South West Trains

Tuesday 19th March 2013 Westminster Hall

11:00

[Mr Dominic Raab (Esher and Walton) (Con)]

It is a great pleasure to serve under your chairmanship for the first time, Mr Hollobone, especially as you are fresh from your doughty defence of parliamentary prerogatives in the main Chamber yesterday.

My constituency is home to a large number of commuters. Every day, more than 22,000 residents of Elmbridge commute to London for work. That represents roughly 38% of the borough’s work force—no small proportion. Many rely on the rail network, which means travelling with South West Trains. As a commuting MP, I know first hand what the service is really like.

The number of people using the railway has increased sharply in recent years. Reflecting national trends, the number of recorded journeys to and from stations in Elmbridge rose by 78% between 2002 and 2010. The most recent figures from the Office of Rail Regulation reveal that, in the financial year 2010-11, 11.6 million passengers used the various Elmbridge stations.

With that in mind, the quality of the service provided by South West Trains is an important issue for local residents. The latest figures published by the consumer watchdog Passenger Focus are disappointing. In autumn 2012, it received 31,500 responses to its national passenger survey. South West Trains was rated the joint-worst train operating company for providing value for money, with just 37% of respondents expressing satisfaction. By contrast, Merseyrail achieved a 70% rating for value for money, and Grand Central achieved 73%.

There are various reasons why so many passengers do not feel they get value for money. For one, overcrowding has worsened. In 2011, the most recent year for which information is available, the company’s morning services ran at 4.1% over capacity, up from 2.8% in 2008. In the evenings, they ran at 2.4% over capacity, up from 1.7% in 2008.

Some services are much worse. According to Department for Transport data, the South West Trains 7.32 am service from Woking to London Waterloo, which I regularly take, is the second most overcrowded service in the whole country. It normally runs at 64% over capacity, carrying 471 more passengers than it is meant to.

The punctuality of South West Trains services has stayed flat over the past five years. On average, a commuter will experience at least one late train per week, and far more at certain times. On top of that, a spate of signalling problems has caused longer delays. The service is also often unable to cope with what must be described as relatively minor snowfall. Of course, some of that is Network Rail’s responsibility. Unfortunately, Network Rail is pretty hopeless too.

It remains to be seen whether the new alliance between South West Trains and Network Rail—the train company and the infrastructure operator—makes a significant difference in practice. I hope it will. We should bear in mind that, in 2012, 4,232 trains were cancelled, up 39.5% on the previous year.

[Damian Hinds (East Hampshire) (Con)]

Does my hon. Friend share my hope that the alliance between South West Trains and Network Rail will, among other things, elicit some co-operation on looking in depth at some of the capacity issues, particularly on trains into Waterloo? That might be fundamental to addressing some of the overcrowding and overcapacity issues.

[Mr Raab]

I thank my hon. Friend for his intervention. He is spot on. Too often, there has been something almost like buck passing on the issue between the train company and infrastructure operator. It is to be hoped that the alliance allows a slightly more coherent, joined-up approach, although I suspect there are limits to what even a more integrated approach can deliver.

The company’s wider performance must be set against a backdrop of sharp increases in fares. Further analysis by the Office of Rail Regulation reveals that season ticket costs for companies operating in London and the south-east rose by 46% between 2004 and 2012, which was just above the national average. Currently, a season ticket between Guildford and London Waterloo costs £3,224 every year. That does not take into account the rising parking charges at stations, an issue that is also the responsibility of South West Trains. Frankly, it is difficult for me to stand on the platform with commuters and residents and to tell them they are getting value for money. I am just not convinced that they are.

Despite rising fares and low customer satisfaction, remuneration at Stagecoach Group, which runs South West Trains, increased between 2010 and 2012 by 8.2% for directors and by 9% for executive directors. The dividends rose by 44% between 2008 and 2012, to 7.8p per ordinary share. That was dwarfed by the one-off dividend issued in 2011, when Stagecoach Group completed a return of value to shareholders of 47p per share. That was worth a grand total of £340 million, including a reported £51 million for the chief executive, Sir Brian Souter.

I appreciate that South West Trains is just one part of Stagecoach Group, but when the performance of South West Trains has been so underwhelming, such figures smack of complacency, if not outright reward for failure. What levers do the Government have under the franchise agreement to press South West Trains to do more to improve the quality of the service and value for money for customers?

Then there is a whole series of questions about the role played by central Government. Under the terms of its franchise agreement, South West Trains pays a premium to the Government for the right to run its services. That was worth 4p per passenger kilometre in 2011-2—the second-highest rate paid by any train operating company to the Treasury. The subsidy paid by South West Trains can be contrasted with the subsidy of 11.4p per passenger kilometre received by ScotRail and the 12p per passenger kilometre subsidy paid to Arriva Trains Wales. Altogether, over the three years to 2011-12, South West Trains paid a whopping £544 million in subsidy to the Treasury— £140 million more than any other train operating company. That is inevitably reflected in fares paid by South West Trains users.

Those figures raise a slew of questions. First, while South West Trains has been the largest net contributor to the Treasury through its premium payments in recent years, other train operating companies in the south-east region were still receiving a Government subsidy. Those included Chiltern Railways and Southeastern. Will the Minister therefore clarify what objective criteria are used to determine which travellers subsidise other lines, how that subsidy is calculated and what can possibly justify the stark discrepancies in the figures?

There is a second range of questions about the regional train companies group, which includes the five train operating companies that received the highest Government subsidy in 2011-12: Arriva Trains Wales, ScotRail, First TransPennine Express, Northern Rail and London Midland. In direct consequence, passengers who use those regional train companies, as classified by the Office of Rail Regulation, have enjoyed below-average increases in the cost of their season tickets.

Let me make a broader point. It is one thing for the Government to seek to control ticket prices in more remote destinations, to prevent them from soaring out of control. However, it is another thing altogether to ask passengers on South West Trains to subsidise below-average season ticket rises in the north, Scotland and Wales, when, as I have made clear, some passengers in the south-east have faced price increases above the national average for their season tickets, in return for crowded carriages and poor service.

That is not just a redistribution of wealth out of general taxation, which understandably and rightly takes place to a degree, but a massive redistribution of wealth from the fares paid by specific commuters using a specific rail service. Can the Minister understand why so many in my constituency, particularly those on low and middling incomes, will find being targeted in such a flagrant manner so unfair?

I suspect most MPs, let alone constituents, have little idea of how their rail services are funded, at least in detail—the mix between user-pays and general taxation—or the criteria being deployed and implemented for each. I wonder what steps the Government are taking to correct that frankly lamentable lack of transparency—which is inherited, I hasten to add—over a vital element of national infrastructure.

Furthermore, it seems reasonable to expect that at least some guarantee can be made that a certain proportion of the premium payments received from busy lines will be reinvested back into those routes. Can the Minister give me any transparency or clarity on that? What assurance can he provide passengers on South West Trains that the premium payments they make are properly reflected in Government investment in the line on which they travel?

Looking at the big picture, the independent review of the rail network by Sir Roy McNulty in 2011 highlighted the extent of the underperformance of the rail network nationwide. Its calculations suggested rail costs in the UK are 20% to 30% higher than they need to be. That is a major cause of concern. The report concluded that up to £1 billion of savings could be made by 2018-19, without any reduction in services. That echoed the analysis of the Office of Rail Regulation in 2010 that revealed Network Rail was up to 40% less efficient than the top European rail infrastructure managers.

I welcome the fact that the Government accepted the McNulty recommendations to end the micro-management of rail operations and give operators greater flexibility to meet passenger demand. I also welcome Ministers’ commitment to achieve the efficiencies McNulty outlined. I would like to ask for an update on the progress made in delivering—not just accepting—the McNulty recommendations. I think a lot of people listening to the debate will not understand why so much is being paid in rising rail fares when such an important element of national infrastructure is lagging behind that in Europe and, to some degree, other developed economies.

I raised the point about the impact on commuters and residents and the sense of value for money. However, there is a broader question about the competitiveness of our economy, in a vital area of infrastructure. There is a huge amount of emphasis and focus on airport capacity and there is some on roads. I fear we are failing to grasp the nettle on this important element of our national infrastructure, with serious knock-on implications for the economy.

Beyond the set of issues that the McNulty Report looked into, does the Minister have any wider views on whether and how more effective competition could be introduced, in order to promote the innovation and value for money that rail users want, and that Britain sorely needs if we are to compete economically in the 21st century, with rising competition from Latin America through to Asia?

To what extent are the changes in systems and the innovation that we want being stymied by militant union leaders such as Bob Crow, who periodically relies on brinkmanship and outdated strike laws to hold the system, and the public, to ransom? I know that Network Rail has quite a broad, serious and substantial programme of reform. I would be interested to hear the Minister’s view on the extent to which that is being held up by the National Union of Rail, Maritime and Transport Workers and other unions.

In conclusion, South West Trains provides vital services in Elmbridge, but also well beyond. I recognise that running a train service across ageing infrastructure in a time of rising demand is not an easy challenge. There is also the compound effect of rising fares on customers, commuters and residents at a time of rising energy prices and the standard of living becoming a real issue, particularly for the squeezed middle. There is not a huge amount of extra money in the pot. In fact, we are trying to be as frugal as we can, given the huge debt problem inherited from the previous Government.

However, it is important that the managers and directors of South West Trains hear the message loud and clear that their passengers demand better value for money. Commuters pay a substantial and rising share of their income to get to work. It is right and understandable that they expect a fair deal in return. That must comprise reasonable fares, trains that run on time and decent travel conditions. Government must also play their part by providing a coherent overarching framework that promotes innovation and productivity, and transparency in relation to the funding arrangements, in particular by ensuring that passengers on South West Trains are not treated—let us talk frankly—like a cash cow to subsidise other parts of the network, without getting a fair deal in return such as investment in the line and the level of fares.

To sum up, it will take a combined effort to ensure that my residents, all those travelling on South West Trains and the country as a whole get the rail network that we need for the 21st century.

11:15

[The Parliamentary Under-Secretary of State for Transport (Norman Baker)]

I congratulate my hon. Friend the Member for Esher and Walton (Mr Raab) on his contribution, and I will do my best to answer the points he raised.

As hon. Members know, the South West Trains franchise is primarily based on services operating into and out of the nation’s busiest terminal station, London Waterloo, to a wide range of destinations. It includes the provision of one of Europe’s most intensive suburban and commuter networks, servicing more than 200 stations with more than 1,700 trains a day. The route network, which is managed by Network Rail, extends to 643 miles, with 1,375 sets of points and more than 4,000 signals. The network is therefore complicated.

One issue with the railways is that of success. We have seen a fantastic growth in passenger numbers over the past 15 years; across the country, numbers have just about doubled. They are where they were in 1929, on a network that is about the half the size that it was then. That is a huge operating challenge for Network Rail and the train companies, and it means that there is sometimes no longer the space to pick up on problems when they occur. Every train that is late has a knock-on effect on every other train all the way behind it.

I now turn to the operational performance of the South West Trains franchise, as my hon. Friend raised that matter. According to the public performance measure, which is used to record arrival within five minutes of the scheduled time, its current performance is 91.4%. That is a moving annual average. My hon. Friend may be interested to know that, for the latest period, 67% or thereabouts of arrivals were within one minute of the scheduled arrival time.

The company maintains its position as the most punctual railway south of the Thames. It is important to make that point, as it might be of some comfort to my hon. Friend, given his concerns. Its operational performance is better than that of Southeastern, which had a performance figure of 91.2%, while the five-minute performance figure for Southern was 88.3%, and it was 88.7% for First Capital Connect. The company’s joint performance improvement plan target of 92.7% of trains over the course of the year arriving at their destination within five minutes of the published arrival time will unfortunately be missed by around 1%, but that is still a better performance than other train companies in the south-east. However, that is not to say that we are complacent about performance in any way.

My hon. Friend asked what levers we had. In my capacity as Minister for rail performance, I regularly meet train companies and Network Rail not only to go through performance generally across the network, but to pick up individual problems. For example, I had a meeting this morning with East Coast Trains about problems on the line north of King’s Cross. Such meetings take place regularly.

There are, of course, safeguards in the franchise regime. My hon. Friend may have seen that, in the case of London Midland, we exercised our right to invoke penalties—or at least to secure passenger benefits that London Midland had to pay for—as a consequence of its poor performance on the network, which was below acceptable standards.

As and when train companies fall below the specified standard, we will invoke measures to ensure that passengers effectively get some compensation for that poor performance. Ultimately, of course, a franchise can be removed from a train company, although the performance has to be really bad for that nuclear option to be exercised.

The autumn 2012 national passenger survey by Passenger Focus showed that 85% of passengers were satisfied overall with South West Trains, which was a higher figure than that for any other train company south of the River Thames. Another survey was undertaken—I think by Which?—but it was not statistically valid. The Passenger Focus survey is independent and properly validated, so it is the one to which we should pay attention.

My hon. Friend is right to say that we need to do more to drive up performance, which is one of the reasons why we are pursuing the concept of alliancing, which has been piloted in the South West Trains area.

[Mr Raab]

There is a discrepancy between the passenger surveys that are being quoted, because the autumn 2012 Passenger Focus survey rated South West Trains as the joint worst for providing value for money—I think that is the most recent survey—with a satisfaction rating of 37%, which suggests a slightly worse picture than the Minister indicates. If customers are giving such a poor indictment of the state of the service, despite the punctuality statistics that the Minister has kindly cited, is he suggesting that those customers have got it wrong? Is he suggesting that they are not appreciative enough of the service? I travel on the line every day, and I suspect that those people are right. I suspect that I am among the more than 60% who do not think that we get decent value for money.

[Norman Baker]

As I understand it, the figure my hon. Friend cites is about value for money. I was talking about overall passenger satisfaction with the network, which takes account of a wide range of factors, including, for example, the information given on station platforms and the cleanliness of trains. A wide range of factors make up Passenger Focus’s overall figure. I will drop him a line to clarify exactly what the various surveys say so that he is familiar with them and able to report back to his constituents with full knowledge of the nuances of the various surveys.

Alliancing was piloted in the South West Trains area, and it was recommended by the rail Command Paper as a key mechanism for aligning incentives in the rail industry and driving out costs. Alliancing was supported by Sir Roy McNulty’s report on rail value for money and by Richard Brown’s review of rail franchising.

With support from the Secretary of State, South West Trains and Network Rail commenced operation of the deep alliance, a commercial arrangement between South West Trains and Network Rail, on 29 April 2012. I make it clear that we as a Government—and therefore the taxpayer—take no downside risk in the alliance, but above a threshold, we receive funds from profits earned through efficiencies.

The alliance has established a day-to-day management relationship between the two core organisations that represents an unprecedented level of co-operation between track and train to improve performance and efficiency on the route. The alliance’s scope includes the operation and maintenance activities of the Network Rail Wessex route and all South West Trains activities other than IT. The alliance does not extend to Network Rail’s capital enhancement or renewals schemes, although incorporating those activities and realising efficiencies from them remains a long-term aim. Initial financial baselines of costs and revenues for both parties have been agreed by the alliance. By reference to those baselines, the parties share the risk and reward for the financial performance of the alliance through a pain-gain sharing arrangement. If the gain is sufficient, the Government also benefit on behalf of the taxpayer.

My hon. Friend mentioned fares, and we are all acutely conscious of the need to try to bring to an end the era of above-inflation rail fare increases, as the Government has clearly set out. We inherited a situation in which the previous Labour Government had driven up rail fares by above inflation under a process that started, I think, in 2003-04. The difference between the previous Government and this Government is that we are investing heavily in the network to try to provide extra capacity to address some of the issues that he rightly raises on behalf of his constituents, whereas fare increases in previous years were simply a measure to provide extra funds to the Treasury for other uncertain purposes. We now have the biggest rail investment programme since Victorian times, and the South West Trains area, like all others, will benefit.

The present fare arrangements, which we seek to bring to an end as the Network Rail efficiency savings kick in, allow regulated fares to rise by 1% above the retail prices index each year. Importantly, the formula is exactly the same as that applied nearly all the way through the previous Labour Government. The formula is applied equally across England, so there is no difference between what we do for the South West Trains franchise and what we do for Northern Rail or TransPennine Express. They all use RPI plus 1, unless there are exceptional circumstances, such as under the previous Government when the Southeastern franchise used RPI plus 3 for a while to pay for the Javelin high-speed train. The subsidies for First ScotRail and Arriva Trains Wales are not a matter for us, as they are entirely determined by, respectively, the Scottish Government and the Welsh Assembly. What they do with their trains and their money is up to them.

Through the franchising process, we also try to ensure that we get the best value for taxpayers’ money, because the more money we get in, the more we are able to invest in addressing the capacity and crowding problems to which my hon. Friend rightly referred. There is a competitive tendering process for each franchise, and I am sure that he accepts that it is in our interest to get the best possible price for each franchise. If that means that we are securing money through a premium from the franchise holder, that is a good outcome for the taxpayer. There are clearly some areas of the country in which the train service will not turn a profit, meaning that a premium is not possible. Under this Government, we have seen a general trend towards ensuring a better balance between the fare payer and the taxpayer. Driving out inefficiencies leads to the opportunity to try to correct some of the imbalances that exist across the network.

[Mr Raab]

The Minister is most generous with his time. The point I made in my speech was that the subsidy from South West Trains users is 4p per passenger kilometre—that is what fare payers pay back to the Government, presumably for wider investment in rail infrastructure. If we look not just at Scotland and Wales, but at Northern Rail, London Midland and Southeastern, they receive a subsidy from central Government. Will the Minister explain how that is determined? On what possible basis can those discrepancies be justified?

[Norman Baker]

Obviously, nearly all the franchises were let under the previous Government so, in a sense, we inherited the arrangements that apply to the various franchises across the country, and they cannot be unpicked during the period of a franchise. However, we can try to influence future franchises, and the Secretary of State will make a statement to the House in the near future about how we are taking forward the franchising regime.

Inevitably, some lines are profitable and some lines are not, and that is simply down to market forces. A concentrated commuter network or a highly attractive route—say, from London to Manchester—is more likely to be profitable than a route that serves a large number of small stations, such as between Inverness and Wick and Thurso. It is difficult to envisage how that could ever make a profit, because it is a long, straggly line that few people use. Market forces therefore inevitably apply, but our job is to try to ensure that we secure the maximum return from the private sector to enable us to reinvest in the network for the future.

My hon. Friend mentioned Brian Souter’s salary but, on the other hand, his company is now paying a premium to the taxpayer. In a sense, the private sector system seems to be working. Brian Souter has invested heavily. He is taking the rewards for himself, which he is entitled to do, but he is also paying a premium to the taxpayer that enables us to reinvest. The system seems to be working, and we want to get more train companies paying money to the Government. If we can do that, because efficiencies have been driven in and inefficiencies have been driven out, it is all to the good.

I am afraid that I have not been able to say anything about investment, but there are large investment plans for the South West Trains area. I will happily drop my hon. Friend a line to set out what they are, but they include longer platforms and trains, and in due course steps to improve the situation at Waterloo.

[Mr Philip Hollobone (in the Chair)]

We have arrived at our destination and I am afraid that our journey terminates here.

11:29

Sitting suspended.