Rail fares and franchises - Transport Committee Contents

Examination of Witnesses (Questions 200-219)


4 FBRUARY 2009

  Q200  Mr Leech: What would be a reasonable profit?

  Mr Leach: My union believes to its bottom core that profit and the railway are incompatible and that it is a public service. You are asking me to put that to one side for a minute; we are where we are, in the big real world, it is going to remain privatised. My answer to that is, as President of the RMT, we will continue to argue against privatisation. We will not want to make it work; we believe it is incompatible with running a safe, efficient and proper railway.

  Q201  Mr Leech: Private companies outside of the railway network are expected to make a profit, and some companies might make excessive profits, some companies may make very small profits but, surely, let us assume we are talking about a different industry, what would be a reasonable profit for a company to make?

  Mr Doherty: I am not a trained economist and I do not know what anyone that has invested in a company should expect in terms of a return. I do not know what the average is, is quite frankly the answer. I agree with John. Look, we believe that there are certain things that are the responsibility of the state—health and education are obvious ones. We believe that transport and the provision of transport should be the responsibility of the state, as it is in every other Western European country.

  Q202  Sammy Wilson: But even when they were nationalised there was an expectation of a return on capital. Whether you call that profit or return on capital or whatever, do you accept that there should be a return on capital invested, whether that comes back to the state or goes to the private company and, if so, what do you believe is a reasonable return?

  Mr Doherty: As I say, I am not an economist and I do not know what you could expect to get in private industry for a return on your investment. I just do not know, Mr Wilson. I would be guessing at it.

  Chairman: Ms Smith?

  Q203  Ms Smith: We have had a lot of questions today, particularly to the operators, about potential job losses and about whether or not some of the operating companies are running into trouble, whether they are being put on a red light list, et cetera, and whether costs are being cut. I would like your view on that. First of all, you have already mentioned job losses. How deep do you think the job losses could potentially be? I know that is a difficult question to answer but what evidence have you got that there are going to be severe job losses in the railway industry?

  Mr Doherty: Let us just give you one example of this. South West Trains consulted on quite drastic closures or cutbacks in ticket office times. They did an extensive consultation and we ran a campaign on it. There were a number of representations made, including through the passenger representative, and Lord Adonis, when he looked at the evidence, decided that 80% of the proposed cuts were not justified and he said you cannot do it. The day after that South West Trains announced 480 redundancies. From our perspective, it was if we cannot make savings in that direction, cutting services to the passengers, we will cut it from jobs. Only this afternoon, as John has said, as I was on my way in here, my officer had another meeting with South West Trains to be told, on top of that 480, there is another 180. I do not know where it finishes up. South West Trains employ around 5,000 people so you can guess what 660 is as a percentage of 5,000. Where does it finish if all they are doing is at the bottom line—and I can understand from a private company's position—the bottom line is to protect their shareholders and investors. That is what they are there for. I understand that. That is why we say the system is flawed. Where does it end up?

  Q204  Ms Smith: Are you hearing of any other potential job losses in other companies that so far have not surfaced?

  Mr Doherty: First Capital Connect on 22 December announced that they intended to cut back ticket office opening hours by a total of 750 hours. The franchising agreement says that they have to give a minimum of 28 days' notice whenever they intend to change booking office hours. It says that is a minimum. I would suggest to you that that is when there is a slight change being intended. They announced it on 22 December. With the best will in the world, for two weeks over Christmas and New Year, nobody is going to do anything. The closure was 3 February—yesterday. And that effectively is 28 days, if you take the two weeks out over Christmas and New Year. We are having other companies follow suit. I would suggest to you that what they are doing is they are going through the hoops here and they are not properly consulting with the passengers who are going to suffer the service decreases. I was at Luton last week, one of the biggest commuter stations on the First Capital Connect line; there is one notice up about the changes—one notice that you have to look at to find. That is what they deem to be consultation on the regulations.

  Q205  Chairman: It would be helpful to us if you would like to submit any further evidence on the cutbacks and redundancies because we did put these questions to the train operators and they denied that most of this was happening. It would be helpful to us if you could follow up whatever you say now.

  Mr Doherty: We certainly will.

  Q206  Sammy Wilson: Can you outline for us what is supposed to be required when a ticket office is being closed?

  Mr Doherty: It is Schedule 17. The legislation says that there is a minimum of 28 days' public consultation. As I say, I would suggest to you that is when it is a minor change, but when you are talking about 750 hours that is the equivalent of 23 full-time jobs, and we do not know what the effect of that is going to be but that is what it is, it is the equivalent of 23 full-time jobs. Some of these stations are now going to close at the weekends and there will be no service open. We have been talking about things like it attracts anti-social behaviour, et cetera, et cetera. If there are graffiti artists, et cetera, that is when graffiti artists turn up, when there is no-one around. We are told about security, do not worry there is closed circuit television in there. Closed circuit television does not stop a vandal. It might detect them afterwards but it does not protect the passenger who is put off, the women travelling late at night and the elderly.

  Q207  Chairman: We would welcome some additional information.

  Mr Leach: We will definitely do that and we will provide that very, very quickly for yourselves. I just want to come back, to date—and these are not all necessarily train operating companies but they are related to this industry: EWS 580 jobs lost, although that is now owned by Deutsche Bahn Schenker; National Express East Anglia, 300 jobs; South Eastern, 300 jobs. To answer your question, we believe that there are going to be more and more and more. It is not just because we are doom and gloom merchants; it is just from our own analysis of the way the system is funded, they are going to need to make savings pretty soon. This is, regrettably, where they have come time and time again; the wages bill.

  Q208  Ms Smith: I can appreciate that. You must be monitoring quite carefully any cutbacks in terms of maintenance, not just in terms of the mechanics of the trains but in terms of the maintenance of the catering services and the whole service?

  Mr Doherty: Maintenance is the responsibility of Network Rail. Network Rail have told EWS, one of the freight companies, that their renewals for next year will be cut back. There were 8,000 train movements last year for EWS. EWS moves things like ballast around whenever Network Rail are doing work on the infrastructure.

  Q209  Ms Smith: I was talking about the rolling stock as well.

  Mr Doherty: This is all part of the industry. It is just to give you a flavour as to when one part of the industry takes a decision, what happens. Network Rail, as you probably know, have had a spat with ORR over control period four for the funding. There has been a settlement now, but the result of that is that Network Rail have cut back on renewals for next year. They have said to EWS that their train movements next year will be cut in half. EWS have taken a view on that and they have now announced, as John said, something like 580 redundancies to take account of that. Everything that happens in one part of the industry, in the way that it is funded, has a knock-on effect through the whole industry. It is very difficult, yes, and we are trying to monitor it, to try and get a grip of this has happened up here and the cause and effect, and what is the actual effect on the ground, be it in terms of jobs, be it in terms of service levels, be it in terms of fares or anything else. It is a moving feast the whole time and it is very difficult to get our hands on it, particularly in these turbulent economic times.

  Q210  Ms Smith: Your overall impression is what, that the levels of maintenance and all the rest of it are being cut at the moment? Am I being unfair in summarising it as such?

  Mr Doherty: Certainly the renewals have been cut back for next year, probably because of the control period four settlement. I do not have any evidence to say that maintenance is cut. I would hope and I would expect that Network Rail would recognise the safety implications of cutting back on maintenance.

  Q211  Sir Peter Soulsby: Can I just return to the assertions that came from the RMT about the level of profits that the train operating companies have got and might expect to get out of this and just look at the figures. I think you were suggesting a dividend increase of at least 10% and as high as 33%. That is in sharp contrast to what ATOC were saying. They said that it is a small proportion of the total cost of their profits, being somewhere in the region of 3% of the costs of passenger train services. I acknowledge the difficulty in getting at the actual figures because, for the most part, these are groups that operate in quite a number of different activities. Have you as a union or are you aware of anybody else who has done any realistic studies of what their finances look like to back up what you are anticipating might be what they can get out of this?

  Mr Leach: Normally we would do all of this ourselves. We have a very vibrant and effective research department who are employed by our own organisation. I am not aware of us using any outside source directly to do the work for us, no.

  Q212  Sir Peter Soulsby: Have you actually produced and put into the public domain any studies of the finances of the companies in general, or particular companies, that might actually help us to get a picture of the balance between their costs, their investment and their performance?

  Mr Leach: There is not something of that nature currently available although we most definitely could do it, and as the ever changing situation develops, I am sure we will need do.

  Sir Peter Soulsby: It would be very useful to us as a Committee to actually see what one would expect to be quite a well-informed study of quite how those elements of the finances of train operating companies break down, as I say, particularly the elements of what they really have to put into investment, what their costs are, the various elements of those costs, and what the profits might be as a result of that. In the public domain we have already got the bit of the fares that they are charging and we have a fairly good idea of the subsidies that they might expect as part of the franchises that they have entered into. It is the other bit that is far less transparent. I would, through you Chairman, encourage the two unions, if they are able to provide us with further information to follow up the evidence they have given us to today on that issue.

  Q213  Chairman: That would be helpful.

  Mr Leach: Chairman, we may well have already sent stuff over but, if I am honest with you, I am not absolutely certain, but we will double-check and, if we have not, then we shall and, if we have, we will send it again.

  Q214  Ms Smith: Is it also fair to say that the bus operations that are part of these big groups are often also heavily subsidised by the state, by the local passenger transport executive?

  Mr Doherty: There would be a subsidy but I am not sure what the level would be, for socially desirable or economic reasons, I would imagine. Our experience over the years, outside of London, of the way the buses are organised, which is not completely dissimilar to the trains now, is that fares have increased and services have reduced where they are uneconomic. That is a general statement.

  Q215  Chairman: What should the balance be between how much the taxpayer pays and how much the travelling passenger pays?

  Mr Doherty: That is a difficult question to answer. It depends what you want from your railway industry. Where do you start? Do you want your railway industry to be a contributor to the economic success of the country, and therefore do you say that is going to be an overriding given, and therefore whatever it costs to run that, because of the economic contribution that it makes, will be borne by the taxpayer? I do not know what the balance should be. What I do know is—and I did listen to some of your earlier contributors—as far as fares are concerned, on simplification, I see the posters that there are three types of fares. I have got an executive committee member who is a booking clerk who asked me to guess how many different types of fares there were between King's Cross and Edinburgh, the capital of England and the capital of Scotland. After simplification, there are 35 different types of fares. 35! If that is simplification, I would hate to see what complication looked like. This same guy is telling me that when he is serving a passenger it takes about ten minutes to try and get out of the passenger exactly when they are travelling and how flexible they are going to be on the way back, so that he can gauge what the appropriate ticket would be. And, by the way, a machine cannot do that because a machine does not ask questions. I heard what you were saying about machines. Then there is the anomaly of anybody that is travelling long distances, it is almost invariably cheaper, if you know how to do it, to buy a split ticket. Just as an example, the cheapest fare available on the day from a ticket vending machine for the 0800 hrs from Bristol Temple Meads to London is £74.50. However, you can buy a single from Bristol to Didcot for £21.30 and a single from Didcot to London for £24.00, and you save £29.20, or 39%. How many people actually know that? In fact, if people did get to know that, how many people would start using it, which would reduce the fares revenue to the companies and then the companies would have to react in some way because they have to protect their fares revenue because of the bid they have put in to get the franchise.

  Q216  Chairman: Are you suggesting some of the confusion may be deliberate?

  Mr Doherty: Let me give you one instance. Your predecessor, the last time I was in front of this Committee, I was saying that the fares that were advertised were simply not available. Any time that we had gone in we could not find them and your predecessor asked me what we had done about it. I said I had asked Ruth Kelly to look at it and in her inimitable way she said to me, "Mr Doherty, surely with a proud trade union like yours you can find out for yourself." Let me tell you what we did; we did find out. We checked with one company on a specific weekend, we knew when the fares were getting put on, we knew what they were advertising as the cheapest fare because our members were the people who put those fares on. We put people into booking offices to buy the cheapest advertised fare. It was not available. We went on to the internet. The cheapest advertised fare was not available for the whole of the weekend. We publicised that and we put an embargo on the statement that we put out. The company, before the embargo was lifted, brought our members back in to put those cheap fares back on the system so that they were available. When our embargo was lifted they said that was not true because they had sold fares and they sent me a letter threatening me with libel. We refuted that and said, "Bring it on." I have not heard anything from them since. This is what the train operating companies are doing and it was your predecessor who suggested that we find out ourselves.

  Q217  Chairman: Could we ask you when this incident took place?

  Mr Doherty: Last May.

  Mr Leach: Can I just come back to answer the question that you directed to my colleague. We believe in low fares; we believe in encouraging people onto the railway; we believe in a social railway; we believe that it should be funded by the taxpayer through progressive taxation and that it should be fully integrated. We want people on railway trains and off roads for all the environmental reasons that everyone understands, so that is where we stand on that one.

  Q218  Chairman: If the train operating companies go to the Government and plead for either extra help or permission to reduce services because of problems caused by the recession, what should the Government do?

  Mr Doherty: My view certainly—and we have had this argument and we know we have got a difference—is that I do not think the system works. I think they should say to them, "You signed up, you took the risk that any private company should take and that means that you have to assess the environment in which you are working." Mr Bowker, as I understand it, said that he had specifically factored in the possibility of a recession when he made his bid. If that is the case and he was correct, I am sorry they made a wrong judgment, but like any other private company they will have to suffer the consequences. We would be saying quite clearly to them: you abide by your franchise agreements or else you give us the keys back and government starts running the franchises in the public interest and not in the interests of private shareholders. I think at some stage that issue is going to have to be faced by government.

  Q219  Chairman: Mr Leach?

  Mr Leach: Ditto: no renegotiation. You cannot have it both ways. If that is the way it has got to be, then it should be back in public ownership, where we believe it rightly belongs.

  Chairman: Gentlemen, thank you very much for coming.

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