word is right within the industry, then National
Express are certainly one of the train operating companies that
are talking to government. I do not think the system can work
and therefore I do not think you can tinker with it. I do not
think there is anything you can do; you have got to change the
Mr Leach: Similarly, we would
take a view that the system was flawed from the outset. We repeatedly
made those views loud and clear to the entire industry. The whole
system needs completely replacing. It might seem ambitious, it
might seem that we are talking with larger expectations than most
people are used to, but that is where we think the solution lies.
As Gerry has already said, tinkering with it will not solve the
problem. What I would also say is that we live in very interesting
political times. All kinds of things that would have seemed completely
off the radar up until very recently are very much on it, and
we believe that now we are seeing, as already has been said, chickens
coming home to roost, and it is only a matter of time before some
of these companies are in serious difficulties. We only this afternoon
have been told that another 180 redundancies will be taking place
with South West Trains. I do not know if they were here earlier.
Our officials have been meeting with management representatives,
along with the TSSA this afternoon, and that is what we have been
told, and they cannot rule out compulsory redundancies. That is
not only in South West Trains; these developments are unfolding
throughout the industry, and we believe that the only solution
to it is a radical overhaul, and that includes the fares and financing
system for the railway, and we believe that renationalisation
is the solution to the problem.
Q181 Chairman: Mr Doherty, RMT have
said that fares increases will be converted into bumper profits
fuelling dividend increases of at least 10% and as high as 33%.
What is the basis for that statement?
Mr Doherty: That is RMT, I cannot
speak for RMT, Chairman.
Mr Leach: Sorry, was that question
directed to me?
Q182 Chairman: Sorry, Mr Leach, this
was RMT's figures.
Mr Leach: Yes, they are.
Q183 Chairman: I am sorry about that.
What is the basis for those figures?
Mr Leach: We have gone and had
a look at the published information and we have seen, for example
Chairman, I believe this note was sent over to you all in good
time, we call them the big five, were doing very well up until
the end of last year. This is the six months ending on 30 June
2008, okay, so it is a little while ago now, but Arriva Group
had dividends paid to shareholders in the region £33.9; First
Group, interim six months ended on 30 September 2008, a dividend
of £55.5 million paid during the previous period. We have
provided this information to the Committee and we get it in the
Q184 Sammy Wilson: Were those figures
for the transport company as a whole or were they paid specifically
to shareholders from profits from rail? I think the difficulty
is that the figures, as far as we can see, and we have asked for
the information, have not been disaggregated, so those could actually
be distorted because it does not take into consideration the fact
that some of those dividends were based on profits earned on activities
other than railways.
Mr Doherty: When the big public
transport operators publish the figures, you are quite right,
Mr Wilson, they do not disaggregate between profits by buses,
essentially, and profits by rail, but you only have to look at
their annual statements, and their rail businesses are the ones
that are providing higher growth in terms of profits. First Capital
Connect, for example, had almost £50 million for the first
six months, and yet they are still making cuts just now. You are
absolutely right that you cannot disaggregate, but what they do
say is that rail businesses have performed exceptionally well,
and that must transfer into the dividends they pay.
Q185 Sammy Wilson: We will get the
information from them but they were saying they are getting 5%
or 3% returns on the basis of the revenue that is brought in and
the costs that they had, which did not seem to me to be exceptionally
high in relation to the amount of capital that they have invested.
Mr Doherty: I am only quoting
from the annual accounts that I have seen and the commentary in
those annual accounts. They are very bullish about how their rail
businesses are doing vis-a"-vis the bus business in the UK.
Q186 Sammy Wilson: This is where
I am at a loss to understand your position, because you have been
telling us that you expect some of these franchises to have to
pull out or to go belly-up within the next year. You have been
painting a fairly bleak picture for us.
Mr Doherty: I am not sure that
we have said that. I think that we have said that they are in
difficulties and there are a number of options that are available
to them. One of them is going belly-up, one of them presumably
will be that they will go back and look for what they term as
"flexibility" in their franchises which the department
seems to be holding its face against. One of them could be that
the dividends that are being paid are no longer available in the
future. They will have to make their choices based on what their
options are. It is not a case that they will go belly-up. If everything
stays exactly the same and they want to continue paying the dividends
that they have been paying then something has got to give in this
Mr Leach: That is right and I
would just come back to your original point: my colleague Gerry
Doherty is right that it is not exclusively rail profits, and
we have not said that they were, but they are a large part of
the companies, and we think we live in a particularly difficult
period, and perhaps a freeze on dividends and profits at the moment
would not be out of place. We are a trade union and we have got
members being faced with compulsory redundancies. We have not
faced that for generations, all through privatisation and before,
and therefore profit at the moment is a nice debate to be having
about what part of the industry it is in, but, at the same time,
we are facing bleak, uncertain futures for our members. South
West Trains are telling us today that compulsory redundancies
are knocking on the door, and that is why I would present a bleak
Sammy Wilson: It is not just a "nice
debate". We are examining whether or not the companies are
earning abnormal profits as a result of fare increases. You are
telling us that they are earning abnormal profits and giving huge
dividends. Now you are telling us that you do not actually know
if that is from the rail side or the bus side or the other transport
side. I suppose for it to be useful information to us we need
to have it disaggregated in that particular way. It is not just
a debate, that is the point I want to make, it is important that
we should have accurate information. If we go down the route that
you are suggesting where we interfere in the dividends paid, and
we interfere in the prices that they are allowed to charge, and
we interfere in how the companies are allowed to adjust their
cost base, is that a realistic picture for the role of government
in any industry? A firm could not exist with that degree of interference.
It does not add up.
Q187 Chairman: I appreciate that
your policy is for this to be done in a different way, under public
ownership, but under the current system as it is, I think Mr Wilson
is putting quite an important point to you. Do you think that
that degree of involvement from the state would work in the system
that we have at the moment?
Mr Doherty: Can I answer that.
The state then has to consider what the options are. The state
has got a stake in this as well, particularly the taxpayer, because
the taxpayer is funding this industry. Whatever way you look at
it, there is smoke and mirrors in it, but it is the taxpayer funding
these private companies. At some stage, the taxpayer has to take
an interest in it when it is paying as much money as it is. If
you just take a hands-off view and say we will continue ploughing
this amount of money in, which, by the way, is about four or five
times as much in total into the industry as when it was in public
hands, and you have heard that said from the trade unions before,
but if you are going to continue doing that and you are going
to continue doing that on the basis of propping up dividends,
and you are going to continue not to make any intervention in
it, then the corollary is that you are actually funding private
industry's profits, and I do not think that is the role of the
Q188 Mr Martlew: I do not disagree
with where we should be, but we are where we are, gentlemen. You
paint a very gloomy picture but the reality is different. We actually
carried more passengers on the railways last year than we did
for 60 years. We have got massive investment, most of it public
money, and we would agree with that. Over the last few years the
number of people employed on the railways has probably gone up
and we have the most modern rolling stock in Western Europe. That
is a picture that we have got that you have not really mentioned.
I admire the way that the trade unions have been able to get a
good deal out of the management for their members. I come from
a railway family, three generations of my family worked on the
railways, and the unions have done a very good job getting reasonable
conditions for the workers. I appreciate that, but if we have
not got profits in the present system, that is not going to happen,
Mr Leach: Under the current system
the way the industry has been constructed and refined in recent
times, it all does seem to hinge on profits, but where we are
at, and the phrase has been used "we are where we are",
we are in a very different place today than we were three months
ago in the railway industry.
Q189 Mr Martlew: I suspect, Mr Leach,
that the statement you would have made to this Committee would
not have been very different three months ago.
Mr Leach: I would not have been
talking about compulsory redundancies.
Q190 Mr Martlew: No, but you would
have been talking about the doom and gloom.
Mr Leach: We have consistently
been against the privatisation of our industry.
Q191 Mr Martlew: Precisely.
Mr Leach: We do not think that
it is the most efficient way of operating it, and we think that
the current difficulties that the industry is rolling into will
make matters worse. I cannot really come away from that point
with regards to my own organisation.
Mr Doherty: Can I just answer
some of the points that you made. Yes, we have been arguing this
consistently, even in the good times, even when the profits were
rolling in, because we do not think it is the proper way to run
a railway industry. No other government in Western Europe runs
a railway system in the way that we do. No other government puts
as much public money into running their railway. None of them
does. No other railway system in the world, and I heard your debate
earlier on about rail fares, none of them, we have got the dearest
rail fares, certainly the walk-on fares in Europe, and I think
fares was one of the issues that you wanted to talk to us about,
but it is quite true that the industry is carrying more passengers
than it was prior to privatisation; so are the roads, so are the
airways. More people are travelling. We have been living in an
Q192 Mr Martlew: Mr Doherty, that
was not the case. What was happening was passenger numbers were
going that way, they were going up on the roads and down on the
railways. We have come back, and I think we have actually started
to put more people on the railways. It had been declining for
probably half a century. I think the unions should take some of
the credit for that.
Mr Doherty: That is not true.
Railway patronage went up and down in times of economic boom.
All you have to do is to look at the reports of the British Railways
Board. It was always the case that in economic boom railway patronage
went up and in times of decline it went down.
Q193 Mr Martlew: Why are we carrying
more passengers now than we were in the 1960s, because that was
a boom time?
Mr Doherty: Because more people
are travelling now. More people have more money, it is more accessible;
people are richer these days. I am richer than my parents were
and they were richer than my grandparents were. Everyone has shared
in the economic boom and part of that is there has been a boom
in travel. I accept that the railway has shared in it.
Q194 Mr Martlew: Can I just come
back to the franchise and the way that it affects your members.
It must be very disruptive to find out that one day you work for
one company and the next day you work for another company and
maybe, if they have the franchise back, you work for somebody
Mr Leach: Absolutely.
Q195 Mr Martlew: I was commenting
earlier about the Virgin franchise, which I think treated staff
reasonably well. I know quite a lot of them because I travel regularly.
Do you think that the employment record of the companies putting
in a franchise should be taken into account when that franchise
Mr Doherty: Is that in terms of
the way they are treating their employees, is that what you are
Q196 Mr Martlew: Yes.
Mr Doherty: You mention Virgin.
Our experience is that some franchises, in fact some groups, treat
their employees better than others. You mentioned earlier on that
trade unions have got a good deal for their members and that is
true for some. I represent for example railway engineers. Railway
engineers under privatisation have done exceptionally well because
their skills are at a premium. I also represent booking office
staff, who have had a raw deal out of privatisation, on the whole,
and you could go round all of the different aspects of jobs within
the railway, some of it good deals, some of it bad deals. Some
of the employers have been good employers, as such, putting money
into training, et cetera; some have been paring back. It usually
depends on how their profits are doing. That is purely from an
arm's length perspective. I have not done any examination or analysis
into that. Our experience has been mixed; there have been winners
and there have been losers within privatisation. I will tell you
who the losers have been without any doubtthe fare-paying
Q197 Mr Martlew: The question I asked,
Mr Doherty, is do you think whether a company is a good employer
or not should be taken into consideration when the franchise is
Mr Doherty: Yes.
Mr Martlew: Thank you.
Q198 Mr Leech: I start from the position
where I have some sympathy about having nationalised railway systems,
so I hope that you do not think that my question is necessarily
coming from the opposite view. You have argued that we should
not be subsidising private companies. Surely that is an argument
then for higher fares? If we are going to take away the public
subsidy, surely, we are going to get higher fares for passengers?
Mr Leach: That is an explanation
to me as to the illogical nature of the privatisation of railways
because we do not want higher fares either.
Mr Doherty: If you retain the
current system yes, that is what will happen. We are saying change
Q199 Mr Leech: Let us assume that
the system is not going to be changed, because it does not look
like there is any current prospect of the system changing. If
private companies are running the railways, and I understand you
think they are making excessive profits, what would not be an
excessive profit for a private company running a franchise?
Mr Doherty: What would not be
an excessive profit?
Chairman: You mean what would be a reasonable