East Coast Main Line

Andy McDonald Excerpts

Wednesday 5th June 2013 Westminster Hall

[Andy McDonald (Middlesbrough) (Lab)]

It is a great privilege to serve under your chairmanship, Dr McCrea, in this vital debate on the future of the east coast main line. I am sure you will keep us on track and on time. Debates between hon. Members on nationalisation and democratic control of industry often stall due to an obstinate adherence to our political prejudices. All of us, on both sides of the House, have political prejudices about the relative merits of private and national ownership of basic industries. At the outset, I invite Members to disregard all preconceived theories and consider the future of the east coast main line objectively, as a technical problem with hard facts.

According to a written answer from the then Minister of State for Transport in 1996, the total gross proceeds to the taxpayer from selling off our rail infrastructure were £5.28 billion. Adjusted for inflation, that would be slightly more than £8 billion today—equivalent to only the past two years of taxpayer subsidy. According to the Office of Rail Regulation, the east coast main line is the only line in the country that comes close to paying for itself. Government subsidy makes up only 1% of East Coast’s income, against an industry average of 32%. The total cost to the Exchequer of the east coast main line was only £9 million in 2011-12; by comparison, Northern Rail, jointly owned by Serco and the Dutch Government, cost the taxpayer £685 million. Since the UK Government put the franchise under the publicly owned Directly Operated Railways, financial stability has been restored. The total premium, plus operating profit, amounted to £647.6 million in the four years to 31 March 2013; that is more in both cash and real terms than any previous franchise on the line, and all that money is available for reinvestment in our railway network.

East Coast has seen revenue growth of 9% over three full years, with 4.3% growth in 2012-13. The Minister of State described that growth to the Select Committee on Transport as a “plateau”. One wonders what word he would use to describe the Chancellor’s performance over the same period.

[The Minister of State, Department for Transport (Mr Simon Burns)]

Very good.

[Andy McDonald]

Thank you very much.

Journey numbers have grown from 18.1 million in 2009-10 to 19.1 million in 2012-13. An estimated £800 million will have been generated by the franchise for the taxpayer by April 2014. All that has resulted in a £40 million surplus: money that would otherwise be providing the profit to shareholders, if the line were privatised, and which East Coast has reinvested in its greatest asset, its staff. The fruits of that investment are clear to see: employee engagement is now at an all-time high of 71%—up from 66% in 2011 and 62% in 2010—which is the highest score of the eight train operators that is currently available. The average number of sick days has fallen from 14 to nine. Investors in People accreditation has risen from “standard” in 2009 to “silver” in 2012. Impressively, East Coast was the only train company to have achieved “Britain’s top employer” status in 2012 and 2013. Most importantly, on-board passenger-attributed accidents have reduced by 20% and staff accidents by 23% in the past year.

East Coast has also introduced a new timetable—the biggest change on the east coast main line in 20 years—seamlessly launched in May 2011. It introduced 117 extra services a week; a four-hour Flying Scotsman express from Edinburgh to London, calling only at Newcastle; and new direct services between London and Lincoln and Harrogate, and I hope that it will soon restore the link to Middlesbrough, the largest conurbation in the country without a direct link to the capital.

[Karl MᶜCartney (Lincoln) (Con)]

Does the hon. Gentleman not see that it is a shame that the seven daily services that Lincoln was promised ended up being only one service?

[Andy McDonald]

I am not sure that I have picked up on that seven turning into one, but I will mention the performance issues, so an answer may emerge as we proceed.

[Mr Stephen Hepburn (Jarrow) (Lab)]

My hon. Friend is making a persuasive case. The east coast main line has flourished since it came back into public ownership. This is an example of privatisation for privatisation’s sake. The only people who will benefit from it are that small number of Tory pals—those profiteers who will bung their pockets with taxpayers’ money.

[Andy McDonald]

I thank my hon. Friend. He makes a valid point, and I hope to return to it.

[Stephen Phillips (Sleaford and North Hykeham) (Con)]

rose—

[Andy McDonald]

If I can make some progress, I will come back to the hon. and learned Gentleman.

I have laid out reforms that it might be thought would cause disruption. In oral evidence to members of the Transport Committee on 24 April this year, the Minister made the following comment about punctuality on the east coast main line:

“If you look at the latest monthly figures for reliability and punctuality, it is the worst of the 19 franchises.”

Were that the whole story, it would be extremely concerning, but East Coast during the latter half of 2012 achieved the best train punctuality on the east coast franchise since records began in 1999. In recent months, some challenging external circumstances, such as the weather and overhead wire problems on the southern part of the route, affected performance, and East Coast is implementing a joint action plan with Network Rail to ensure that operational performance on the line returns to the record levels achieved in the autumn. The results the Minister cited are completely atypical. One has only to look at Network Rail’s moving annual average for punctuality, which puts the east coast main line in the top three of the seven long-distance franchises, to see that. The encouraging performance improvements in period 1 and to date in period 2 of this year are an early reflection of that collaboration with Network Rail. The latest available figures show that nine out of every 10 East Coast trains were on time, according to the industry’s public performance measure—up considerably on the previous quarter and up year on year.

[Alex Cunningham (Stockton North) (Lab)]

I am grateful to my hon. Friend and near neighbour on Teesside for giving way and I congratulate him on securing the debate. Does he have any idea why the new managers who were put in by the state to run the east coast main line have done so well? They are using the same people, the same equipment and the same everything else as the private company, National Express, which failed miserably, reneged on its contract and walked away.

[Andy McDonald]

I wish I could put my finger on it. My hon. Friend highlights a key issue, but it is useful to note that the way East Coast operates is a good comparator for the other services operating in this country.

The improvements are reflected in two key metrics. First, under public ownership East Coast achieved a record-breaking 92% overall customer satisfaction rating in the autumn 2012 national passenger survey conducted by the independent transport watchdog, Passenger Focus. That is the highest score on the franchise since the survey was launched in autumn 1999. It is 5% ahead of the score achieved in 2011 and three percentage points higher than the 89% average for all long-distance train operators. Indeed, in 2012, East Coast received the highest customer satisfaction score of any long-distance franchise operator.

Secondly, complaints stand at a rate of 150 per 100,000 journeys according to the Office of Rail Regulation’s latest available figures—down considerably on the previous quarter and back to the level prior to the disruption from the end of last year. Although that figure is relatively high compared with those of other train operating companies, it is just one third of where it stood when the east coast main line was in private ownership in 2007-08. A higher-than-average complainant rate might be due, in part, to the nature of the line regardless of its ownership, but since it is the publicly owned and publicly operated London Overground that has the lowest rate, at just two complaints per 100,000 journeys, it is difficult to claim a direct relationship between public ownership and complaints.

In addition, perhaps because of the unprecedented investment in staff that I have mentioned, there has been a 78% reduction in threats to staff in the past year. The apparent contradiction between a rise in customer satisfaction and a relatively high complaint rate dissolves entirely when we look at the Office of Rail Regulation’s breakdown of the reasons behind the grievances. Complaints about train service performance are down, year on year, from 38% to 29%, but what are on the increase and make up more than a fifth of all complaints are criticisms of the quality of the trains themselves. That comes directly from the fact that the rolling stock, which East Coast inherited from National Express, is eight years older than the industry average, at 27 years as opposed to 19.

That East Coast has achieved better customer satisfaction than any of its long-distance rivals, while running the oldest rolling stock of any franchise bar Merseyrail Electrics, is a testament to the workers and the management, and that the trains are still running at all after 30 years or more of continuous use is a testament to the brilliance of the engineers of British Rail Engineering Ltd who designed them and the factory workers of the north of England who built them.

Some elements of on-train comfort have also seen a marked increase. Of particular interest to certain hon. Members will be the new first-class complimentary at-seat food and drinks service, which has reversed historical losses of £20 million per annum and which contributed to a 21% rise in the number of first-class journeys in 2011-12, compared with the preceding 12 months. East Coast now serves a million meals per annum, which is a tenfold increase on the previous service, and its first class has certainly looked very nice on the occasions when I have walked through it.

[Sheila Gilmore (Edinburgh East) (Lab)]

I am very pleased that my hon. Friend succeeded in securing this debate. The first-class service, which, as MPs, we do not of course use, is important because of the environment. For many business travellers, it can make a considerable difference to their choice between flying—certainly from Scotland—and travelling by train. If we want to make the modal shift that we need for our environment, we need a service that will attract that kind of business traveller.

[Andy McDonald]

I agree entirely with my hon. Friend. The carbon footprint that we all imprint upon this planet is a vital issue, and she makes that point eloquently.

Ministers have admitted in the House of Commons that new investment in both rail infrastructure and new rolling stock on the east coast will come through taxpayer-funded support and not from franchisees. Funding for the 2014-19 upgrade of the east coast main line will be delivered through the Office of Rail Regulation approving a £240 million increase in the value of Network Rail’s regulatory access base. Regardless of whether the refranchising of the east coast main line goes ahead, the public, through Network Rail, will still be paying for the track. We will still be paying for the rolling stock, and we will still be paying for any upgrades, extensions or electrification that might ensue. None of the upgrades is dependent on whether the trains going along the track are painted Virgin red or Stagecoach orange. There is no deadline by which the franchise must take place, except, of course, the next election.

[Sir Alan Beith (Berwick-upon-Tweed) (LD)]

I congratulate the hon. Gentleman on bringing this matter forward. The Labour Government set a deadline for re-privatising the line, and even when they were unable to meet it, they continued to have it as their policy that the line should be re-privatised. Has the Labour party changed that policy?

[Andy McDonald]

I thank the right hon. Gentleman for his intervention. We are where we are, and we have to look at the matter on the facts of this specific franchise, examining it carefully to see whether it is working, right at this moment. Comments have been made in the context of reports that had only half the story, so when we have better information we should read it, consider it and judge accordingly, but I hear what the right hon. Gentleman says.

It is absurd for the Government to be pressing ahead with another franchise proposal when the previous franchise offering, of the west coast main line, was such a debacle and will have cost the taxpayer £100 million by the time it is resolved.

[Karl MᶜCartney]

I thank the hon. Gentleman for giving way to me once again, and I take this opportunity to congratulate him on securing the debate and on the fact that so many of his colleagues—from both sides of the House—who have an interest in the franchise are present. Thank you, Dr McCrea, for chairing—I forgot to say that the first time I intervened.

The Labour Government before 2010—in fact, before 2005—acted perhaps with undue haste, in desperately getting back into the private sector the southern franchise that had been taken off Connex. They made many mistakes at that time. Does the hon. Gentleman not feel that this Government should be credited with ensuring that such mistakes are not made in re-awarding this franchise to the private sector?

[Andy McDonald]

I am grateful to the hon. Gentleman for highlighting the weaknesses of the entire structure of these private franchises. He does so eloquently.

A serious overhaul of the franchise process is necessary. The Minister may well claim that, following the Brown review, a new process is indeed in place. In that case, one has to wonder why existing private sector franchises, which would be the ideal testing ground for the process, are instead receiving extensions of up to 50 months. The Government’s haste to extricate themselves from running trains is all the more baffling when more than half the rail franchises in Britain are to some extent state-controlled already; it is just not the British state that is in control.

[Ian Murray (Edinburgh South) (Lab)]

Will my hon. Friend give way?

[Andy McDonald]

I will in a moment.

Putting aside East Coast and London Overground, there are 17 franchises in the UK, of which 10 are operated, to a greater or lesser extent, by the Governments of our European neighbours. Chiltern, CrossCountry and Wales & Borders franchises are operated by Arriva—a wholly owned subsidiary of Deutsche Bahn, the majority shareholder of which is the German Government. Greater Anglia is run by Abellio, the international arm of the Dutch Government’s rail operator Nederlandse Spoorwegen, which also runs Merseyrail Electrics and the aforementioned Northern franchise in partnership with Serco. The South Eastern, Southern and West Midlands franchises appear at first sight to be privately run and are operated by Govia—a joint venture between Go-Ahead Group and Keolis. Keolis, the largest private sector French transport group, is, however, majority owned by SNCF, the French state rail operator. Keolis also runs TransPennine Express, in collaboration with First Group. Are hon. Members, particularly those of a Eurosceptic bent, content that when they pay an extortionate sum for a ticket on Southern, South Eastern, TransPennine or West Midlands trains, their money is on the TGV to Monsieur Hollande? Why does this Government believe that other countries can run our rail services, but that Britain cannot?

The remaining seven franchises are hardly a model of laissez-faire, split as they are between three and a half private companies: Stagecoach, National Express, FirstGroup, and Virgin Trains, which is half-owned by its alleged competitor Stagecoach. New entrants cannot possibly afford to take on these mammoth projects and the risks that may accrue. The original 25 franchises offered in 1995 have shrunk to just 17 today, following mergers, making the barriers even higher.

The previous Conservative Government themselves recognised the barriers to new entrants when they banned British Rail from bidding for franchises in the wake of privatisation. The then Minister for Public Transport, now Baron Freeman, said:

“I am concerned that it would be very difficult to have a fair and equal competition if British Rail was a bidder.”—[Official Report, 26 July 1993; Vol. 229, c. 578W.]

The current debate is about not a free market versus a state monopoly, but whether a public asset, for which the taxpayer will remain liable, should be managed by the British Government, a foreign Government or one of a handful of private companies that are large enough to meet the criteria of the bid.

Such companies will always underestimate costs and overestimate revenue when they bid for contracts, because they know that, if they do not, their competitors will win the bid. They are looking to their next set of quarterly reports and their next shareholder annual general meeting; Governments are looking to the next century. The truth is that no Government can afford to let the rail network go to rack and ruin. The state will always have to intervene to protect that vital national asset and the lives of its citizens. As the saying goes, it is too big to fail.

Train operating companies know that, and they also know that if it all goes wrong, the taxpayer will be left holding the line. Christopher Garnett, the former chief executive of the train operator Great North Eastern Railway—the first franchise operators of the east coast main line—said during the failure of that company:

“The market will self-destruct as bidders bid to win on ever-tighter margins. When it goes wrong, it’s going to come right back to the Department for Transport.”

Since privatisation in 1996, both companies that have run inter-city services on the east coast have failed or walked away from the franchise mid-contract. Passengers will rightly be worried that history might repeat itself under a re-privatised service.

Many of those who are now Government Members once supported keeping the east coast main line in public hands. Before he held his current office, the Deputy Prime Minister said in 2009:

“Our railways should not be a plaything for private companies and we think giving it the stability of public ownership during the next franchise period would be much better”.

He added that

“it’s not an industry, it’s a public service. Our rail services are public services.”

If you will forgive the phrase, Dr McCrea, “I agree with Nick,” but as is ever the case nowadays, we are unsure whether the Deputy Prime Minister agrees with himself.

As many hon. Members whose constituents have lobbied against High Speed 2 know, railways do not affect just those whom the Government call “customers”. Stan Higgins, the chief executive of the North East of England Process Industry Cluster—the hon. Member for Redcar (Ian Swales) knows that confederation of the leading process businesses in our region well—told me the view of his members:

“We’re running railways for profit, as opposed to as a service to our industries and our communities.”

By the franchising process, the public are being disfranchised.

I want to quote the Conservative Secretary of State for Transport who moved the Second Reading of the Railways Bill that carved up and sold off British Rail. He said that that company had

“too little responsiveness to customers’ needs, whether passenger or freight; no real competition; and too little diversity and innovation…; an insufficiently sharp awareness on the part of employees that their success depends on satisfying the customer—indeed, on attracting more customers; and an instinctive tendency to ask for more taxpayers’ subsidy and to feel that public subsidy will always be there as a crutch whenever things look difficult.”—[Official Report, 2 February 1993; Vol. 218, c. 156.]

Those were the reasons for privatisation, and I will look at them one by one. East Coast has increased services in response to customer demand. It has successfully increased revenue in the face of competition from not only road transport, but domestic flights that are far cheaper than anything faced by British Rail. It has innovated with new services for first-class carriages and sold more than 1 million e-tickets. It has the highest rates of customer satisfaction of any long-distance franchise, and staff who are engaged with the company and with passengers. A million more journeys take place on East Coast now than when the franchise became public. Far from crying for subsidy, it makes the lowest demands on the public purse of any rail franchise.

Mr George Strauss, the Parliamentary Secretary to the Ministry of Transport at the time of nationalisation in 1946, said:

“I am sure that Parliament would not tolerate paying a permanent subsidy to a particular section of privately owned industry when, plainly, that industry as a whole, if properly organised, could be self-supporting.”—[Official Report, 18 December 1946; Vol. 431, c. 1975.]

The choice before us is between an unending subsidy to private interests and continued public ownership of a line that, in public hands, is 99% self-supporting. The question that I must ask the Government, and Members who oppose keeping the line in the hands of those who have managed it so well, is whether any evidence would get them to drop their prejudice that private is always better than public.

[Several hon. Members]

rose—

--- Later in debate ---

[Lilian Greenwood]

I last spoke to my colleague probably two weeks ago. Certainly, he has changed his mind.

[Andy McDonald]

Does my hon. Friend recognise that Lord Adonis made his remarks some years ago on the basis of a National Audit Office report that looked at only eight franchises? That report underestimated the 2011-12 subsidy necessary from the taxpayer to those eight franchises by £224 million. We cannot rely on those comments, which were made in good faith at that time on false information.

[Lilian Greenwood]

The noble Lord is not here to set out his position, but I am sure that we will hear from him in due course.