Rail 2020

Graham Stringer Excerpts

Wednesday 3rd July 2013 Commons Chamber

[Mrs Ellman]

My hon. Friend makes a relevant comment.

As Network Rail’s debt has grown, more money is being spent on servicing that debt than ever before, and train operating costs have increased. Rail subsidy is necessary. Few rail lines would be profitable on a commercial basis, and even potentially profitable lines would lose passengers if the national network was cut back. There are good environmental and social reasons to subsidise the railway, and we were pleased to hear that the Government share that view.

Although the Government want to cut the subsidy, it is not clear what level of reduction they seek and under what time scale. Neither is it clear exactly where the subsidy goes at present. The Department should articulate more clearly why it subsidises rail and what taxpayers get for their money. We recommended that the Government consult on and publish a clear statement of what the rail subsidy is for and where it should be targeted. The Department’s reply was disappointing and focused on practical difficulties because of current funding arrangements. There is scope for much more work in that area.

This issue illustrates the lack of transparency in the rail industry. That has now started to change with recent work by the Office of Rail Regulation and the disclosure of wide variations in the financial performance of different routes and operators. Establishing why those variations occur will be crucial to ensuring that the rail subsidy is well spent.

Securing the efficiency savings indentified by McNulty will be challenging, particularly as they require different parts of the industry to work together in new ways. More than £1 billion is expected to be saved from train operating costs. I am concerned, however, that the savings have been put at risk by the Department’s problems with franchising. In many cases, existing franchisees will be awarded new contracts to run services for as long as four years. The Department will struggle to drive a hard bargain with existing operators without going to the market. I ask the Minister whether the Department’s decision to prioritise the re-tendering by 2015 of the east coast main line, currently operated by the Department’s company, Directly Operated Railways, will weaken the Department’s bargaining power as it seeks to extend franchises. It is clear that the Department does not want trains to be run by the public sector.

[Graham Stringer (Blackley and Broughton) (Lab)]

My hon. Friend is making a powerful point. Does she agree that the Government are trying to privatise the east coast main line for completely ideological reasons, and not for reasons of financial benefit? The east coast main line gives £563.4 million back to the Exchequer, which is almost twice as much as Virgin gave back over a two-year period. It also gets only one seventh of the subsidy per passenger mile, so there can be no other reason than ideology. The plan is undermining the Government’s negotiating position as they extend the other franchises by nearly 26 years.

[Mrs Ellman]

I thank my hon. Friend for his comment. The Minister was questioned in the Select Committee and it became apparent that the Government’s decision was to do with Government policy. I, for one, did not hear a compelling value-for-money reason for the decision.

There are a number of ways of assessing whether a franchise delivers value for money. The letter that the Minister sent to the Committee on 4 June stated that, over the three years 2009-10 to 2011-12, the inter-city east coast franchise produced a net return to the Department of £563 million. The letter also stated that, over the same period, the west coast main line made a net return of £290 million. The Minister certainly did not accept that that meant that the east coast franchise produced better value for money, but I am simply presenting the facts in the letter as a contribution to the debate. One consequence of the decision has been the postponing of the re-letting of the west coast franchise by 29 months, to April 2017. The previous timetable had been announced as recently as November. It is a matter of concern that such constant change is unsettling for the industry.

We have already seen two direct awards to current operators, and neither has demonstrated how the Government can secure a better deal for passengers or taxpayers. In the case of the west coast franchise, we were told that there might be new services to Blackpool and Shrewsbury, but they have not materialised. The old Essex Thameside franchise paid money into the Department. The new one, a directly awarded contract to run until September 2014, will cost the taxpayer money. Will the Minister acknowledge that there will be problems in achieving the McNulty savings in the light of the franchising fiasco and its aftermath?

The Committee recommended that the Department should strengthen its commercial capability in relation to assessing franchises, that it should consider franchises being let and managed by a Department agency or arm’s length body, and that it should consider spreading premium payments over the full length of the franchise. We suggested that franchise periods of seven to 10 years would be appropriate while the situation was being reviewed. Indeed, a review is now taking place, and we hope to hear the Government’s conclusions shortly.

During our inquiry, the rail unions argued that the privatised structure was the main cause of inefficiency in the industry, and that renationalisation would bring costs down. McNulty rejected that argument, saying that renationalisation would

“take years to complete, cause major diversion of effort, incur massive costs, and delay progress on improvements”

that were under way.

--- Later in debate ---

[Iain Stewart]

I am happy to endorse the point that my hon. Friend eloquently makes. I have travelled on that line and seen at first hand many of the improvements that have been made.

The point has been made that the rail network requires subsidy to operate, and I agree with that. Many lines would not be profitable in themselves, but for social and environmental reasons they require subsidy. We need to take into account not just the operating profit and loss of an individual rail service, but the opportunity cost: the cost to the country if that rail line did not exist and people had to travel by car or another mode of transport. We can only imagine the congestion on the roads around our major cities if we did not have commuter rail lines. They might not, in themselves, be profitable, but the environmental and financial cost of having those passengers travelling by car or another mode of transport would just be too much to bear.

I welcome the Government’s commitment to continue to subsidise large parts of our rail network, but we cannot escape the conclusion that Sir Roy McNulty and others reached in their report, which was that we should be looking to make our network as efficient as possible, in order to achieve his aim of a 30% reduction in the unit cost. Our network is comparatively expensive to run compared with others. I believe that that is a product of history, not just of one approach, be it the franchise model or the nationalised model. It is a cost that has been built into the system over many decades, particularly because until relatively recently we have had a period of managed decline of our network and what investment there has been has been made on a “make do and mend” basis. Additional costs are hard-wired into our system, but the system we now have is sensibly evolving.

[Graham Stringer]

The hon. Gentleman is a serious student of the rail system in this country. There is not a lot in what he has said with which I disagree. He is trying to put the issue into its historical perspective, so let me put it into real historical perspective. When John Major’s Conservative Government privatised the railways in the 1990s, they came to this Chamber and told right hon. and hon. Members that there would be no subsidy. That was used as justification for selling the railways off at a lower price. Network Rail now carries a debt of £30 billion on its balance sheet, so I hope the hon. Gentleman will take into consideration the false prospectus that the Conservatives gave this House in the 1990s.

[Iain Stewart]

It is always a pleasure to take an intervention from my fellow Select Committee member. If the hon. Gentleman will forgive me, I will not rehash the debates of the 1990s as I am more interested in what happens from here on. In an earlier intervention, he made the point that the Government are seeking to return the east coast main line to private hands as a matter of ideology. Equally, I could argue that it is because of ideology that the Opposition want to renationalise it. I draw the hon. Gentleman’s attention to the conclusion of Richard Brown’s report on franchising, which concluded that the franchising model was not fundamentally flawed and that although the detail could sensibly be changed, the investment in and success of the railways could not have happened if the franchising was fundamentally flawed.

Let me turn to a number of initiatives that, I believe, can deliver a more efficient railway. The hon. Member for Liverpool, Riverside mentioned the development of alliances between Network Rail and train operating companies. That is a very helpful and sensible development. The one large-scale alliance, between Network Rail and South West Trains, has not been in operation long enough for us to make any sensible assessment of what savings it can deliver, but as the real expert, Nigel Harris, said in evidence to the Select Committee, it

“is the only game in town”

at the moment and requires a fair wind to achieve the savings that it hopes to.

Such alliances are not the only form of alliance available. One or two other examples provide evidence that such an arrangement can deliver useful savings and efficiencies in the railway. The project in Scotland to electrify the branch line to Paisley Canal on the Greater Glasgow network was an alliance between Network Rail, First ScotRail and Babcock engineering. They were able to electrify the branch line at a substantially lower than expected cost and two years ahead of the planned development because the power was devolved down to that level, meaning that the various experts and operators could get together and deliver the project very efficiently.

I am doing a fellowship with the Industry and Parliament Trust on the rail industry and I have spent a good number of days going around parts of the railway system. I have seen two separate examples of an alliance between a train operating company and the rolling stock manufacturer, which enables a much more efficient system of maintenance and refurbishment of the rolling stock. I visited the Kings Heath depot, jointly operated by London Midland and Siemens on the London Midland franchise, and—this will interest my hon. Friend the Member for Folkestone and Hythe (Damian Collins)—the Hitachi depot where the Javelin trains are maintained with Southeastern. Those depots are delivering a much faster and more efficient turnaround in train maintenance. They are not “grands projets” or exciting stuff, but they deliver a much better service for rail users at a much lower cost.

--- Later in debate ---

[Mr Burns]

No, because I am running out of time.

Those arrangements could involve joint working to improve performance and planning for engineering works or to reducing delays and disruption for passengers. Integrated control centres can deliver smoother and more efficient network operations.

The Rail Delivery Group brings together Network Rail, freight operators and passenger train operators. It provides leadership for the industry, and offers a coherent and focused response to the investment and operational challenges laid down by the Government. Network Rail is enhancing its accountability with a new transparency scheme to publish more information and data that are of interest to the public.

[Graham Stringer]

Will the Minister give way?

[Mr Burns]

I will not.

[Graham Stringer]

There is plenty of time.

[Mr Burns]

There is not plenty of time. I am not speaking until 7 o’clock because the hon. Member for Liverpool, Riverside would like to make a brief winding-up speech.

Network Rail has appointed a public interest director to articulate taxpayers’ views at the highest levels in the company.

Responding to the Government’s rail Command Paper, the Transport Committee published its report on “Rail 2020” in January this year. As I said earlier, we have welcomed that report and the Select Committee’s support for our strategy, which is focused on making the existing structures and responsibilities in rail work better. We are not throwing everything up in the air and starting again, given the cost and disruption that that would be likely to entail.

We are confident that our strategy can bring rail to the cutting edge of efficiency by 2019. To do so, the industry must take advantage of new technologies by looking to introduce smart ticketing and making ticket machines easier to use. The hon. Member for Nottingham South asked when that will happen. I reaffirm that it will be during the summer. Passengers will continue to be able to get help and advice from a member of staff about buying a ticket when they can currently do so. Train operators must also look at driver-only operations for trains. This is already standard practice on 30% of existing franchise services, including many commuter services in London and Glasgow.

Crucial to the debate about rail is the Department’s role in letting and managing franchises for passenger rail services. This was discussed at length by several hon. Members during the debate. The Government’s firm belief is that franchising gives us the best possible basis for doing what we want to do with rail. The most liberalised railways in Europe have seen the highest growth in the last 15 years, with the UK and Sweden first and second respectively.

The Government are committed to ensuring that we continue to have private sector innovation and experience in our railways. As hon. Members will be aware, in March we announced a new rail franchising programme, covering every rail franchise for the next eight years. It builds on much of the authoritative work undertaken by Richard Brown, as I have said. Supporting our franchising relaunch, we have now published a new guide about how franchising competitions are run. This is information that we want to be generally available and accessible to all. It will give certainty to the market and to suppliers throughout the industry and support major investment in our rail network.

To grow a railway that will support passengers and our economy, we need that railway to be financially sustainable. Our rail strategy aims to achieve that, while putting passengers at its heart.