Transport Secretary: East Coast Franchise
(Limited Text - Ministerial Extracts only)
Read Full debate16:00 - The House divided: - Ayes: 271 / Noes: 304 - Question accordingly negatived.
The Secretary of State for Transport (Chris Grayling)
What a lot of incoherence from the Labour party and the hon. Member for Middlesbrough (Andy McDonald)! Who does the hon. Gentleman think runs the railway today except rail professionals? It is a nonsense.
What we also have seen today is a classic example of the definition of the word “hypocrisy”. This morning, the Welsh Labour Government announced their plans for what will be a public-private partnership to develop a new metro service on the Welsh valley lines. This afternoon, the Labour party at Westminster is trying to censure me for announcing a public-private partnership to improve services on the east coast main line. That says a great deal about what the Labour party has become.
Several hon. Members rose—
Chris Grayling
I will give way in a moment; let me make a bit of progress first.
I am not going to go through, line by line, the process that I have been undertaking in the past few months to reach what I believe is the right position for taxpayers, passengers and employees, but I have been struck by how little Labour Members understand about the way in which such a process must be managed, and how little they appear to understand the financial structure of franchising, rail laws, or the fact that the Government have to operate within the legalities of contracts and other laws.
I believe that, when confronting a failing franchise, the Government have three duties. The first is to ensure that any transition to a new arrangement is smooth and trouble-free for passengers. That was why we engaged an operator of last resort team in the autumn, meaning that, if necessary, they would have plenty of time to plan a smooth takeover. The team registered the name and prepared the website so that they would be ready if this situation arose. That is good practice.
The second of the duties is to ensure that the failing company fulfils its contract with the Government. If I had moved to make this decision months ago, the operator of last resort would not have not been ready and, moreover, I would have left taxpayers short-changed—they would have been given back less money than they should have been. When this contract ends, the taxpayer will have recovered all the money that it is possible to recover under the terms of the contract. That is a key duty of the Government in such a situation.
The Government’s third duty is to act according to due process, to be seen to assess all options properly, and to ensure that they have proper legal protection against any challenge to the decisions that I make. In the last few months, the Department has ensured that all those duties have been fulfilled, and I am grateful to all the members of the team who helped me to make that happen.
Mr Stephen Hepburn (Jarrow) (Lab)
The Secretary of State mentioned the Welsh railways, but the motion is not about the Welsh railways; it is about the east coast main line, which has gone bust three times in less than 10 years. The Government are still obsessed with financing the private sector through taxpayers and railway users, whose fares have gone up by more than 32%.
Chris Grayling
I will tell the hon. Gentleman what the motion is about: Labour Members saying one thing in one place and doing something else in another. Why should we take them seriously when they do that?
Alec Shelbrooke (Elmet and Rothwell) (Con)
Is there not a much bigger problem with the Labour party’s policy of nationalisation? Labour Members are trying to keep us in the single market, but the state aid rules within the single market mean that we cannot nationalise.
Chris Grayling
That is absolutely true. The irony is—I shall say more about this later—that it is the rail unions that have been campaigning against the same European laws that the Labour party wants to keep. This is another example of Labour’s nonsensical position.
Sir Greg Knight (East Yorkshire) (Con)
Will my right hon. Friend amplify something that he hinted at earlier? Will he confirm that he sees the Government as an interim operator of last resort and that this is not a permanent renationalisation?
Chris Grayling
I do not intend that the arrangement will be permanent. What I am saying—I have said this all along—is that when we move ahead with the full future shape of the LNER, we will not do everything in exactly the same way. What has been done on this railway in the past has not worked, and I do not intend to do it again. We will do things differently. We will consider giving the staff a stake in the business, and we will look at a different kind of investment from the private sector. However, as I shall make clear, I believe—the Welsh Government clearly believe—that a partnership between the public sector and the private sector is beneficial to the country, and not something to be cast aside as an evil and sinister attempt to do down passengers.
Chris Grayling
I will give way once more, and then I will make some progress.
Ian Mearns
I am very interested by the comments that are coming from behind the Secretary of State. It is clear that he is in favour of state ownership of UK railways; the only problem is that it is German, Italian and French state ownership.
Chris Grayling
It appears that the Welsh Government—the Welsh Labour Government—take the same view, because they have just awarded the contract for the Wales & Borders franchise to a French state business in partnership with a Spanish-owned private business. Again, the Labour party says one thing in one place and does something else in another.
What we have heard from Labour in the last few months has been a litany of misinformation, misunderstanding and inaccuracy. Let us take the bail-out point. Labour Members claim that there has been a £2 billion bail-out. That is just plain nonsense. It is wholly inaccurate to claim that there has been a bail-out now, when the railway will continue to make a healthy profit for the taxpayer. It would equally be inaccurate to claim that Labour had bailed out National Express when it did not push through nearly £1.5 billion of future premium payments after 2009. The railway carried on making a profit then, and it will carry on making a profit now.
Andy McDonald
Had the franchise run its full term, would the Secretary of State have expected Virgin Trains East Coast to pay the full £3.3 billion in premiums?
Chris Grayling
Any franchise that runs its full term is expected to pay the full premiums, but when National Express went under and there was a further £1.5 billion of premiums to pay, that money continued to be paid by the new operator, in the same way that the premiums that we are expecting will continue to be paid by the operator in this instance. This is my point: the hon. Gentleman does not understand how the finances of the railways work, and that is why the Labour party is so unfit to be in opposition, let alone to govern.
Chris Grayling
I will give way first to the hon. Member for Easington (Grahame Morris) and later to the Chairman of the Transport Committee.
Grahame Morris
I am grateful to the Secretary of State. I hope that he will clear up that point about the last Labour Government and National Express. As a member of the Transport Committee, I heard a former Transport Secretary, Lord Adonis, explain that sanctions had been applied and that that particular operator was not permitted to bid for other franchises, which was a significant sanction.
Chris Grayling
If I am not mistaken, Lord Adonis actually accepted before the Select Committee that that did not happen. He thought that standing up in Parliament and saying that there would be a ban meant that there actually was one. I assure the hon. Gentleman that my Department looked very carefully at this and no evidence of any ban has been found. Moreover, a report from the National Audit Office stated that it had found no such evidence.
Huw Merriman
I was at the same Select Committee sitting. Of course, in the year following those events, the Labour party left office. What did happen at the time was that the then Secretary of State said that National Express would be stripped of other franchises, but of course that did not occur—I dare say that that could not happen legally—and the two franchises remained the same.
Chris Grayling
My hon. Friend is right. It is all very well Labour Members posturing, but we do have to operate within the law of the land, which is a fact that they sometimes miss.
Chris Grayling
I will take two more brief interventions, but then I must make some progress.
Lilian Greenwood
I want to deal with the loss of premium payments. According to the Secretary of State’s own “Short-term Intercity East Coast train operator 2018 options report”,
“the business revenues are estimated to reach around £2bn over the period of interim operation and the forecast income or premium for taxpayers is estimated at around a quarter of a billion pounds.”
That is about £420 million less than had been anticipated under the VTEC contract. Who will fund that black hole in the Government’s finances? Will it be taxpayers or will it be passengers? Will the Secretary of State have to cut other departmental budget lines, or has the Chancellor agreed to bail him out?
Chris Grayling
I am grateful to the hon. Lady for confirming that the talk of a £2 billion bail-out that we keep hearing from Labour is absolute nonsense. The reality is that we will drive this business as hard as we can to keep the revenues as high as we can. But if this railway were going to deliver as much money as was forecast, none of this would have happened in the first place.
Julian Knight
I thank my right hon. Friend for giving way; he is being most generous. He is forensically taking apart the Opposition’s case. Was he struck, as I was, by the fact that the hon. Member for Middlesbrough (Andy McDonald) did not even mention the cost of renationalisation? Across the board, the renationalisation of the utilities and the railways would cost more than £170 billion, and that is money that we simply cannot afford to spend.
Chris Grayling
My hon. Friend makes a good point. The Opposition never cost in their renationalisation plans the value of the trains that are currently privately owned, for example. That amount would be billions and billions of pounds, unless they are planning to nationalise the railways but have no trains to run on them, which is also a possibility.
Several hon. Members rose—
Chris Grayling
I am going to make some progress. I will want to talk about a couple of other issues, for the benefit of the House, but first I want to be clear about what the debate is all about.
The Labour party, in its guise here today, unreservedly hates the private sector. Other parts of the party do not, however. Even Lord Adonis, who has been attacking me for months, said yesterday that he thought that the franchising system was working well. I do not necessarily agree with him on that. I think that some serious changes are going to be needed, as I have said in the House before, but the solution is not to go back to where the French are today. President Macron is trying to move things away from the model that the Labour party is advocating, which would be disastrous for this country. Labour’s vision for the future of transport in our country is precisely the opposite of President Macron’s. When a country has a system that is struggling, losing money and closing routes, Labour’s vision is not the way for the future.
Several hon. Members rose—
Chris Grayling
I am not going to give way at the moment.
I will take no lessons from a party that says that it wants to dismantle capitalism and create a socialist society that looks fondly towards the disaster that has been Venezuela. Madam Deputy Speaker, did you hear the shadow Chancellor talking at the weekend about his vision for a socialist Britain? This is a man who does not even believe in private property. That would be disastrous for this country, and we must stand up very firmly against an ideology that would damage this country—[Interruption] Opposition Members talk about where investment comes from, but they do not understand that if the railway is in the public sector, that means it has to compete for precious capital day in, day out, and year in, year out, with other parts of the public sector—the health service and the education system. The reason why right now we have knackered old trains in the north of England—the Pacer trains that were no more than bus bodies bolted on to train wheels in the days of British Rail—is that British Rail, in the public sector, did not get the capital to invest properly, and that would happen all over again.
I am going to keep my remarks brief, because many Members want to speak. However, I do want to say a quick word about this week’s timetable issues on the railways, since the shadow Secretary of State raised them and they are of great concern to Members.
What we have seen in the last few days has not been good enough. No one should underestimate the logistical challenge of introducing a timetable change. The changes have been made for a very good reason: they mean a big expansion of services across the country. A timetable change of such a scale involves reorganising staff rotas, training staff for new routes, and reorganising how we deploy our trains. It needed months of preparation, and I am afraid that a number of things went wrong, but most particularly the fact that for the second time in six months, Network Rail was far too late in finalising planned timetable changes and left the rest of the industry struggling to catch up. I am not happy with that at all and I have told the leadership of Network Rail that it cannot happen again. But it is perhaps an uncomfortable truth for Labour Members, who keep talking about current problems as an excuse for nationalisation, that the problems that have arisen in the last few days are, to a significant extent, the result of failings in the nationalised part of the rail industry.
I know that many passengers have had disrupted journeys; that is not good enough. I am sorry that that was the case, and everyone in my Department and people elsewhere are working hard to get the problem sorted out. But this has been a major teething problem in what will be a step forward for the railways. Even with the unwanted cancellations, at the start of this week far more services were running than before the timetable change happened.
I know that some people have experienced change that they are not happy with. We cannot deliver everything for everyone, but this is going to mean better journeys for thousands of people up and down the country.
Mr Kevan Jones (North Durham) (Lab)
The right hon. Gentleman blames Network Rail for these problems and calls it a nationalised part of the railways, but he must remember that he is the Secretary of State. One of the main problems was the lack of consultation with the wider travelling public, or for that matter with many local Members of Parliament or local authorities.
Chris Grayling
There is a certain irony in Labour Members keeping on saying that they do not think I am competent and they do not think that the Department is competent, yet saying that they want to take a greater role in running a nationalised railway. That does not add up—it is a great contradiction—and the idea that they would be any better at it is for the birds.
The issue has arisen because of late delivery of the finalised timetable. That has created huge logistical problems, and two things have made them worse in the north. One is the fact that the electrification project on the Bolton line has gone wrong, which needs to be learned from very carefully indeed—[Interruption.] I do not electrify the railways personally. Secondly, there is the behaviour of the unions, which are currently, in the midst of a difficult period, going forward with work to rule in a way that is deeply regrettable.
Several hon. Members rose—
Chris Grayling
I will give way, but then I shall wind up my remarks so that others have a chance to speak.
Stephen McPartland (Stevenage) (Con)
I have been experiencing some of these teething problems due to the new timetable in Stevenage. There continue to be issues, but we are looking forward to more seats, more services and more destinations. I was on a train today from Stevenage. I had to get off at King’s Cross, but it went through to Gatwick and then on to Brighton, so we are excited about the prospects.
We are very proud to have the east coast main line stopping at Stevenage. We would like more services, but we cannot forget the passengers. They do not care whether ownership is private, mutual or public—they just want things to work. I am grateful that the Secretary of State has stepped in to try to make that happen.
Chris Grayling
That is the most important thing. It is why we are pushing forward with the integration of track and train to make the railway more reliable, and it is why we have a strategy to bring in digital technology to improve the performance of the railway. It is also why, for the first time in a long time, we are investing in significant extra capacity across the rail network.
We sat in opposition looking at things that needed to be done but just did not get done, but now we are in government, they are happening. Last week the fantastic new London Bridge station opened. In the summer, I will be in the midlands to open the new Kenilworth station. In July, I will be opening the expanded Liverpool Lime Street station. These are big and positive steps forward for the railway.
In total, over the next five years, we will be investing £20 billion on renewing the current infrastructure and another £9 billion on further enhancements, including the flagship trans-Pennine rail network. We are building HS2; we will shortly be opening Crossrail; we are just opening the Thameslink tunnels through central London; and we have done the Ordsall chord in Manchester. [Interruption.] The £2.9 billion trans-Pennine rail upgrade will begin in the spring of next year and make a massive difference to passengers.
The thing that passengers will probably notice the most, however—this is being funded by the private rather than the public sector—is all the new trains that are arriving. Every single train in the north of England is being rebuilt, starting from later this year, with all the Pacer trains going to the scrapyard, and every train in East Anglia. The new trains asked for by Opposition Members are arriving on the east coast main line later this year, and new trains are coming to the south-west, the midlands and the south. There will be new trains across the whole country because this Government are investing in our rail network. This Government want to give a better deal to passengers, and this Government are going to do what works. All we hear from Labour Members is ideology from a party that cannot quite work out what it is actually talking about, and I think we have one big job for this country: make sure they never get anywhere near government.
Several hon. Members rose—
Alan Brown
I agree, and I think that the Government are now looking at northern because it is yet another failing franchise—another sign that the current system is just not fit for purpose.
I go back to the problems with the southern franchise. The NAO report makes it clear that the Department for Transport’s responsibility was large, especially for access to the network and timetabling pressures. Such errors led to an additional £60 million being allocated from the Treasury, following a loss in revenue and other costs. Again, all that happened on this Transport Secretary’s watch.
Chris Grayling
I do not want to deflect attention in any way, but may I remind the hon. Gentleman that that franchise was not set up while I was Secretary of State?
Alan Brown
I am happy to accept that, but all the current problems are happening under the Secretary of State’s watch. He has refused to get involved in trying to resolve the disputes to move things forward. I accept the fact about when it was set up, but he could have been stronger in his leadership and his interventions instead of letting things rumble on.
Another issue that I have with the Secretary of State’s overall competence is his dogmatic refusal to devolve Network Rail to Scotland. The organisation is clearly too big, and it has a bad reputation for delays and overspend, so why would he not want to take the opportunity to devolve it, allowing the Scottish Government to take full responsibility? It has been estimated that a unified management structure could save up to £100 million a year, and that alone should appeal to a Tory Secretary of State, so I just do not understand his dogmatic refusal to engage.
Then there is his lack of engagement with the Scottish Government about the funding for control period 6 in Scotland. The allocation is way less than his regulator recommended for track maintenance and growth in Scotland’s railways. Why is he being so obstinate in refusing to meet the Scottish Government or to consider what might be a fair funding settlement? We also had the recent railcard fiasco. The autumn Budget included the announcement of a discounted railcard for 26 to 30-year-olds, except the Treasury did not put any money into the scheme. In answer to a written question, I was told that the rail industry would pay for it itself, but that was done without discussions with the industry so, lo and behold, the scheme is in chaos. Who would have thought it? Again, that happened under this Secretary of State’s watch.
The Transport Secretary’s slash-and-burn attitude to rail electrification projects and the short-sighted selection of hybrid engines will lead to continued diesel pollution. He has also so far refused to fund or consider meaningful upgrades to the west coast main line north of Crewe. The way that high-speed rail will be implemented means that journeys between Scotland and Crewe will take longer on high-speed trains than they take currently with Virgin Trains, so we need further investment north of Crewe.
I will deviate from rail slightly before I finish. The Transport Secretary’s incompetence is summed up by his proclamations that there will be no border checks post Brexit. The suggestion is that lorries will not be stopped—just like on the US-Canada border—but that just shows that he does not have a grasp of his brief. That is why I am more than happy to support the motion.
The Minister of State, Department for Transport (Joseph Johnson)
As we have heard from right hon. and hon. Members, the railways always stimulate passionate debate, even if some of the arguments made by Labour Members do not seem to have moved on much since the 1970s.
Leaving aside Labour’s unwarranted, ad hominem, vindictive attacks on the Secretary of State, which only serve to underline how thin its substantive arguments are, it would have us believe that our future lies in returning to the bad old days of British Rail. However, scores of Conservative Members have used this debate to restate the merits of what has been achieved since privatisation, and they are entirely right to recall its considerable successes.
As my hon. Friends the Members for Spelthorne (Kwasi Kwarteng) and for Milton Keynes South (Iain Stewart) made clear, privatisation has transformed the railway. Passenger numbers have doubled, with 1.72 billion journeys in 2016-17. Passenger satisfaction has increased—ours has the second-highest satisfaction levels of any railway in Europe—and we have unprecedented levels of safety, meaning that the British railway is one of the safest in Europe. The public and private sector, working together, have responded to demand by delivering more services to more stations across a busier network. Some 71 more stations are open today than in 1994-95, and more than 7.3 million passengers services were planned on the Great Britain rail network in 2016-17, which represents an increase of 29% from 1997-98.
Paula Sherriff
The Minister seems to be referring to some utopian paradise with his talk of all the great things about the current rail system. Has he looked at Twitter this week and seen the complaints of many thousands of people, including many of my constituents, who are experiencing a living hell just commuting to work and college?
Joseph Johnson
We are of course dealing with the challenges of managing a busy, successful and growing network. The hon. Lady will acknowledge that we have just introduced one of the biggest—if not the biggest—timetable changes in the history of the railways to reflect the surge in demand for rail services. We recognise that there are problems, of course, and we are focusing on them so that we minimise disruption, but we should acknowledge that we are dealing with the challenges of success, rather than failure.
Let us not forget about freight either—it is one of the great success stories of privatisation. The private rail freight operators that took over from British Rail in the 1990s brought a new spirit of commercial enterprise and customer focus, and an innovative approach, to operations. That transformed a sector that had been in steady decline into one that, over 20 years, has doubled its share of the land-based freight market.
Privatisation has driven innovation, new private investment and customer service excellence, drawing in more than £4 billion of private investment in our railways since 2010 to deliver faster, more convenient and more comfortable journeys. Thanks to private investment, 7,000 new carriages are to be introduced on the rail network between now and 2021.
Lilian Greenwood
By talking about freight, the Minister is avoiding the main subject of the debate. He will know, however, that the rail freight sector is in some difficulty following the loss of important business.
Virgin Trains has identified one reason for its underperformance as people switching from rail to road due to rising rail fares and falling petrol prices. Given the Government’s supposed commitment to tackling air quality and climate change and to a modal shift from road to rail, why did he not anticipate that and do something about it?
Joseph Johnson
The hon. Lady mentions climate change, which is of course relevant to freight, as one reason for the freight sector’s difficulties in recent years has been the withdrawal of coal from use in power stations and the declining coal tonnage in freight. And, of course, the Government are committed to our climate change targets, and we are on track with our various carbon budgets.
I will turn now to the main subject of the debate: last week’s decision on the east coast. Our decision ensures that the taxpayer will recover all the money possible under the terms of the contract, and Virgin and Stagecoach have lost nearly £200 million in the process.
Throughout all this we need to remember that, fundamentally, the Intercity East Coast rail operation, as a train service business, continues to be a successful enterprise that returns good value to taxpayers now and will do so in the future. VTEC could not meet the agreed costs of its contract with the Department but, as an operating business, Intercity East Coast services are in good shape, and commercial revenues more than cover the direct costs of the train business. In fact, VTEC paid back more money to the taxpayer than when the line was in public sector ownership.
Alex Sobel
Does the Minister see in any merit at all in the public sector running of the east coast line between 2009 and 2015?
Joseph Johnson
We are putting together the new east coast partnership, which will constitute a new approach to how we run the railways. It will bring together the best of the public sector and the best of the private sector, ending the blame game that has seen train companies blame the track operator and vice versa.
Let us not forget that, as a passenger service, this was a well-run railway. The dedication of the staff responsible for the delivery of railway services has maintained high levels of passenger satisfaction—more than nine out of 10 passengers are happy with their journeys.
Opposition Members have suggested that we have nationalised the railway. That is, of course, not the case; rather, this is a temporary return to public control. Indeed, that was envisaged in the original design of privatisation in the early 1990s. The use of the operator of last resort—our public sector operator—is an integral part of the franchising system, not an alternative to it. It is used on a routine basis when we negotiate with private companies to provide a genuine alternative in negotiations, ensuring that we secure real benefits for passengers and taxpayers, and keep people moving. They are given a better deal because they know that the Government have this option in their back pocket.
As was emphasised in the 2013 Brown review, passengers remain protected through the Department’s ability to handle default with an operator of last resort on hand to take over. In this situation, the OLR will do what it is supposed to do: work with the Department on the next competition for a commercial train operator. It will help us to shape the new partnership railway on the east coast, preparing the ground for the line to be transformed into a public-private partnership that will deliver the best of both worlds.
Alec Shelbrooke
The hon. Member for York Central (Rachael Maskell) commented on the French nationalised railways. Does my hon. Friend agree that they are in terrible straits and that the President has recognised that the present system cannot continue because it is haemorrhaging billions of euros every year?
Joseph Johnson
Indeed. Advocates of the full renationalisation of our railways should heed what President Macron is saying about the sustainability of the French model. It is a warning indeed.
The east coast provides an opportunity for the first of a new generation of long-term regional partnerships, bringing together the operation of track and train under a single leader and a unified brand and delivering more effectively for rail users.
Joseph Johnson
Not at the moment.
That brand is the London and North Eastern Railway, LNER. This will evolve into a partnership between the public sector and a private partner, procured through a competitive process.
Of course, we are always seeking to improve the way in which we deliver. We continually refine the franchise model and monitor the performance of all franchises closely. We know that passengers have had enough of the blame game between train operators and Network Rail. We have also improved bid assessments since 2014 by introducing a new process to ensure that bids are more financially robust, such as when there is a lower level of growth in passenger numbers than was anticipated. We have developed new approaches to sharing risk with train operators, which means that they do not take on risks that they are not able to control, including impacts due to wider economic changes. Let me be clear: this means that the Government will continue to run a system that requires train operators to face financial penalties if they do not meet their commitments and ensures that we get the best deal for passengers and taxpayers.
Some Members have raised concerns about other franchises. I can reassure the House that the Department closely monitors the performance of our franchises, assessing a range of measures such as levels of bonding and parent company support, as well as assessing liquidity ratios to establish their health.
Colleagues have commented that this week has seen the launch of the biggest change to rail timetables in a generation. This timetable change will deliver improved passenger services across the country, including the delivery of substantial passenger benefits from the Thameslink programme and the great north rail project. By 2020 there will be over 2,000 extra services a week, with room for 40,000 extra passengers. There will be faster and more comfortable journeys, and new and direct services across the north and beyond.
This vindictive motion diminishes those Opposition Members who support it. I reinforce the Secretary of State’s message that we put passengers at the heart of the railway by making the best use of expertise from the public and private sectors, just as the Labour Government in Wales have done this morning.
Question put.
Rachel Reeves (Leeds West) (Lab)
On a point of order, Mr Deputy Speaker. At 10 minutes past 3 this afternoon, just after the Secretary of State for Transport left the Chamber, he issued a press release on plans to tackle poor performance at Northern Rail. I wonder whether the Secretary of State, who is almost back in his place, has indicated any intention to make a statement to the House allowing right hon. and hon. Members to question the Government on those plans, which are of huge significance to many of our constituents.