Passenger Railway Services (Public Ownership) Bill

Debate between Lord Hendy of Richmond Hill and Lord Lansley

Report stage
Wednesday 6th November 2024 Lords Chamber

[Lord Hendy of Richmond Hill (Lab)]

I thank noble Lords for their amendments in this group. In response to Amendment 3, from the noble Lord, Lord Lansley—and I thank him for our discussion a few days ago— I will highlight two important ways in which this Bill promotes competition.

First, there will continue to be huge opportunities for competition between businesses in the supply chain which publicly owned operators and Network Rail will continue to depend on. I was speaking this morning at the Railway Industry Association’s conference and it welcomed clarity about the Government’s intentions with enthusiasm, because it knows as well as we do that the railway, after six years of being promised reform, needs to understand what reform might look like in order for its businesses to prosper. Public ownership and our plans for GBR to provide long-term strategic direction for the whole railway will give greater clarity and certainty to businesses in the supply chain and so will support healthy competition.

Secondly, in relation to competition between train operators, the Bill preserves the existing arrangements for open-access operators. Open-access services are the only source of meaningful competition between operators on today’s railway, and this Bill makes no changes to the way in which open-access applications are treated by either Network Rail or the independent regulator, the Office of Rail and Road.

Having set out how the Government’s approach is consistent with a duty to promote competition, I also note for completeness, referring to the propositions of the noble Lord, Lord Lansley, that the Section 4 duty applies to the Secretary of State only when she is exercising certain functions under the 1993 Act. It does not apply to the exercise of her functions under Sections 23 to 31, which are the franchising functions that are amended by the Bill. As such, there can be no question of this Bill impairing the Secretary of State’s ability to comply with the Section 4 competition duty.

Turning to Amendment 17, tabled by the noble Lord, Lord Moylan, open-access operators are a valuable part of the system and will remain so following this short Bill. Looking ahead to the wider railways Bill, we see a continuing role for open-access services where they add value and capacity to the network. I will say more in a moment about how their interests will be protected. In the meantime, I reiterate that the current short Bill has no impact on open-access operators, the services they provide or the process by which they can secure rights to operate on the rail network. For this reason, the report required by this amendment would serve absolutely no purpose; the Bill plainly has no impact.

Requiring this report—not just once but every single year in perpetuity—would simply place an additional reporting burden on Network Rail and the Office of Rail and Road, and potentially also on open-access operators themselves if they were each required to provide information about their services to inform each report.

Finally in this group, Amendment 13 deals with freight. My noble friend Lord Berkeley is a staunch advocate of the rail freight sector and I hope that I can reassure him and the noble Lord, Lord Moylan, about the Government’s intentions. The Government hugely value the rail freight sector and recognise the importance of its contribution in reducing congestion on our roads and in helping our transport system move towards net zero.

I entirely agree that the Government’s plans for reform under the railways Bill must ensure that Great British Railways promotes growth in the freight sector and must provide suitable protections for freight operators. We will set out our detailed plans in the consultation I have already referred to as soon as we are able to.

In the meantime, I am very happy to reassure noble Lords on three fronts. First, our proposals for the railways Bill will include a statutory duty on Great British Railways. I have reflected carefully on the remarks of the noble Baroness, Lady Randerson, in Committee, and the remarks just made by my noble friend Lord Snape, and as a result I now confirm that this duty will be not merely to enable the growth of rail freight but to promote it. My noble friend Lord Snape referred to variable access charges. I very much agree that we would seek more of that in the future to encourage more freight traffic.

Secondly, the Secretary of State will set a specific freight growth target for Great British Railways. I cannot confirm today the specific detail of what that target will be, but we will set out our plans for that in due course.

Thirdly, I thank my noble friend Lord Berkeley in particular for his comments on the importance of a fair system for the allocation of access. As discussed with my noble friend last week, I have confirmed today that there will be consultation on the Government’s reform proposals, and that the consultation will set out the proposed role for the Office of Rail and Road in the access decision-making process. Any changes will then be set out in the railways Bill itself, so noble Lords will have ample chance to debate these matters before changes are implemented.

I also reassure noble Lords that our proposals for allocating capacity and granting access to the network will include safeguards to ensure that both freight and open-access operators continue to be treated fairly. As I have already said, I would be delighted to meet with my noble friend and other noble Lords with an interest once the consultation has been published, so that we can discuss the details and continue the very helpful conversations we have started here.

Turning to the specifics of the noble Lords’ Amendment 13, the statement required by this amendment would be very short and sweet. There is no need to wait six months after Royal Assent for me to provide this statement; I can give it to the noble Lords now. The Bill is narrow in scope. Its purpose is simply to allow the Government to transfer the operation of franchised passenger services to the public sector. It does not make any changes to the arrangements under which freight services operate. This means that the Bill will not, and cannot, have any adverse impacts on the freight sector or on freight growth.

I have clarified the impacts of the Bill on competition, open access and freight, I have confirmed that we will soon publish a consultation document setting out our proposals for the railways Bill, and I have reaffirmed that these proposals will consider appropriate protections for freight and open-access operators. In light of what I have said, I hope that noble Lords will agree that there is no need to pursue their amendments further today.

[Lord Lansley (Con)]

My Lords, I am very grateful to all noble Lords who have taken part in this short debate. It has raised a number of important issues, and I am grateful to the Minister for the clarity that he brought to the subject—partly from my own point of view, in understanding how the legislative provisions work, which is always helpful. I have to confess that I know much less about railways than the noble Lord, but I try to find out how legislation works, since that is part of our job, and what he said was very helpful.

What he had to say about there being no changes to the legislative provisions and the arrangements in relation to open access was important and I will come back to that in a minute.

I do not think there is any merit in pressing the amendment now, because when we come to look at the role of Great British Railways in the major Bill to follow, we will look at issues such as the one my noble friend raised—the relationship between Great British Railways and the control of train paths. That is exactly the problem that occurred in France, and I think my noble friend Lord Moylan also discussed the abuse of a dominant position. We will need to look at how that kind of scrutiny and competition can be sustained, notwithstanding the monopoly aspects of Great British Railways. However, in light of all those helpful points, I beg leave to withdraw Amendment 3.

--- Later in debate ---

[Lord Hendy of Richmond Hill (Lab)]

I thank the noble Lords, Lord Lansley and Lord Moylan, for their amendments in this group. I will speak first to Amendment 4. Following enactment of the Bill, there would be just two routes by which the Secretary of State could secure the operation of passenger services. The first option, and this is the option we plan to use, would be to make a direct award to a public sector company under the amended Section 30 of the Railways Act 1993 and in accordance with the Public Service Obligations in Transport Regulations 2023.

The second option, which is a very limited option, would be to use the power to continue an existing private sector franchise temporarily under new Section 30A. This power is deliberately limited only to circumstances where the Secretary of State is satisfied that a transfer to a public sector company is not reasonably practicable. This means the Government would expect to use it only as a last resort, for a short period, to avoid a transfer causing disruption to passengers or staff. Apart from this very limited power in new Section 30A, the Bill leaves no other route by which the Secretary of State could contract with a private sector operator to run either existing services or new ones. This is entirely consistent with the Government’s very clear policy in favour of public ownership of services that form part of the national railway network.

On the point from the noble Lord, Lord Lansley, about DfT OLR Holdings Ltd, I confirm that award to it is securing the provision. All services currently designated under Section 27 will be provided under Section 30 by a public sector operator as existing contracts expire. The noble Lord also asked about the Secretary of State’s power to secure the provision of new services through a public sector company if those services had never been provided under a franchise agreement. Regulation 21 of the Public Service Obligations in Transport Regulations 2023 allows the Secretary of State to vary the terms of a public service contract to include additional services, and so would provide the necessary statutory basis for her to secure the provision of new services from a public sector operator.

The noble Lord asked whether the Bill will leave an option for the Secretary of State to procure East West Rail services from a new private sector operator, and the simple answer is that it will not. The Government have no plans for long-term private sector operation of the new East West Rail services, which will commence operation next year, nor any other services that the Secretary of State is responsible for procuring.

There are—and, after this Bill, there will remain—two ways in which other parties might operate or secure the provision of services on the rail network. One possibility is that a third party might operate them as an open access operator, as is the case with Hull Trains, for example. Another possibility is that a mayoral or combined authority or other local authority might secure the operation of services either by running them itself or by procuring a third party to do so. As I will explain in relation to the next group of amendments, the Secretary of State can facilitate this by granting an exemption under Section 24 of the 1993 Act, which takes the relevant services out of the scope of the surrounding provisions of that Act.

I noted with interest that my noble friend Lord Liddle remarked about involvement of developers, for example. I echo his sentiment that there will be ways of getting private capital in, particularly through development, that have not really been explored so far.

I hope that my explanation reassures the noble Lord, Lord Lansley, that the Government have carefully considered the implications of the Bill and the options it will and will not leave open, and I hope he will feel able to withdraw this amendment.

Amendments 5 and 6 from the noble Lord, Lord Moylan, deal with competed concession contracts. As I set out to the noble Lord in Committee, these amendments would remove the opportunity to deliver the benefits of public ownership, which a clear majority of the public support and which was a specific commitment in the manifesto on which this Government were elected. For the following reasons, I cannot agree to the amendments.

First, a concession model would mean the taxpayer continuing to fund substantial profits for private sector operators. A concession model along the lines of Transport for London’s contracts would expose operators to more financial risk than today’s contracts, where government bears virtually all the financial risk. Under such a model, train operators would price their bids to generate even more profit than the £110 million to £150 million per annum that they can earn under the current contracts. Our plans for public ownership will eliminate those fees and profits entirely—in the Government’s view, continuing to line the pockets of private shareholders is not a good use of taxpayers’ money.

Secondly, TfL concessions are a relatively inflexible form of contract which is not well suited to the needs of the national railway network. For a concession contract, the procuring authority has to define the service levels and standards at the start of the procurement process, and those levels and standards then endure for the life- time of the contract. Changes to the service specification can be achieved only through costly negotiation and agreement with the operator which already holds the contract.

That is very different from the London bus market, for example, which we discussed in Committee, where the concession model is much more suitable because there is a large number of small individual contracts. For the London Overground, much of which is heavily constrained by the geography of the railway network and the other services that run on it, it might be satisfactory, but the whole of the national railway network requires greater flexibility to adapt to changing patterns of demand. Finally, and most importantly, a concession model would not resolve the fragmentation of the current system, nor would it deliver on the Government’s commitment that rail services should be run by and for the public.

The noble Baroness, Lady Randerson, referred to devolved Administrations and local mayoral authorities. We will come to devolution further in the next amendments.

I urge noble Lords not to press their amendments.

[Lord Lansley (Con)]

My Lords, I am very grateful to all noble Lords who participated in this shortish debate, particularly to the Minister for the additional clarity sought by my Amendment 4.

My noble friend raised the issue of concessions, which I suspect we will come back to. It is one of those occasions where one looks at the interesting examples of what is happening in the French railway system, which is using concessions to a greater extent and is perhaps not encountering the objections that the Minister cited in relation to TfL’s concessions. That is a comparison that I am not qualified to make, but I know my noble friend on the Front Bench might pursue it.

I thoroughly agree with the point made by the noble Baroness, Lady Randerson, about the desirability of maintaining devolution models or perhaps extending them. The use of the exemptions under Section 24 should be considered. The Minister said that, in addition to the two routes the Secretary of State might use for securing the provision of services, that is the additional route, as it were, alongside open access, which we discussed in the previous group.

Passenger Railway Services (Public Ownership) Bill

Debate between Lord Hendy of Richmond Hill and Lord Lansley

Committee stage
Monday 21st October 2024 Lords Chamber

[Lord Hendy of Richmond Hill (Lab)]

The next time I see our mutual friend Keith Williams I shall tell him that the noble Lord, Lord Moylan, said he was ghostly.

I thank noble Lords for explaining their amendments in this group, which consider, as we have heard, various alternatives to public ownership. Amendments 3 and 5, tabled by the noble Lord, Lord Lansley, would allow contracts to be awarded to private operators following a competitive process. Amendments 28 and 29, from the noble Lords, Lord Young of Cookham and Lord Moylan, would allow franchises to be continued where the current operator is providing a satisfactory service. I do not support these amendments.

The Government were elected on a manifesto commitment to return passenger services into public ownership—having published, for the avoidance of doubt, the detailed plan entitled Getting Britain Moving—and we have a clear democratic mandate to do so. Despite what has been heard this afternoon, public ownership is a change with clear public support. Last month, YouGov published a survey showing that 66% of people nationally agree that railway companies should be run in the public sector; only 12% favoured private operation.

We are determined to return to a passenger railway which is run for the public, by the public, with passengers, not private shareholders, at the heart of the system. We will not leave the back door open to franchising, a model which has failed passengers and taxpayers. We are committed to public ownership because continuing with franchising would mean continuing to pay fees to private operators, ultimately for the benefit of their shareholders, when that money could be retained for the public good. Franchising would not allow us to integrate track and train in the way we propose to do under Great British Railways, which is the only way to put a stop to the fragmentation and waste of the franchising system, otherwise we will not be able to sweep away the outdated, complex and costly mechanisms that make the fares system impossible to understand for passengers, and even now prevent rational change because of “commercial confidentiality”, even though all the revenue risk is now taken by government. There is no benefit to continuing franchised operations on our railways.

Contrary to views expressed by noble Lords previously, there is no meaningful private sector investment being funded by franchised operators at present, so we are losing nothing by moving to a public ownership model. The Government are already reimbursing the legitimate operating costs of private sector operators and receiving all their revenue. Even before Covid, the main private investment in our railways was in rolling stock, which was generally funded by the rolling stock market and not by train operators or their owning groups.

I turn to Amendments 4, 14 and 15, tabled by the noble Lord, Lord Moylan. These amendments require competitive awards to be made to private sector companies on the basis of a concession model, along the lines of Transport for London’s approach, rather than bringing them into public ownership. These amendments would remove the opportunity to deliver the benefits of public ownership, which, as I have said, a clear majority of the public support and which was a specific commitment in the manifesto on which this Government were elected.

The Government’s first objection is that a concession model would mean the private sector continuing to earn substantial profits. Public ownership will put a stop to the flow of money that already sees in excess of £100 million paid out in fees to the private sector each year, even when operators are bearing no significant financial risk.

A TfL-style concession model would expose operators to more financial risk than the current national rail contracts, which means that operators would want to earn significantly more in profits at the taxpayers’ expense and would price their bids accordingly. Not only would concessions be more expensive than this Government’s plans for public ownership but they would be even more costly to taxpayers than the current contracts.

In addition, the TfL concession model involves a very closely defined and largely unchangeable service specification developed in detail by the public authority, with therefore little room for the operator to negotiate changes post tender award in circumstances where they would always have the upper hand on pricing. Our national railway system is much larger, flows alter over time, and one of the great benefits of GBR is that it will be able far more easily to adapt to changing and growing markets and to save costs without endless contract renegotiation with contractors which, except at the point of contract award, always have the upper hand.

The noble Lord, Lord Moylan, referred to the TfL experience of contracting the London bus market. In two previous jobs I was responsible for that market for virtually 15 years. It is a different market because there are a large number of small contracts changing hands, so if a contractor is sufficiently unwise to suggest expensive changes when contracts need to be altered then there is the opportunity to at least counter that by the next award of contracts for other bus routes. That has not been the case in the railway market. It is never likely to be the case. It is a different circumstance.

As a practical point, this amendment would abolish the option for the Secretary of State to appoint a public sector company to run services once a franchise agreement comes to an end. What does the noble Lord envisage would happen under this amendment if an operator went bust at short notice, or lost its licence to operate or its safety certificate? What if a competition failed to deliver a satisfactory outcome? Passengers could not wait a couple of years while the Government run a competition for a new concession. I would also ask whether it is the noble Lord’s intention to tie the hands of the Scottish and Welsh Governments, as this amendment would do, and whether they support these amendments. I think he knows that they certainly would not.

Amendment 10, as the noble Lord, Lord Moylan, said, was to facilitate Amendments 4, 14 and 15, so I will pass over it.

Amendment 35, tabled by my noble friend Lord Liddle, would allow the Secretary of State, and Scottish and Welsh Ministers to award contracts to either a public/private partnership or a co-operative venture involving staff and passengers. The Government’s approach to this is driven by pragmatism, not ideology, and we are certainly not seeking to close the door on private investment, as I will explain later in Committee when we come to discuss rolling stock.

However, I point out that examples of private investment in our railway infrastructure have been fairly thin on the ground in the privatisation era. Nearly all the enhancements to the network have been publicly funded. The noble Lord, Lord Young, referred to electrification, but, as far as I can tell, there has been no electrification ever funded by any party except the Government.

The Government are certainly open to hearing proposals for how private investment might be brought to bear to improve the railway in the future. If noble Lords and others have good ideas, I encourage them to bring them forward as we develop and engage on our plans and consult in due course for Great British Railways and the wider railway reforms.

However, I do not think that involving private finance means that our plans for public ownership of train operations should change. It is fundamental to the Government’s plans for the railway that services should be run by the public, for the public. There are other ways of engaging private capital, short of ownership, and for the most part, even 100% private sector ownership of train operating companies under franchising has not resulted in large investments being funded by those companies.

As for co-operative ventures, I am all in favour of giving passengers and communities a stronger say in the decisions that affect them, but the likelihood of any co-operative venture raising any significant amount of capital—let alone the current circumstances of the owning groups of the present train operators—is, frankly, very small. Our plans are designed to give passengers and communities a stronger say in the decisions that affect them, not least by establishing a new passenger standards authority and by providing a new statutory role for devolved and mayoral combined authorities. We will get to the question of devolution in due course. The Government have shown, through our approach to resolving long-running disputes left to us to resolve by the previous Government, that we are committed to working with the workforce to address the challenges facing our railways.

The noble Lord, Lord Lansley, raised a question about future flexibility. The last legislation for the railways has lasted 31 years, and I note that it had a specific prohibition of public operation of the railways system. That might have been reasonable then but it is certainly reasonable now in the present circumstances, given our policies and manifesto commitment, to replicate our belief that public ownership is the right way of going forward with passenger railway operation.

In conclusion, the Government’s plans for the railways are founded on consolidating responsibility for track and train operations within a single entity, Great British Railways, particularly at a route and operating company level. Already, in my short period in this post, as I have said previously, we have had performance meetings with an operator and a Network Rail route. In one meeting, I enjoyed considerably one manager telling me how great collaboration was between the two parties, which were not owned by the same organisation, while the other simultaneously sat there shaking her head vigorously, demonstrating an absence of the very co-operation that I was being told would happen.

My whole professional history tells me that the railway will run better with somebody in charge of both track and train together at a route and operating company level. That is the way that we will deliver better revenue, decreased costs and, particularly, better reliability. This is not consistent with seeking to preserve private sector operation, whether through franchises or concessions, or with awarding contracts to public/private partnerships or arm’s-length co-operative ventures. I am amused to see that Rail Partners has reversed its previous opposition to the concession model post the election, having spent several years previously explaining why it would not work on the national railway network. I rather agree with its previous analysis. I therefore urge noble Lords to withdraw and not press their amendments.

[Lord Lansley (Con)]

My Lords, I am most grateful to all noble Lords who have participated in this not terrifically long but interesting debate—not least my noble friend Lord Young of Cookham, who admirably demonstrated the potential benefits of a mixed economy in the provision of rail services and referred to reasons why the Government might in the future need the flexibility that these amendments would offer.

I go back as far as the mid-1980s, when I was a civil servant participating in a spending round not dissimilar to the present one in a Star Chamber, where different nationalised industries had their capital programmes traded off against each other. I have to say that cost-benefit analysis was not a significant part of that discussion; it was mostly a discussion of the political benefits or otherwise. I fear the same will be true in the future and that some investment projects that should be funded will not be. It will be a great pity if that turns out to be the case for rail services in future.

I do not have the benefit of knowing Mr Keith Williams personally. I am tempted, as a former Leader of the House of Commons, to say that we instituted evidence sessions in committee. I wonder whether we could take an evidence session before a committee in this House as well; perhaps we will think about that for the future.

I thank the Minister for at least laying it all out pretty straightforwardly. He may come to regret saying that, essentially, as the 1993 Act was an ideological determination that there should not be public sector operators on the railways, we must now have legislation that says there must be only public sector operators on the railways. I am with the many of those who take another view—not least the noble Lord, Lord Berkeley, whose point on open access was about giving the private sector the opportunity under limited circumstances.