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The Minister of State, Department for Transport (Mrs Theresa Villiers)
I congratulate the hon. Member for Sedgefield (Phil Wilson) on securing this debate on this important issue.
Mrs Villiers
Before the interval for voting, I was congratulating the hon. Member for Sedgefield on his passionate support for the IEP. I thank him for the correspondence that he has sent to the Department, setting out a number of the points that he has raised, and for the report that I received today on the case that he has prepared for the IEP project. I am grateful for all of those. My colleagues at the Department and I will be giving serious consideration to all the points raised in the report and in today’s debate.
I welcome the fact that the hon. Gentleman, alongside a delegation from his constituency and around the north-east, is due to meet my right hon. Friend the Secretary of State for Transport to put these points to him directly. The coalition Government have made it clear that rail has a key part to play in our transport strategy. Although our priority has to be tackling the deficit that we inherited, the Government fully recognise the significant economic benefits generated by investment in transport infrastructure—a point that has been explicitly acknowledged by the Chancellor of the Exchequer. Nevertheless, we must apply a rigorous cost-benefit analysis to all our planned infrastructure projects, targeting investment where it makes the most difference and where it will generate the greatest economic benefit.
That is the background against which we need to assess the future of the IEP. There can be no doubt that the project has encountered a degree of controversy since the previous Government embarked on it over half a decade ago. The objective was, as we have heard, to replace Britain’s fleet of InterCity 125 trains, and to invest in capacity and passenger journey improvements on the east coast and Great Western lines. The procurement process began early in 2007, and two years later, Agility Trains was announced as the preferred bidder. An important component of Agility is Hitachi, the manufacturers of the Japanese bullet train.
As we heard from the hon. Member for Sedgefield, Hitachi simultaneously announced its plans to build the new train order in the UK. This summer, the company announced that its preferred site for a new manufacturing facility is Newton Aycliffe in the hon. Gentleman’s constituency. As he has explained, that town has historic ties with the railways. As we heard today, Hitachi has said that it proposes to use the site in County Durham to bid for orders abroad, and has aspirations to export British-built trains to Europe. The parallel with the successful model used by many Japanese car manufacturers is obvious; it is a very positive example of what can be achieved. As the hon. Gentleman explained, the facility has the potential to create hundreds of new jobs, and potentially many more in supplier industries. He has put the case articulately and strongly for the economic benefit that will accrue to his constituents and the wider north-east.
Of course, such inward investment would be very welcome and entirely consistent with the Government’s stated goal of rebalancing the economy and promoting manufacturing industry. I take on board the strong points that the hon. Gentleman made about the skills base in the north-east, and how appropriate it would be to support a facility of the kind that Hitachi has announced the intention to build.
However, the hon. Gentleman will, I am sure, appreciate that the decision on the IEP needs to focus on objective and established procurement principles—namely, on whether the project provides the right solution for passengers and the railways; whether it delivers value for money, compared to the alternatives; and whether it is affordable for the taxpayer.
In its original form, the order would have been the single largest procurement of rolling stock ever, and one of the biggest private finance initiative transactions in British history. During the later part of 2008 and 2009, the capacity of the debt market contracted and the previous Government decided that it would be better to split the transaction into smaller parts.
The deteriorating state of the debt market was just one of the challenges that faced the project. A further issue arose when the previous Administration changed their mind on electrification. Having published in 2007 a long-term plan for the railways that had a limited role for electrification, the Government put out the tender for a fleet, with a significant proportion of diesel trains as part of the IEP proposal. Two years later, at the height of the contractual negotiations, the Government announced they had changed their views and proposed to electrify. That meant that the order had to be changed to an electric and bi-mode mix, which led to an increase in costs. By the time Labour left office in May, £26 million had been spent on consultancy and preparation costs, without the contractual close stage even having been reached. That has caused a degree of concern.
The project was in some difficulty when the previous Secretary of State, the noble Lord Adonis, decided to commission an independent review by Sir Andrew Foster. When it was published in July, the Foster report presented a measured and thoughtful analysis of the relevant issues. As the hon. Gentleman has correctly pointed out, Sir Andrew had some very positive things to say about the IEP. He described the proposition as “positive and attractive” in a number of ways. He described the PFI-style funding arrangements as
“novel and well-aligned in terms of financial incentives”.
He concluded that faster acceleration and longer carriages would have a positive impact on network and passenger capacity. He acknowledged that the specification had also taken network sustainability and environmental imperatives seriously. Unfortunately, he also had some concerns about the project. He concluded that the previous Administration had made a number of mistakes on the programme. In particular, they did not engage the railway industry well enough and had sought to micro-manage the process. Importantly, the Foster report also highlighted that although the project has always exceeded the Department for Transport’s economic thresholds, its value for money has seen a decline over time, while its costs have increased.
Mr Edward Timpson (Crewe and Nantwich) (Con)
Although I acknowledge and am extremely sympathetic to the case made by the hon. Member for Sedgefield (Phil Wilson) on behalf of his constituents and the north-east, is the Minister considering carefully Sir Andrew Foster’s conclusion that he is not convinced that all credible alternatives to IEP have been identified? He sets out the case in his report for a short-term IC125 refurbishment, which would be both cost-effective and technically feasible. The skills, buildings and infrastructure enabling that work to be done already exist in places such as my constituency of Crewe, where Bombardier can already carry out that work.
Mrs Villiers
My hon. Friend’s intervention is timely, as I am just about to come to that point. As he rightly says, Sir Andrew did make some points about the possible alternatives to the current IEP proposition.
In response to Sir Andrew Foster’s report, my right hon. Friend the Secretary of State for Transport announced that the Government would use the period up to the spending review to give further consideration to the future of the IEP. In accordance with Sir Andrew’s recommendations, the Government are reviewing all the credible options in light of value for money, affordability and their compatibility with the plans for further rail electrification. That means careful consideration of how the IEP proposal could be reduced in cost, and evaluating alternative ways of addressing the problem that the IEP was designed initially to solve—that is, how to address the problems surrounding the ageing high-speed train fleet. As my hon. Friend points out, the alternatives include the possibility of refurbishing and extending the life of the existing InterCity 125 rolling stock. In that regard, compliance with disability deadlines will be an important factor to bear in mind in the assessment.
Mr Kevan Jones (North Durham) (Lab)
Is the right hon. Lady suggesting that the north-east should once again get second best, while the constituency of the hon. Member for Crewe and Nantwich (Mr Timpson) is, I think, served by a line with brand new trains?
Mrs Villiers
I am saying that we have to carry out a very careful assessment of what the right outcome is for this programme, and what the right way is to address the problem of the ageing InterCity 125 fleet. That is what the Government are doing at the moment.
Ben Gummer (Ipswich) (Con)
One thing was omitted from the original planned routes for the implementation of IEP, and that is the inclusion of the London-Norwich line, to the great disappointment of the people who live along it. The problem is that the rolling stock is not only ageing, as is that of the high-speed train fleet, but actually the cast-offs from the main lines to the north-east and north-west. If the routes are to be renegotiated, I hope that the line will be included, but I have to say that this is a lunatic way to procure trains. We heard about the Austin Allegro, famously specified by civil servants. I would not like this to be a similar instance of specification by civil servants that is not suitable for industry.
Mrs Villiers
Many parts of the network would like to have extra capacity, and I shall take my hon. Friend’s concerns on board as a representation. Regarding additional projects of that sort, it clearly all depends on what proves to be affordable, but we intend to learn lessons for the procurement process from the experience of the IEP.
As regards reappraisal of the original IEP concept, the Department has listened with great care to the ideas put forward by Agility on how to improve the value for money of its proposition, and I would like to put on record our sincere thanks to Agility for the diligent and constructive work that it has done, in contributing to both the Foster review and the re-evaluation process that followed. I am very aware that the issue is taken seriously in Japan.
Phil Wilson
Does the right hon. Lady agree with me that the answer is not to give the existing rolling stock a lick of paint, but to invest in the infrastructure? The rolling stock has been around since the 1970s, and the technology that we have brought on board through Hitachi is cutting-edge. The trains that it uses are comparable with the Javelin ones used in Kent, which are some of the best in the country. The kind of technology that Hitachi wants to bring on board is suitable for people in the north-east of England and elsewhere who would benefit from it.
Mrs Villiers
I can assure the hon. Gentleman that the respective merits of the different options will be carefully and rigorously considered before a decision is made. This entire debate will be a helpful contribution to the decision-making process.
The hon. Gentleman mentioned that the Secretary of State for Transport has met the president of Hitachi, as has the Secretary of State for Business, Innovation and Skills. I have discussed the project with the former Japanese Minister for Transport, and the Minister of State, Foreign and Commonwealth Office, my hon. Friend the Member for Taunton Deane (Mr Browne), discussed the matter on a visit to Japan. We are taking the concerns of the Japanese Government on board in discussions on the process. Agility’s proposals are due shortly, and they are likely to include plans to standardise the design of the new trains, as was recently reported in the railway press. I am also advised that Agility expects to offer a significant cost-saving, while still meeting the specification that it was originally asked to meet. We will then be able to complete our assessment of both the IEP and the credible alternatives on an equal footing.
In conclusion, I would like to assure the hon. Gentleman that the Government will take into account the representations that we have received from him today, and the representations in the report that he has submitted to us, along with those that he and colleagues have made in the past. The decision on the future of the IEP will be made on the basis of the fullest possible evaluation of all the relevant matters. I am, of course, well aware that the recent period of uncertainty has been a cause for concern to those with an interest in the project, such as the hon. Gentleman and his constituents, and the Government really appreciate the patience shown by all concerned, not least Agility Trains. However, there is a complex interaction between the IEP and other key programmes under review as part of the comprehensive spending review. In light of that inescapable fact, it seemed impossible to make a sensible and objective decision on the IEP in isolation from the conclusions that we have to reach on those other interdependent projects, and from the overall decisions on the resources available for transport infrastructure.
Although the stage that we have reached means that I cannot give the hon. Gentleman all the answers on the programme, as he has kindly acknowledged, the Government are anxious to resolve the matter, and we will convey the decision to the House as soon as we can, as part of the spending review process in October. I thank the hon. Gentleman again for his contribution, and I look forward to continuing discussions with him on the subject. As I say, we will report to the House as soon as is practical regarding this decision, which is crucial not just for the north-east but for the future of the railway network in this country.