Rail Ombudsman

1st reading: House of Commons
Tuesday 20th December 2016 Commons Chamber

Motion for leave to bring in a Bill (Standing Order No. 23)

[Mr Speaker]

We now come to the ten-minute rule motion. I say that with a degree of interest, because it means that the hon. Gentleman has up to 10 minutes only in which to articulate his case. I feel sure he will do so with an eloquence worthy of Demosthenes.

13:08

[Tim Loughton (East Worthing and Shoreham) (Con)]

I beg to move,

That leave be given to bring in a Bill to establish a Rail Ombudsman to scrutinise performance and complaints and represent the interests of passengers; to make provision for the Ombudsman to levy fines on train operating companies for late running and cancellation of trains and about the use of such fines; and for connected purposes.

How on earth I will be able to do all that in 10 minutes, given the shambles of Govia Thameslink Railway, is a wonder. The GTR franchise, which covers Southern Rail, is not working. Notwithstanding the current problems with industrial action, incompetent management and Department for Transport failings, which have been aired all too frequently in this House, the system for pursuing complaints and achieving financial or other redress is simply not fit for purpose.

My Bill would apply to the whole UK rail network. While not intended as a silver bullet to resolve the problems of Southern, it would go some way to disincentivising complacency over consistent failure to operate a decent service when some form of normality returns to our rail service—oh for those happy days of some form of normality in the Southern region! The truth is that when things go wrong on the railways, train operating companies can actually benefit.

There are two types of compensation payments at present. The first is the so-called schedule 8 payment from Network Rail to the train operators, when something goes wrong with the infrastructure—points failures, for example, or the notorious signal box fire at Penge in Reggie Perrin’s day. It is designed to compensate train operators for the impact of poor performance on their revenue and helps to reduce the risk premium factored into franchise bids.

Extraordinarily, the train companies are not required to pass on the compensation they receive in this way to the passengers who actually suffer the inconvenience and loss. It has been estimated that some 60% of rail compensation comes in this form. The Social Market Foundation calculated last year that the train operators raised £107 million from Network Rail for delays, while passengers received just £26 million of that, meaning that the train-operating companies profited by some £81 million.

The second form of compensation is that directly paid out by the train operators to the passenger when they are liable for delays and cancellations caused by staffing problems, rolling stock breakdown and so forth. The problem is that it depends specifically on passengers lodging a claim, which can be very bureaucratic and is often rejected on technicalities. The take-up rate for claims is very low. While recent events on Southern have changed that a fair bit, it comes from a low base. In 2014, the Office of Rail and Road calculated that only 11% of passengers always or usually claim compensation. Subsequently, that has increased to around 35%, but it is still a minority. So passengers do not claim, and the train operators such as GTR benefit. On strike days, when salaries and energy costs are less, they are able to profiteer as well.

GTR’s turnover is around £1.3 billion, over £1 billion of which comes from the central Government to run the train service. Yet in an answer to a parliamentary question earlier this year, the then rail Minister stated that just £2 million has been levied against GTR in respect of cancellation and short formation performance benchmarks, while some £2.2 million was paid out to passengers under the passenger’s charter and delay repay compensation. That is a total of just 0.4% of turnover, which is hardly an incentive—and that is before netting off the payments to GTR from Network Rail. Added to that, all train operators have different schemes and methods of compensating, and there is no industry benchmark. That is hardly an incentive to run an efficient service. There must be a better way of doing it.

Given that 47 million passenger journeys were cancelled or significantly late last year, this is a big problem that affects many regular travellers—our constituents. We need a much more effective awareness programme, alerting frustrated passengers to what their rights actually are. There is certainly no sign of that from the train operators themselves. The current problem is that the passenger can like it or lump it. The complaints procedure largely relies on the good will of the train-operating company beyond the minimum delay repay obligations, if it accepts the application at all. As the consumer champion Which? has put it,

“The current complaint handling landscape in the rail sector is inadequate. There are major gaps in the provision of alternative dispute resolution…with no effective route for redress and escalation of complaints if a train company does not resolve a complaint. Transport Focus, which handles some complaints informally, has no ability to impose binding decisions, no power to resolve complaint appeals, and is not an appropriate body to deliver alternative dispute resolution. Which? believes the Government should establish a transport ombudsman”.

That is what I am proposing.

Frankly, it is extraordinary that there is currently no ombudsman system for rail complaints. That could and should have been introduced when the Consumer Rights Act 2015 was extended to rail companies, giving passengers the same legal protection they receive when paying for any other service or goods, improving their ability to obtain redress beyond the current delay thresholds and receiving that redress specifically in cash rather than travel vouchers.

What will my Bill do, Mr Speaker? I know you are desperate to know. First, it will overhaul the compensation scheme, creating a much tougher financial impact on train operating companies and a fairer and easier way of compensating passengers, with a more reliable reflection of the inconvenience and costs they have suffered. Every time a train is late beyond an agreed threshold, is cancelled altogether in advance or at short notice, or overruns a station, a penalty fine will be paid into a central pot independent of the train operator and before affected passengers have to claim. Passengers would then be able to claim directly from that pot, but in a much more centrified way.

Last week, I met a company that has devised the technology through which regular passengers can download an app, track arrival at stations, automatically lodge a compensation claim where appropriate and then get compensation paid directly into a bank account without any paperwork having to be lodged. The app goes live in January. By automating an unwieldy claims process, it will also reduce administration charges for the train operators. The Office of Rail and Road super-complaint response report gave a range of estimates for the manual processing of claims: between £1.80 and £39 per claim, which is extraordinary. I know that the Minister has promised automated refunds to a payment card, but that is still some years away and is fraught with verification problems, whereas this technology is available now.

Secondly, the penalty pot will be used to help fund a new beefed-up rail ombudsman, which I shall come on to in a few moments. Thirdly, any remaining funds will be used to offset fare rises, thereby giving a further payback to inconvenienced and hassled passengers. Although the new scheme is no silver bullet alone, it would recalibrate the balance of power back to aggrieved passengers, incentivise the train operator to stop running a shoddy service and instil a sense of urgency in operators to get problems sorted out.

The second part of my Bill will establish a new rail ombudsman with real teeth and proper statutory powers. This is based on practical proposals discussed with Ombudsman Services, which have now been endorsed by the consumer watchdog Which?. Yesterday, it said:

“The Government must introduce a new ombudsman that all train companies have to sign up to so that passenger complaints are properly heard and resolved.”

Which? supports my Bill.

The rail ombudsman would be based on the energy ombudsman model, which is already in operation and could be adapted for the rail sector to deal with both the train-operating companies and Network Rail, helping to clarify responsibility for passenger problems in any given instance. The introduction of a rail ombudsman would help level the playing field between passengers and rail operators by establishing a strong independent second tier of redress. A rail ombudsman would not only greatly enhance the level of redress available to passengers, but help to improve confidence in the rail sector—something that is currently sorely lacking in the Southern region in particular.

The rail ombudsman would take up and resolve individual complaints and direct compensation, while overseeing the operation and thresholds to the penalty pot that I have described. It would lead to the awarding of compensation based on realistic levels of actual loss suffered by passengers. Typically under Direct Repay 15, passengers can currently claim just 25% of the cost of single fares. Of course the Minister recently announced one-month compensation for long-suffering passengers, but a one-month refund on a season ticket does not go far when people have to pay to stay in London or for a taxi back late at night from Three Bridges to the Sussex coast when they find themselves stranded.

The ombudsman would collect and analyse data to identify frequent and common problems of individual operators and be able to direct them to make remedies or suffer forfeits. The rail ombudsman would identify longer-term problems within the sector as a whole, and work with the Government to recommend action to mitigate any impact before it causes further detriment to passengers.

As I said at the outset, these proposals alone do not represent an immediate solution to the mess that the GTR franchise is in at the moment. I believe, however, that they represent a practical way forward to change the dynamics within the rail industry when something goes wrong and our train-travelling constituents lose out first, last and most. Above all, I appreciate that most of our constituents are primarily concerned with being able to use a reliable rail service that gets them to work, school, college, hospital appointments and home again at roughly the times that they anticipated.

Compensation for an unreliable service is secondary. Our constituents may not be terribly interested in apportioning blame for current problems; they just need a service that works when they need it to work. I do not think those two things are mutually exclusive, and I believe that the measures in my Bill are long overdue and will help to achieve both objectives. I commend it to the House.

Question put and agreed to.

Ordered,

That Tim Loughton, Sir Nicholas Soames, Sir Peter Bottomley, Ms Harriet Harman, Maria Caulfield, Nusrat Ghani, Peter Kyle, Huw Merriman, Chris Philp, Henry Smith, Caroline Ansell and Caroline Lucas present the Bill.

Tim Loughton accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 24 March 2017, and to be printed (Bill 117).