Mutual and Co-operative Rail Franchise Bids

Gavin Shuker Excerpts

Wednesday 20th October 2010 Westminster Hall

[Gavin Shuker (Luton South) (Lab/Co-op)]

It is a pleasure to undertake this debate today. I thank the Minister of State for the communication that I have had with her office in the past few days. We are talking about an important subject. We all like to grumble about the railways. Hon. Members are not exempt from that; indeed, I could tell the story of my last disrupted journey, which was this morning. However, the very difficult privatisation of the early 1990s, brought about by the Minister’s predecessors, sought to privatise a network in 40 weeks. That meant severe growing pains and a sharp learning curve. Other countries are travelling down that path over several decades, which is perhaps a salutary lesson to the present Government about the path and speed of change. However, we all accept that a new order is emerging, and it is right to accept that aspects of the industry today are the envy of Europe.

In the past 10 years, the combined measure of reliability and punctuality has risen from 78 to 91.5% and satisfaction has risen from 72 to 83%, with more passenger journeys now undertaken than at any point since the second world war. Yet, as we come into the constrained spending context of the comprehensive spending review, as the Department closes its consultation on rail franchising, and as customer expectation will rise in light of the massive fair increases of RPI plus 3 proposed by the coalition Government, a re-examination of provision on the UK’s passenger railways must surely be prioritised.

So, how do we improve rail? It is my assertion today that co-operative and mutual ventures across the industry can raise the bar. They can model accountability and effective public engagement, and improve services. When looking at franchising, which is the bedrock of the passenger network, it is necessary to set it within the context of the industry, which means briefly discussing the infrastructure manager—Network Rail.

Network Rail’s board structure, with about 100 members, is perceived as clunky and ineffectual in providing effective control. In 2004, the then Transport Committee stated:

“Network Rail did not convince us that members of the company were exercising an effective control of the company”.

In July 2008, the Committee returned to the theme of Network Rail, and found its governance “inadequate”. Network Rail provides a vital public service and was created as a public interest company, limited by Government guarantee, but genuine accountability, which is essential for driving up standards across the railways, is vital and should be expected in return for the large sums of money that the body receives from the taxpayer.

The Co-operative party has been key in developing a mutual model for Network Rail through “The People’s Rail” campaign, and as a Co-operative MP I welcome that contribution. The campaign contests the assertion that true accountability could be ensured by our all having the right to become individual members of Network Rail. As a genuine mutual venture, Network Rail could be structured in such a way that we all had a voice. A democratically elected members’ council with power over the appointment and pay of Network Rail’s board could drive up performance and accountability and, dare I say it, tackle a culture of excessive bonuses.

[Mr Gareth Thomas (Harrow West) (Lab/Co-op)]

I apologise to my hon. Friend for missing the very first part of his contribution. Is there not a similarity between what he proposes for Network Rail and the model that the coalition Government have endorsed as the way forward for something that was introduced by us—foundation hospitals? Exactly that type of structure has been designed to help to hold to account the senior management of our hospitals.

[Gavin Shuker]

I thank my hon. Friend for his intervention, with which I completely agree, and I associate myself with his comments. What we have seen from the coalition Government is a desire to look at innovative models across public services, and I believe that railways should not be exempt.

As I was saying, a democratically elected members’ council with the power of appointment and pay over Network Rail’s board could drive up performance. Co-operative and mutual structures deliver organisations that act in our interests. Who would be a better boss of the rail network than the passengers and the British public themselves?

Moving on to the bulk of my remarks on rail franchising, in a reply to a question from my right hon. Friend the Member for Tooting (Sadiq Khan) in the House on 22 July, the Minister said:

“There would be no barriers to mutuals and co-operatives bidding for franchises if they fulfilled the criteria.”—[Official Report, 22 July 2010; Vol. 514, c. 541.]

However, it is clear that there are still some barriers to entry, despite the stated desire of the coalition to explore innovative models of public service delivery. We in the Co-operative party would like to see those models given all the opportunities that are before them.

The system as it stands does not make allowance for the arrival of mutual and co-operative ventures. First, bidders are required to pass a number of detailed financial tests during the bidding process. ASLEF has said that a mutual bid would not be able to meet the performance bond requirement, and has called on the Department for Transport to review the performance bond criteria. Surely that is an area for examination. Secondly, bidders are understandably required to show experience of operating transportation systems. Can the Minister provide an assurance that the interpretation of that requirement is wide enough to ensure that mutual models in which individual members have extensive experience of running transport services—even the ones that they currently work on—but in which there is a new team coming together, perhaps under a new brand, are able to bid on a level playing field? Thirdly, the fact that no franchise has yet been awarded to a mutual ownership model on the railways itself serves as a barrier to entry.

To bring about the innovation that could drive up levels of service and accountability across the industry, will the Minister carefully consider the arguments for awarding the first mutual franchise during her time as Minister? Perhaps she could start by meeting representatives of ASLEF. The union has been preparing a mutual bid to run the east coast main line rail franchise when invitations to tender are announced in 2011. It believes that the co-operative principles of sustainability and accountability should be brought front and centre in the provision of passenger rail in the UK.

A common perception is that co-operatives are small and therefore unable to step up to the financial requirements of such a large franchise. However, the Co-operative Group has a turnover of more than £10 billion, and the east coast franchise turnover is only £550 million. The Go! Co-operative is one of the most recently established train operating companies, and down the track, as it were, it seeks to run open-access train services. That co-operative has already been authorised by the Financial Services Authority to raise the required funds, and I am sure that the Minister will want to welcome that initiative. I encourage her to take the time to talk to representatives of Go! Co-operative and to understand, in real time, both the challenges and the opportunities that are presented to people who enter the franchise system.

[Mrs Louise Ellman (Liverpool, Riverside) (Lab/Co-op)]

Does my hon. Friend agree that the strength of mutuals is that they can represent the interests both of those working in the organisation and those who use its services?

[Gavin Shuker]

Absolutely. I thank my hon. Friend for that intervention, and I would like to associate myself with her comments. It is true that when different stakeholders, including the people who work on the railways, are brought together, that always results in a much better service. Rail franchising is a key aspect of mutuals’ activity on the railways, but there are other ventures, too, to consider.

Enterprises that are owned and controlled by those who have a vested interest in their success should not be confined to the running of the railway itself. Many services that work alongside the main business add value to the traveller experience. Services such as cleaning, catering, customer service and training would be greatly improved by local accountability that allowed the services to respond flexibly to changing needs. The Cleaning Co-op based in Bristol has already won contracts to work with Birse Rail, CrossCountry and Virgin Trains. It provides cleaning services to Oxford and Bristol universities, local schools and the NHS. As a result of its unique structure, it not only provides a highly professional service but has a high staff retention rate and a motivated work force. It is highly valued by its clients, who are also its partners. The Cleaning Co-op is one example, but there are many successful retail, catering and training co-operatives, all of which could add to the traveller experience in a mutualisation of rail franchising.

Mutualism has much to offer in the governance of Network Rail, the system of rail franchising and the services that enable a decent passenger experience. I hope that the Minister will speak about the positive contribution of these talented, professional and visionary co-operatives. As we all recognise, UK rail faces significant challenges in the years to come. There is a requirement to show that passengers are getting a fair deal. There is a desire to see profits reinvested in better services. What better way to reassure passengers that the railways have their interests are at heart and that the staff who serve them truly have a seat at the table, than to see mutual operators on our railways?