UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 874-iii

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Transport Committee

Rail Franchising

Wednesday 24 April 2013

Simon Burns MP and Peter Wilkinson

Evidence heard in Public Questions 170 - 249

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Oral Evidence

Taken before the Transport Committee

on Wednesday 24 April 2013

Members present:

Mrs Louise Ellman (Chair)

Sarah Champion

Kwasi Kwarteng

Karen Lumley

Karl McCartney

Lucy Powell

Adrian Sanders

Iain Stewart

Graham Stringer

________________

Examination of Witnesses

Witnesses: Simon Burns MP, Minister for Rail, and Peter Wilkinson, Franchising Director, gave evidence.

Q170 Chair: Good morning and welcome to the Transport Select Committee. Minister, would you like to introduce your team?

Mr Burns: Yes. Peter?

Peter Wilkinson: I am Peter Wilkinson, Franchising Director.

Q171 Chair: Minister, would you like to make any opening statement?

Mr Burns: Very briefly, Mrs Ellman; I would appreciate that. First, I thank the Committee very much indeed for postponing your hearings last Wednesday. That was extremely good of you and I am very grateful to you. It certainly enabled me and possibly members of this Committee to be elsewhere last Wednesday morning.

To recap, as you will be aware, on 26 March the Secretary of State announced the new schedule for the rail franchising programme following the problems with the West Coast Main Line last September/October. This, we believe, is a major step forward. It was made ahead of time and provides the whole rail industry with a long-term plan that gives certainty to the market and will support the major investments in the country’s vital rail network that this Government are making.

Following the recommendations of the Brown report, the programme is staggered so that the number of competitions being let at any one time is manageable, both for the Department to run and for the market to compete for. In order to do this, there are a number of direct awards put into the schedule where the Department will seek to negotiate with the current train operator to continue to run the services, provided that a value-for-money agreement can be reached.

The Department will negotiate each of these new contracts on a case-by-case basis and at the appropriate time in the programme. I hope that the Committee will appreciate, therefore, that the details of each direct award are not something that I am able to go into at this hearing, but I can assure it that the Department will ensure that good quality of services and value for money is maintained throughout these periods. I believe that the new programme shows how far the Department has come since the regrettable West Coast incident last year. It underlines the Government’s belief in the success of rail franchising and will allow the Department to continue to build on it for the benefit of both passengers and taxpayers.

Q172 Chair: Thank you, Minister. Yes, this is a long-term programme, as you say. You say that this is about the benefits of franchising. One of the purposes of franchising was to have competition to improve value for money, yet in the plans that have now been put forward there are a large number of extensions of existing contracts. If they are all added together, it comes to over 29 years’ extension of franchises. Why has the Department decided to do that and to go for such long-term extensions on so many of the franchises, when, surely, that cannot seriously deliver value for money, if you are basing value for money on a competitive system?

Mr Burns: I certainly think that it will be able to deliver value for money because that will be uppermost in the Department’s mind when negotiating these direct awards. The reason that we have taken this approach and extended the programme is because of the pause last September/October. It is no longer possible to run competitions for some of these franchises in the time available.

As you will be aware, in his report, Richard Brown made it quite clear that you had to have the right number of awards each year for the market to be able to sustain that programme and for the Department to be able to put those franchises together. He recommended probably running three to four a year so as not to overload the system and cause problems. We accepted that recommendation, and that is why we have come up with the programme and the proposals that the Secretary of State announced by and large on 26 March, though for three immediate franchises he did announce the way forward at the end of January.

Q173 Chair: But there have already been significant delays on InterCity West Coast because of the problems that occurred. You then announced that that franchise would be awarded, after a lot of delay, in November 2014. That has now been put back a further 29 months. Why has that been done for that particular franchise, where there have already been long delays because of problems that have occurred?

Mr Burns: Part of that was because of the significant problem, if not fiasco, over the awarding of the franchise in August last year. It became very clear by late September or early October that that was a deeply flawed process. That is why the Secretary of State halted it.

We believe that, to claw back from that problem, the right way forward is the programme that has been announced by the Secretary of State. That is why Virgin is in the position that it is in today. Yes, it is a longer process than was envisaged if this Committee and I were having this discussion a year ago because we could not at that point have anticipated the problem that was shortly thereafter to start unfolding.

Q174 Chair: After the problems of the West Coast franchise were identified, it was decided by you to award the new contract in November 2014. That was a new date after the problems had been identified. Yet now that has been extended by a further 29 months. I just wondered why, after you had made an initial decision after the problems to award the franchise in November 2014, it has now been decided to wait an extra 29 months. What is the reason for that?

Mr Burns: It is twofold. First, we believe that Virgin can sustain and build on improvements for the service that is run on the West Coast Main Line within that time frame. Secondly, it is to meet the Brown inquiry’s recommendations not to overload the number of franchises each year. We believe that the priority should be in keeping with the thinking of the last Government’s last Secretary of State and Minister of State that the East Coast Main Line franchise should be returned to the private sector as soon as it is feasible to do so. That is why we are giving priority to the East Coast and keeping the West Coast with Virgin for a longer period of time.

Q175 Chair: So it was priority for the East Coast Main Line to go back to the private sector, despite the Office of Rail Regulation report last week, which indicated that the East Coast Main Line run by Directly Operated Railways from your Department was actually delivering much better value to the taxpayer than other private franchises.

Mr Burns: I don’t altogether accept the premise of that recommendation or conclusion by the ORR. In difficult circumstances, the East Coast Main Line has performed reasonably well in providing a continuity of service and a service; but the problem is that it has plateaued. What it needs is an infusion of innovation and stimuli, which I believe only the private sector can do. As you will be aware, when the East Coast Main Line was placed under DOR and in effect taken back into public ownership, it was never intended by Lord Adonis or Sadiq Khan, the Minister for Transport, that this was a long-term future solution to the East Coast Main Line. It was a short-term solution to an immediate problem. They gave every indication in their public statements at the time that they were as anxious as we are now to return it to a private sector franchise when it was possible to do so. We believe that that time is now and that that should come ahead of the West Coast Main Line in sorting out its franchise arrangements.

Q176 Lucy Powell: Following on from that, I think there are some contradictions in what you are saying. First, West Coast Main Line, as we were told in Parliament only a few months ago, would be re-let before the general election because there is much needed investment-

Mr Burns: Sorry-did you say the West Coast Main Line?

Lucy Powell: The West Coast Main Line. When the Secretary of State announced the delay, it was envisaged that it would be re-let in 2014 originally because there is much needed investment in the West Coast Main Line, such as rolling stock, new lines, upgrades of systems and whatever. There has been a switch from that now to the East Coast Main Line being the priority. I want to probe you a bit more on that. It seems to me that that is based on ideology and not on value for money, because, as you have just said yourself, you believe that the East Coast Main Line would prosper more in the private sector even though it is delivering better value for money.

Mr Burns: Better value for money than what?

Q177 Lucy Powell: Than Virgin at the moment. It is delivering more money back to the Treasury.

Mr Burns: No, it is not actually. That is a fallacy. I will take each point in turn. First of all, we are adhering to the announced wish list, for want of a better word, of the last Labour Secretary of State for Transport. When Lord Adonis took the East Coast Main Line back into public ownership-

Q178 Lucy Powell: But, with respect, we are in a completely different place now. That was prior to your Department’s complete messing up of the franchise for the West Coast Main Line. If we had gone on the previous Labour Government’s timetable, we would have re-let the West Coast Main Line 18 months or two years ago.

Mr Burns: The West Coast Main Line? Surely you mean the East Coast Main Line.

Q179 Lucy Powell: Both. We are now in a post-West Coast Main Line fiasco situation.

Mr Burns: Hang on. I accept, as does the Secretary of State-we have made no secret of it, and the Secretary of State apologised as soon as it became apparent to him-that what happened on the West Coast Main Line franchise process was unacceptable. It was a mess. It should never happen again. That is why he set up the Brown inquiry and the Laidlaw inquiry to get to the bottom of what happened and what went wrong, to ensure that it does not happen again. I won’t argue with you on that; I agree with you.

What I am saying on the East Coast Main Line is that, yes, of course circumstances are different. The last Government had to take the East Coast Main Line into public ownership because of the collapse of the franchise arrangements with National Express. It was the right thing to do at that time to guarantee continuity of service and quality of service for passengers.

Time has now moved on. DOR has done a good job in difficult circumstances, but it has now reached a plateau. If you look at the latest monthly figures for reliability and punctuality, it is the worst of the 19 franchises. We have not seen the imaginative investment that we would hope and that we believe a private franchise holder can provide. We think that a plateau of providing a service is not good enough for passengers. That is why we are doing what Lord Adonis and Sadiq Khan always wanted to do when it was possible, which is return it to the franchise process. There are few people who suggest that franchising is not the right way forward. Richard Brown in his report thought so. The last Government thought so. There is one other thing on the premium. The West Coast Main Line pays more money in premium to the Government than does the East Coast Main Line.

Q180 Lucy Powell: But, if you take off the subsidy that has gone into the West Coast Main Line in the first place, then I think you will find that the East Coast Main Line is delivering better value for money, but that is not quite my point. The point is that it is a political decision. With respect, the West Coast Main Line has been plateauing for some time now, not least because of the fiasco that we have faced. The West Coast Main Line is also plateauing. The East Coast Main Line is plateauing. It has been a political decision which franchise to let first, has it not?

Mr Burns: No. First of all, I don’t think the West Coast Main Line is plateauing. I think that it is continuing to improve and build on its strengths. Secondly, if it is either a political or an ideological driving force, to use your words, of returning the East Coast Main Line to franchising, then that equally applies to Lord Adonis and Sadiq Khan because it was always their intention to do that when they could.

Lucy Powell: That is not the point I am making.

Mr Burns: We are doing what they wanted to do once they had sorted out the mess of having to take the East Coast into a DOR situation. It is not ideological; it is what is in the best interests for taxpayers and, above all, for passengers.

Q181 Iain Stewart: In an earlier answer you said there were two reasons why you have extended the Virgin franchise on the West Coast. One was not to have the bunching of re-lets of franchising. The other point you made was that it would give them an opportunity to improve the West Coast services, which it might not be able to do in the shorter initial extension. Have you been able to lock in what those improvements are going to be or are they still being discussed?

Mr Burns: On the East Coast Main Line?

Iain Stewart: On the West Coast Main Line.

Mr Burns: As you are aware, there has been considerable investment in the track electrification and rolling stock in recent years in the West Coast Main Line. We want to see continued improvement. There are a number of areas where things are being negotiated. For example, it is expected from December of this year that there will be services from Shrewsbury to London. They are also looking at the situation with regard to services from Blackpool to London. Those are improvements.

Virgin has said that it is interested in looking at the rolling stock and possibly replacing some of those. We will have to wait to see what the business plan is and the value for money. All those things are on the agenda for the future.

Q182 Iain Stewart: To answer my question, you have not locked in what additional services they are going to be putting in within the extension period. That is still being negotiated.

Mr Burns: That is still being negotiated, yes, but, certainly with the Shrewsbury line, that looks very much like it will happen from December. Discussions are still going on with regard to Blackpool. They may be concluded successfully. On other areas, it will be a matter for negotiation and discussion as the process moves forward.

Q183 Chair: Is anybody in Government quantifying the costs to the taxpayer of extending these franchises?

Peter Wilkinson: We do have quantifications, yes.

Q184 Chair: What have you decided it is going to cost? What is your assessment?

Peter Wilkinson: In terms of value for money, we believe that you have to look at the direct awards in the context of the overall shape of the franchising programme.

Q185 Chair: But what is the actual cost to the taxpayer of extending the franchises. You have just told me some work has been done. What has that work included?

Peter Wilkinson: I will have to come back to you on those points.

Q186 Chair: You will come back to us. We need to know because that is very important. The bidders for the aborted Great Western competition-Arriva, First, National Express and Stagecoach-have reportedly dropped their claim for costs. That is what has been reported. Is there any connection between that and the fact that all four are in line to benefit from these extended franchises?

Mr Burns: No.

Q187 Chair: Is there any link there? First, is it true that they have dropped their claims as far as you know, and is there any connection?

Mr Burns: It is absolutely true that all four have dropped pursuing any claims. Is that as a result of any connection to what might happen to them in the future? No.

Q188 Chair: Has the European Commission cleared the extensions?

Mr Burns: Yes, in that they are in keeping with EU competition and EU rules.

Q189 Chair: What does that mean? You believe they are in keeping with it, or have you asked?

Mr Burns: Obviously we have had numerous discussions over the last six to nine months with the EU to ensure that everything is being done within the rules. We have received those assurances.

Q190 Mr Sanders: One of the aims of franchising is to deliver consistently excellent train and station services in ways that measurably impress passengers. One of the things that measurably impresses me as a regular passenger of First Great Western, and when I use East Coast Main Line, as I did yesterday, is the fact that there is uninterrupted mobile phone and wi-fi coverage all the way between London and my destination. That is not the experience in the south-west.

There is a 26-month delay before the new franchise, so nothing is going to happen in that period. At the moment, there is nothing in that franchise to tell the new operator or existing operator that there are targets for mobile phone coverage and for wi-fi. If there aren’t, it won’t be a priority for the new franchise owner, even if they are in favour of it. Can you not put it into the franchise to say that every train and everywhere in the country should have mobile phone and wi-fi coverage across both standard and first class?

Mr Burns: Primarily, introducing wi-fi on rail services is a matter for the train operators. There is no reason why an operator need not do it now if it wants to. For example, Greater Anglia has been extending its wi-fi provision for passengers at the moment, though it is in exactly the same position but on a different time scale from First Great Western.

On the question of what is going to be in future franchises, that is still a matter open to discussion. It is premature to start saying what will or won’t be in a franchise document.

Q191 Mr Sanders: But don’t you think it is one of the basics that a passenger should be able to expect in the modern age? When Ofcom allows extensions of licences-for example, 4G-it expects 98% coverage. Why can’t you, for the rail franchise process, expect that people should, for 98% of the time or whatever, be able to access mobile phone and/or wi-fi coverage? I would have just thought it was a basic that you would put into a franchise.

Mr Burns: I agree with you. I think the more services that are provided for passengers, the better. It is important that people can have access to wi-fi on train journeys. There is recognition among rail operators that this is something that they should be doing to improve and enhance the quality of journeys for their passengers. A number are working on it at the moment. On the question of what is going to be in future franchises, it is premature to start saying that we are going to categorically put that in or not put that into a franchise agreement. We recognise that this is an area where there has to be improvement because it improves the passenger experience.

Q192 Mr Sanders: But you have categorically said in a letter to me that you are not going to put in targets for wi-fi or mobile phone coverage.

Mr Burns: We are not at the moment, no, but by the time those franchise agreements are drawn up we will see what is going to be in them or not. At this point I could not say- because it would be irresponsible-that we are going to insist that all franchise agreements have done that because, primarily, it is a matter for the rail operators, and they are acutely aware of the demand or wish of passengers who don’t already benefit from having wi-fi, who feel left out and want to have that service available on the train journeys that they make.

Q193 Mr Sanders: In previous franchise rounds there have been a number of franchise documents that have stipulated where services should run-i.e. between station A and station B, with B usually being London direct rail services. Under the new franchise that was abandoned, that was going to be very much left up to the rail operating companies and far fewer stipulated links were in there.

For a train company having more flexibility in deciding which towns it wishes to serve with direct rail services is great, but, for the town that is not stipulated as having a direct rail link, it has a devastating impact-both on the image of that town and the businesses in that town. There is a real economic cost that is being lost in this process.

Obviously, I would want to lobby for my own area with a population of 140,000 people to have a direct rail service, but my community is not alone and there are others like it. Will you please look again at the economic cost to those towns, which is not directly within what you are looking at but should be, if you care about the nature of the whole country’s economy? Look at the impact that that can have by taking out a direct rail service from London to a large area of population.

Mr Burns: Before any potential franchise document is drawn up, there will be exhaustive consultations and engagement with stakeholders. That is the time when stakeholders and communities can make their case for what they believe their community or their area should get out of a franchise. That will then be fully considered before the final document is drawn up.

Q194 Chair: Will there be a specific requirement to ask passengers what they want, referring to Mr Sanders’ suggestion about wi-fi and things of that nature? Will that be in the specification?

Mr Burns: Yes. Passengers will be able to input into the consultation process.

Q195 Chair: Will they be asked specifically?

Mr Burns: I am not quite sure if that is the way to put it. There will be consultations in which any interested party and stakeholder can take part. Any passengers, who are crucial because they are the people who are using the service, will be as entitled as anyone else to input their views on what they believe should be in the franchise documents.

Q196 Graham Stringer: How many extra staff has the Department taken on to deal with rail franchising since the fiasco of last year?

Peter Wilkinson: I don’t know the figures off the top of my head, but the Department is going through a programme of resourcing at the moment to build up its capability in the area of franchising.

Q197 Graham Stringer: I would like some figures. We would have expected you to have figures on something like that. It has been a major recommendation of a number of reports.

Mr Burns: Would it be helpful if I gave you those figures?

Q198 Graham Stringer: It would; that is the question.

Mr Burns: Let me give them to you. The current establishment allows for a total of 65 posts, of which 50 positions have been filled. The existing staff in post have been drawn from internal-that is 30; from external sources it is 20; and the work continues to bring it up to the full number.

Q199 Graham Stringer: Is it your intention to deal with franchising via an arm’s length organisation or internally within the Department for Transport?

Peter Wilkinson: At the moment it remains a part of the Department for Transport.

Q200 Graham Stringer: And that is your intention.

Peter Wilkinson: That is the current position.

Q201 Chair: Do you have plans to reconsider that?

Peter Wilkinson: I can only tell you what the current position is.

Q202 Chair: You sound very reticent, Mr Wilkinson. Are there any suggestions around to do it differently?

Mr Burns: We keep everything under constant review, but at the moment the intention is that it will be done in-house with a built-up section of the Department, taking into account the recommendations that flowed from the Richard Brown inquiry.

Q203 Chair: Does that mean there will be more commercial expertise brought into the Department?

Mr Burns: Yes, and that is why we have drawn on some of the staff from outside the Department for Transport who do have expertise, who will play a significant and beneficial role in administering the franchise system, to ensure that we don’t get into a position again such as the West Coast Main Line.

Q204 Graham Stringer: I want to shift focus a little. Can you provide the Committee, not necessarily now but in writing, with the cost of the West Coast Main Line over the period of 15 years of the Virgin contract compared with the last three years of Directly Operated Railways on the East Coast Main Line? That would just clarify the discussion you were having with Lucy previously. If you have those figures now, you can give them to us.

Mr Burns: No; we will write to your Chair and copy it to all members of the Committee. We will do that as soon as possible so that it will not inconvenience you.

Q205 Graham Stringer: We have talked a number of times about value for money, and that is value for the taxpayer. We are all in favour of that. How can you demonstrate it?

Mr Burns: Value for money?

Q206 Graham Stringer: On the franchises.

Mr Burns: On the franchises: by the performance; by the premiums that are paid to the Government; and by the constant monitoring of the performance of the railways on things like reliability, overcrowding and all the other key issues with regard to passenger services.

Q207 Graham Stringer: But they are absolute figures. There is no benchmark. The point that this Committee and its predecessor Committees have made a large number of times is that if you don’t have a benchmark-and Directly Operated Railways may be a benchmark against which you could judge the private sector-you are just dealing with absolute figures. There is no relative measure there to demonstrate costs and benefits.

Mr Burns: You are certainly dealing with absolute figures, but I think that they do give important information as to what is going on with regard to the provision of service. Absolute figures on punctuality will show how each franchise is doing. Figures, where they are applicable, with regard to overcrowding will; cancellation of services will. They are all part of a picture of the performance and the quality of the service of the train operator.

Q208 Graham Stringer: Not necessarily. It is very interesting that you chose to compare punctuality on the East Coast Main Line with the West Coast Main Line. There is no doubt that it is better on the West Coast Main Line, but that is because there has been a huge investment there. When the Public Accounts Committee looked at the East Coast Main Line, they were quite clear that a lot of the delays were caused by problems in Network Rail and not by the franchise operator.

Mr Burns: Right.

Q209 Graham Stringer: I could put a question on that, but it is a comment on what you were saying. It is not a fair comparison, is it, when you were comparing the East Coast with the West Coast Main Line, when there has been, in round terms, £10 billion worth of investment in the West Coast Main Line and there has not been the equivalent investment on the East Coast Main Line?

Mr Burns: No; that is a fact and I wouldn’t dispute that with you. What I think is important, looking to the future, is how you make the needed and important investment in the East Coast Main Line to bring it up to scratch. You will be as aware as I am that part of the electrification is very antiquated and needs to be replaced and upgraded because it is causing significant problems to the quality of service. I do not believe that keeping the East Coast Main Line in public ownership is the most effective and swiftest way of getting that investment. I believe that returning the East Coast Main Line to a franchise operation offers the best opportunity to move forward. In addition, the Government and the rail industry, through Network Rail, are continuing to invest in the East Coast Main Line, but we need to accelerate that and increase it. To me, the franchise process is the better opportunity to achieve that than keeping it in a DOR that, at the moment, is operating on a plateau.

Q210 Graham Stringer: Without a benchmark, to get best value for money, the taxpayer is really relying on the quality of the negotiators from the Department as against the quality of the negotiators from the potential franchisee, is it not? It is interesting that, when you announced the extensions to the franchise, the share price of FirstGroup went up by 9%; the share price of Go-Ahead went up-

Mr Burns: Sorry, when we what?

Graham Stringer: When you announced the extensions to the franchises.

Mr Burns: Yes, okay.

Graham Stringer: You can agree or disagree with this, but the market made a judgment on what was happening and it was really backing the franchisees against the Department by saying that they would get more out of the taxpayer under this system than they would under a benchmark system.

Mr Burns: I was with you up until the second half of your question.

Q211 Graham Stringer: That is probably where you disagree with me.

Mr Burns: What I think the markets were showing through the share prices was a relief that, by publishing the timetable and the programme for the future of all the franchises, there was now certainty and a plan to work to. You know as well as I do that markets like certainty and they like to know how things are going to move forward in the future.

Q212 Chair: It is a different interpretation of events.

Mr Burns: Indeed.

Q213 Graham Stringer: They also like profitability.

Mr Burns: Inevitably they do because that is how the free market is run. If you don’t have profits, you don’t necessarily have businesses and so you don’t have the jobs that those businesses provide. You don’t have the quality of services that those businesses provide. To my mind there is nothing wrong with profits.

Chair: This Committee doesn’t think there is anything wrong with profits, I assure you, Minister. We are looking at value for money of the whole system. Do any other members want to ask anything on this specific point?

Q214 Karl McCartney: I want to follow up on some of the comments from my colleague Mr Stringer. Minister, thank you for coming to see us today. Are you aware of any benchmarks that were used, maybe, in 2004-05 when the previous Labour Government were desperate to put the Southeastern franchise-the Kent franchise-back into the private sector rather than to hold on to it before an upcoming general election?

I would like to ask a question about civil servants. Were any civil servants from that time brought back in or are they being used to ensure that the franchising system put in place is a good franchise rather than one that had problems?

Mr Burns: The answer to your first question is no. The answer to your second question, I think, is no. As far as I know, no officials who were there at that period, who then subsequently either left the civil service or left the DFT to go to another Department, have now been brought back in.

Q215 Karl McCartney: It was the Strategic Rail Authority at that point. Some people were amalgamated into Network Rail and some into the DFT. Maybe the expertise was lost.

Mr Burns: As far as I know, none have been brought back in. I will check that and, if I find that some have, then I will write to you and let you know. I will keep the rest of the Committee informed.

Q216 Sarah Champion: Minister, to use your word, the West Coast Main Line fiasco has seriously spooked investors. Do you feel that the Department has done enough to reassure those investors that the franchises are a viable option for them?

Mr Burns: The short answer is yes, I do. The reason I think that is because, without going through all the sad history of the West Coast Main Line, as soon as the situation became apparent that it was a flawed process the Secretary of State took decisive action to halt it. He was up front in saying that this should never have happened and he apologised for what had happened. He was determined to get to the bottom of what happened and to seek to ensure that it never happened again. That is why he set up the Brown inquiry and the Laidlaw inquiry. Laidlaw looked at what had gone on in the DFT and why things had gone wrong. Richard Brown, with all his considerable experience of the rail industry, looked at the whole issue of franchising and how it could be improved to ensure that that sort of problem did not happen again. Both individuals produced very thorough and remarkably useful and helpful reports. We have accepted the recommendations and have moved forward. In the light of those recommendations and what those reports highlighted and showed-whether there were flaws in the system or improvements that needed to be done-that is underpinning the way that we are moving forward so as to ensure that we don’t get into a position like that again.

Q217 Sarah Champion: Do you feel that you have accepted enough of the Brown report?

Mr Burns: Yes, I do. To all intents and purposes, we have accepted almost all of it. There may be degrees with one or two of the recommendations, but, broadly, we have accepted most-if not all-of it.

Q218 Sarah Champion: I was a little nervous when Mr Wilkinson refused to allude to whether you are maintaining the franchising within the DFT or looking to be an arm’s length body in the future. I would have expected more clarity on that.

Mr Burns: You will know because you are an accomplished politician yourself that, in life, you can never say never.

Q219 Sarah Champion: But from an investor’s point of view, looking for a long-term investment, they quite like long-term certainty. That is why I was asking whether you felt that you had done enough to settle them.

Mr Burns: Yes, I think we have, but we always have to keep the situation under review to make sure that everything is running properly and smoothly. We have taken the actions as per the recommendations. We are building up the division of the Department for Transport where it was felt, both in Laidlaw and in Brown, that it was not up to scratch. That is why we are bringing more people into it. Some of them, as I said in the figures to Mr Stringer, are from outside to bolster the capabilities. It is being done within the DFT.

Of course, all activities of a Government Department are kept constantly under review, but the proposal is to run it from the DFT. Your guess is as good as mine as to where a Government might be in 10 or 15 years’ time. It may be fully incorporated within the DFT; it may not be. No one knows, and it is very unwise for someone to categorically say, "This will never happen." I don’t think it will. I have every confidence from the lessons we have learned that the DFT, the staff they are recruiting and the staff they have there already are more than capable of making sure that the system runs smoothly and properly without entering into the problems that were highlighted with the West Coast Main Line.

Q220 Karen Lumley: Obviously we will agree or not that some franchises are running better than others. Do you believe that the Department has the capacity to monitor the franchises properly? Further to that, how closely do you hold to account those franchises that are not performing to what passengers would want?

Mr Burns: Yes, we do keep them under review for very obvious reasons. I suspect, given where your constituency is, that you are referring to London Midland.

Karen Lumley: I am.

Mr Burns: I would be the first to accept that there have been problems. They are problems that are unacceptable to passengers. The ORR-and the Department for that matter-is acutely aware of some of the problems. We have looked at them very carefully. My Ministerial colleague, Parliamentary Under-Secretary Norman Baker, who has responsibility for the day-to-day running of the railways, has kept a close eye on that. As you will be aware, as a result of problems that were considered unacceptable, there has been a considerable amount done to rectify that situation, including giving just over £7 million worth of benefits back to both season ticketholders and other passengers through a variety of schemes. London Midland is continuing to be kept under review to ensure that the measures that it is putting in place and has put in place to improve its services continue and are realised.

Q221 Iain Stewart: We are entering a period of expansion of the rail network. I am interested how new lines will be built into the franchise timetable. I am thinking particularly of the East West line, which happily goes through my constituency and will be part of the broader "electric spine" from Southampton to Yorkshire. It is due to open in 2017, at the time that a number of other franchises are coming up for renewal. What will the process be to decide if it is a stand-alone franchise or added on to one of a number of existing ones, such as London Midland, Chiltern or various other options?

Mr Burns: That is a very interesting question. Given its geographical position, it could be with Greater Anglia. Some people might argue that it would more naturally sit within the Chiltern franchise. Some might say what about the West Coast Main Line. The point is that, at this stage of the process, it is premature to be able to tell you exactly which franchise it would be in or whether it would be a stand-alone one, although I think that is probably the most unlikely of the options available.

What I can tell you is that work is being done on it. It is being fully considered, and the issue will be resolved long before it becomes a problem. It is just too premature at the moment. I can’t sit here and say, "It’s definitely going to be Greater Anglia," but I can give you the assurance that we are very familiar with the need to resolve this for obvious reasons, and that work is continuing, and will continue, until it comes to fruition.

Q222 Iain Stewart: In the process of making that decision, will you invite expressions of interest from current franchise holders?

Mr Burns: Absolutely, and anyone else who might have a view and an interest in the issue.

Q223 Iain Stewart: Do you have a rough time scale of when you might be ready to make a decision on that?

Mr Burns: I cannot tell you that.

Peter Wilkinson: We don’t have that time scale at the moment, but clearly, given the opening date, we can work back from there and we are not far from the point of beginning to open up discussion with the market on that.

Q224 Chair: I would now like to turn to the information that you have given in your Prior Information Notice on the whole franchise system. There is a reference to a need for operators to "increase the long-term value to the taxpayer of the franchise businesses". What do you mean by that and how are you going to assess it?

Mr Burns: In the context of that statement, we are looking for franchisees to drive efficiencies in the cost base of their franchises while maximising the returns to their fare box. That basically means that there is a lower contribution by taxpayers for the operation of rail franchises.

Q225 Chair: The notice also says that franchisees will be expected to "spread demand". Is that a green light for super peak fares?

Mr Burns: No.

Q226 Chair: Does that mean higher fares? Is that what that means?

Mr Burns: No; definitely not.

Peter Wilkinson: No.

Q227 Chair: What does it mean then?

Peter Wilkinson: As we all know, the railways are increasingly congested in the peak. We are looking for innovation to come forward from the market to help us manage demand in the peak.

Q228 Chair: Could you repeat that, please?

Peter Wilkinson: Yes. We are looking for innovation to come forward.

Q229 Chair: Does that mean you are not encouraging higher super peak fares-higher fares?

Mr Burns: Yes. We have, as a Department, ruled out super peak fares.

Q230 Chair: That remains. You have ruled that out and that is not there.

Mr Burns: Yes.

Q231 Chair: You have also put emphasis in the document on the importance of alliances and partnerships with other industry members and the DFT. Does that create a barrier for new entrants to the market?

Peter Wilkinson: No. We believe alliancing is important in the context of the current industry structure. It is important that the industry looks at decision making on a more whole-system basis. Alliances are not designed for the purpose of providing barriers to entry to the market.

Q232 Chair: In the criteria for assessing bids, how are you going to weight these factors against financial value for money in the traditional way?

Peter Wilkinson: The Brown report was clear in making recommendations that qualitative issues must be looked at and scored properly in the evaluation of franchises, and not purely on price. We are currently working to adjust the evaluation technology we use for franchise bids to make sure that there is a proper balance between price and quality assumptions.

Q233 Chair: But how would you weight these against traditional value-for-money estimates?

Peter Wilkinson: You will weight them differently according to different franchises. Different franchises have different dimensions and metrics to them. There is not a one-model-fits-all answer to your question.

Q234 Chair: You are saying that these factors would be weighted differently for different franchises.

Peter Wilkinson: According to the type of franchise it is, yes.

Q235 Chair: Would the bidders know how those factors were going to be weighted before decisions were made?

Peter Wilkinson: Yes. It is absolutely important that bidders have complete clarity about the way in which tenders will be evaluated before they put their bids in.

Q236 Chair: No mention is made in your statement of devolving some franchises to groups of local authorities. Is that still going to happen? What about the Northern franchise?

Mr Burns: We will wait and see. As you know, Richard Brown in his report broadly favoured devolution. As you are also aware, I am sure, as a Committee, there are certain parts of the country like London and the north of England where there is great interest in this. We are considering the issue. We are not against devolution, but obviously any proposals that come forward have to be looked at very carefully. We are considering the issue at the moment, and no decisions have been taken yet because it is a bit too premature in the process.

Q237 Chair: When do you think you will be able to take a decision?

Mr Burns: It depends. It would be very difficult for me to say, "We will have taken a decision by July," or, "We will have taken a decision by October." We will consider any proposals brought forward to us and look into them. Then we will reach a decision, but it would be very difficult and probably unwise to try and box that into a straitjacket of a time scale that may or may not be kept.

Q238 Chair: What criteria will you be looking at?

Mr Burns: A range of criteria. Is it feasible? Is it merited? Is it in the interests of passengers, the running of the railway and local communities? Is it value for money? Will it enhance the performance of the rail service and improve the service for local communities and passengers? Is there proper governance there, accountability and so on?

Q239 Chair: You are setting up a Franchise Advisory Panel.

Mr Burns: Yes.

Q240 Chair: What added value will that bring to the process?

Mr Burns: Of devolution or just of franchising?

Q241 Chair: Tell me why you are setting up a Franchise Advisory Panel. What is it going to do?

Mr Burns: We have already announced the chair of the Franchise Advisory Panel as Richard Brown. The panel basically has three main purposes. It is, first, to advise, support and inform the Secretary of State on the Department’s work on the rail franchise programme; secondly, to provide support, challenge and assurance to the franchising director and franchising team at the DFT as they progress the franchising programme and develop and enhance capability; and, thirdly, to provide a commercial perspective to the programme and help assure the Secretary of State, the Permanent Secretary and the market that sound advice, assurance and governance processes are in place.

Q242 Chair: When are you going to appoint members of the panel and what will the process be for that?

Mr Burns: They will be appointed by the Secretary of State. I would expect the Secretary of State to make an announcement on who will be joining Richard Brown on that advisory body very shortly.

Q243 Chair: What will the process be that assists the Secretary of State to make a decision?

Mr Burns: What-of who to appoint?

Chair: Yes.

Mr Burns: It will be the normal processes that Government Departments use. He will have sought recommendations and advice on a range of people who have the expertise and the knowledge of the railways, franchising and the commercial background to be able, in a positive way, to carry out the responsibilities within the remit of that Committee.

Q244 Chair: Will it be advertised?

Mr Burns: No; they have not been advertised.

Q245 Chair: We spoke earlier about the potential cost to the taxpayer of extending the length of time existing franchises will run. One of the areas that have aroused concern in the industry is the impact on the supply chain and on the rail industry itself. Are you aware of any problems in relation to rolling stock suppliers shedding jobs or of difficulties in the supply chain because of the extension of these franchises?

Peter Wilkinson: Yes. Obviously, we are aware of the issues that the delay to the franchising programme has caused in the industry and throughout the supply chain. That is why we have taken the steps we have taken to publish a programme that gives longevity to it and a long-term further forecast so that the industry can marshal its resources and its forward planning around a lot of the key decision points that will take place in that programme.

Q246 Chair: Are you concerned about the problems you have heard about?

Peter Wilkinson: Very concerned, yes. Anything that impacts on jobs and on the ability of companies to be able to plan their future securely around our franchising programme is a matter of great concern to the Department.

Q247 Chair: When we get the information that you have already promised us about the possible impact of extending the franchises in relation to the impact on the taxpayer, we would like you to add some information on your knowledge of the impact on the supply sector as well. That is part of the issue that we are concerned about.

Minister, the extension of the current periods that franchises have is said to be about value for money. The decision you have made about the East Coast Line would make operators and potential operators think that you are not really very keen for Directly Operated Railways to be running rail services. Isn’t that going to have an impact on your negotiating position when extending franchises?

Mr Burns: No, I don’t think it is, for two reasons. First, our attitude and support for the franchising system is no different from that of Lord Adonis in the last Labour Government.

Q248 Chair: But I am thinking of your negotiating position. You have stated that your policy is to extend those franchises and that would have to be a negotiated extension because, by definition, it is not going out to competition. The people who hold those franchises must perceive that you are not very keen, to say the least, on Directly Operated Railways running rail services. Isn’t that going to put you in a very weak position in a negotiation situation?

Mr Burns: No, I don’t think it is. You are right that we are not that keen on DOR for the sake of it, though there are circumstances where Governments have to use DOR because Governments have a responsibility under the Railways Act to provide a continuous rail service. What will happen is that those who are interested in seeking to run the East Coast Main Line will be going into those discussions determined to provide the best possible deal for taxpayers and fare payers to secure the provision of that service.

Q249 Chair: You don’t think the people who are running those services will look to secure the best deal for themselves.

Mr Burns: Whether they are successful is another matter, because what we are looking for is value for money for both the taxpayer and the fare payer.

Chair: Thank you very much, Minister and Mr Wilkinson.

Prepared 2nd May 2013