Passenger Railway Services (Public Ownership) Bill

Earl of Effingham Excerpts

2nd reading
Monday 7th October 2024 Lords Chamber

[The Earl of Effingham (Con)]

My Lords, a recent KPMG survey of more than 1,300 CEOs globally in 11 key markets and industry sectors revealed that nearly 80% of those CEOs believe that hybrid employees will return to full-time office work by 2027. The survey covered companies with annual revenues of over £375 million, with one-third exceeding £7.5 billion. These are companies with large workforces. Amazon’s recent policy decision is a good example of the return to the office. The momentum towards in-office work will only increase; that is just one reason among many why it is essential that we have a rail system that works for everyone, regardless of where they live or what they do. A thriving railway is a crucial tool for driving prosperity across Britain.

It was 31 years ago that the Railways Act enabled the private sector to run franchised passenger railway services. For this Bill now to make provision for those services to be provided by public sector companies represents seismic change and will need line-by-line parliamentary scrutiny—not least in this House, where there are so many experts in the field and we can deliver a platform for passengers from which growth and success can flourish with a gold-standard railway network.

It is not in dispute that there is urgent need for rail reform. The current franchising model is not working. Passenger services are not at the standard they need to be and, post pandemic, the sector is a burden to the taxpayer. The country wants change and we have cross-party support, but that support is for the right change. Nationalising train operating companies is not necessarily the correct answer; it throws up as many questions as it does answers.

I shall first address service reliability and availability. From April 2023 to March 2024, there were 7.6 million delay compensation claims closed by the train operators —a 30% year-on-year increase. What benchmark will the Government set themselves for 2025-26, when the first franchises will come into the public sector, and what year-on-year improvements in compensation claim reduction will the Government commit to for the first five years of operation? Between April 2024 and June 2024, only 70% of recorded station stops in Great Britain were arrived at on time. This compares with circa 92% in Switzerland and 88% in France. So what benchmark will the Government set themselves for 2025-26 and the ensuing years?

Just recently, the European Commission confirmed in a study of its own the benefits of competition in passenger rail. Prior to the pandemic, the railways ran more than 21,000 services on an average day, which represented a 30% increase to that before privatisation. By what year will the Government commit to providing that same level of service to passengers?

Moving on to infrastructure investment and cost benefits to both taxpayers and passengers, which are essential to the success of this project, government investment in the sector has quadrupled since privatisation and in recent years we were successful in winning around £1 billion a year of investment from private funding. To provide a truly great service for passengers, the sector must have continuous investment, so I ask the Minister to confirm what funding agreement she has negotiated with His Majesty’s Treasury to ensure that the money is there. How much has she agreed will actually be available? It would also be interesting to know why rolling stock companies are not being nationalised so that the Government could achieve vertical integration to increase efficiency, reduce costs and boost control, all of which will benefit the taxpayer.

Train operators were net contributors to the Exchequer from 2010 to 2018 but fell into deficit after 2018. The impact of Covid on the sector has been devastating and it now costs the taxpayer £2.6 billion to cover the day-to-day running of train operating companies, which contrasts markedly with the £373 million in day-to-day running costs in 2019 and 2020. If we assume that the move back to the office continues in line with the KPMG survey, we can hope that day-to-day running costs will decrease for the taxpayer in correlation with increased footfall on the train network, but, for clarity, that cost benefit reduction will not be due to this Bill.

The Government have said that the Bill will save the taxpayer millions of pounds so, under the proposal, the management fee and performance-based fee for private sector franchise train operators will disappear. However, unprofitable services are currently subsidised under the existing agreement; this will still be required under a public sector company. Not only that but the subsidy may well increase and there could be costs with franchise extensions and associated dealings. Management still has to run the railways and will be receiving a salary and, instead of a performance-related bonus, perhaps a government-backed final salary pension scheme, which could end up costing the taxpayer more than the performance-related fees. All these elements combined could be why the new Bill required a money resolution.

Rail partners, which obviously have a vested interest, will nevertheless be in possession of a mass of information. How does the Minister answer their point that full nationalisation is a political and not a practical solution which will increase costs over time? Just to reassure the many parties, including noble Lords in this House, who have concerns about the costs for the taxpayer, will the Minister explain, in rough numbers, where the cost savings will come from and what the net benefit to the taxpayer is on a yearly basis versus the current set-up, while discounting the improvement in the balance sheet from the lessening impact of Covid working-from-home policies over time?

Next, I shall focus on risk management. The Government want to remove the privately owned train operating companies that have been working the network for 31 years. I apologise, as this might seem like a basic question, but who exactly is going to replace them? Will the Government be able to find more skilled and knowledgeable staff than those already working in the sector? Will they appoint new chief executives, chief financial officers and boards of directors who will be responsible for the running of the companies? If yes, will the Minister provide a timetable for when the recruitment search will begin for the relevant key staff? How will those key staff be incentivised to control costs and grow the rail network for the benefit of passengers?

The Financial Times has also reported concerns from rail industry bosses that the scale and complexity of nationalising the remaining franchises could put pressure on the Department for Transport operator of last resort. How will the Government ensure that DOHL is sufficiently resourced to deal with this? What hiring plans have been made and what budget has been secured for the new headcount?

Finally, I come to accountability and governance. For these new public sector companies to be successful, they will need to be accountable to shareholders—the shareholders being the taxpayer. What performance, financial management and innovation metrics have been agreed by the Minister to ensure that both passengers and taxpayers are receiving value for money and will not be negatively impacted by spiralling costs in the sector due to a lack of experience, a lack of expertise or both?

In the same way that powers will be given to the OBR to make judgments on any major taxation or spending announcements, will the Minister commit to giving the same powers to the Office of Rail and Road to conduct an impact assessment for the Bill to confirm that it makes economic and operational sense and will not be to the detriment of either passengers or the taxpayer? Will the ORR also be given the authority to assess all aspects of the performance of public sector companies awarded public service contracts?

We know the Government intend to establish a powerful new watchdog: the passenger standards authority. Can the Minister explain why it is not being delivered as a part of the Bill? In the past, previous Governments have introduced temporary legislation with the intention of bringing forward additional reforms, but the wider reforms have not materialised. Will the Government take this precious chance to deliver a comprehensive package of railway reform rather than focusing solely on this interim Bill?

We have an opportunity to make our rail system the envy of Europe so please let us do it the right way, which will bear fruit for generations to come.