Passenger Railway Services (Public Ownership) Bill

Lord Young of Cookham Excerpts

2nd reading
Monday 7th October 2024 Lords Chamber

[Lord Young of Cookham (Con)]

My Lords, it is always a pleasure to follow the noble Lord, Lord Liddle, who was the opposition spokesman in your Lordships’ House in the last Parliament and therefore may have played a role in the conception of the Bill—although sadly he has been denied any part in its delivery. I am grateful to the Minister and her colleague, the noble Lord, Lord Hendy, for the briefing they gave to noble Lords during the Recess, and for the exposition from the noble Baroness of the reasoning behind the Bill.

You wait a long time for an ex-Transport Secretary and then three of them turn up at the same time. I look forward to the maiden speech of my noble friend Lord Grayling, who has held two of my previous jobs, Transport Secretary and Leader of the House of Commons. I was also briefly one of his juniors when I was a Minister in your Lordships’ House and I enjoyed working with him. He brings with him a wide range of ministerial experience to reinforce the Opposition Benches in your Lordships’ House. I also look forward to the maiden speech of the noble Lord, Lord Cryer, and the noble Baroness, Lady Pidgeon.

Turning to the Bill itself, the Government have inherited a complex set of challenges with the railways after the pandemic bust the franchising model. It simply overturned the industry’s finances, upended travel patterns and has led to increased and unsustainable taxpayer support. However, in moving to the more sustainable system that we have heard about this afternoon, it is important not to throw out the baby with the bathwater.

The structure which I hoped to put in place in the 1990s had three key benefits, all of which we risk losing. It took investment in rolling stock off the public sector balance sheet and created a market of train operators to replace a public monopoly, and its business model forced the industry to look outwards towards its customers, not inwards to the sponsoring department, leading to inbuilt incentives to grow the market. With that new structure, private operators reversed decades of decline in passenger traffic. It helped to double passenger numbers, increased services by a third and turned an operating deficit under British Rail into a surplus for taxpayers, paying a dividend of £3.8 billion to the Treasury from 2010 to 2019.

By contrast, the Sunday Times told us yesterday that the subsidy for Southeastern, which is now in the public sector, is four times what it was prior to the pandemic, when it was in private hands. Passenger safety improved after privatisation and closed branch lines were reopened. We need to put those facts into the public domain while we debate the future of the railways. It seems to me that the challenge before us is to try to retain those advantages within the new structure.

I will take them briefly in turn. First, on the public sector balance sheet, I had the benefit of negotiating with the Treasury for investment in the railways both before and after privatisation. Before, I would go along to a Star Chamber composed of colleagues who I thought were my friends but turned out not to be, and I made the case for investment in rolling stock as best I could. They would say, “George, we’re really interested to hear from you, but we’ve just had the Secretary of State for Defence, who wants more soldiers, we’ve had the Home Secretary, who wants more policemen, we’ve had the Health Secretary, who wants more doctors and nurses, and we’ve had the Education Secretary, who wants more teachers. Politics is about priorities and we’re very sorry, George, you can’t have your new train set for Christmas”.

After privatisation, there was no dialogue with the Treasury at all about investment in rolling stock. The capital markets responded to the business case that I made, and we got the investment which we needed. That is one benefit that we are about to lose, given the path on which the Treasury and the Government are now embarked.

The franchising costs of the operators now run by the DfT score as public expenditure. At the moment, those franchises do not have much time to run, so the sum is relatively small, but when GBR is up and running all rail investment will score as public expenditure; that is potentially £13 billion which the Government do not have to find at the moment. Amazingly, if you look under the heading “Financial implications of the Bill” in the Explanatory Notes for the Bill, you will see that there is simply no mention of that whatever. Nor in the other document, Final Stage Impact Assessment, is any mention made of that under the heading “Impacts on government priorities”. But any spending Minister knows that, when he looks at his or her capital budget, it is crucial whether that investment is public expenditure or private. If the Transport Secretary is unsuccessful against the bids for doctors, nurses, policemen and teachers, there are implications for the reliability of services, which we have heard about, and for the supply line, which the Minister mentioned—that is, those who supply the rolling stock in this country.

The second advantage was to bring in other successful transport operators—people who run bus companies, airlines, shipping or successful operators from overseas. Their skills were applied to running the railway and so break the British Rail monopoly. If British Rail was not as good as Ministers felt it ought to be, there was nothing we could do about it; there was no one else who could run a service. Privatisation created this new market of train operators bidding for franchises; many good people within British Rail moved over to the new train operators, and welcomed the freedom that privatisation had given them, particularly the freedom of manoeuvre that came with it. Just as other European countries are moving over towards the model that we now have, this country is taking a backward step to a public operator with an outright prohibition in the Bill on the use of private contractors.

The structure which we chose also avoided national strikes of train drivers. Each individual franchise operator negotiated individually with the trade unions and, by and large, they reached agreement. National bargaining with a single employer, as proposed, could mean that any future pay disputes have a greater impact on passengers. Others may talk in this debate, or certainly in Committee, about the implications of employment changes for the thousands of railway workers who now work for the train operating companies who will move over, presumably to a single contract at some point within GBR, with all the implications that has for negotiation for the workforce.

The third innovation was an incentive to grow the market, to look outwards towards the customer. Once a company had won the franchise, the only way that they could increase its turnover and profit was by winning more customers. But when I was Transport Secretary, it made little difference to British Rail whether it had more customers or fewer; it just meant it got more or less subsidy from the Secretary of State. Franchising created that incentive to look outwards at the market, not inwards towards the department. By contrast, the new contracts introduced by the Government leave operators with little commercial freedom or ability to help growth—a point touched on by the noble Lord, Lord Liddle. Given the financial challenges facing the Government, it is counterintuitive to ban the only part of the rail system with a track record of driving growth and reducing subsidy for taxpayers. Nor is public ownership a panacea for all the problems —passengers mind about performance and price. Over half the delays in the system are caused by Network Rail, which has been in the public sector for two decades. On price, is the Treasury going to find the money to keep rail fares down? It is just worth remembering that, on privatisation, rail fares were capped at RPI minus one, a policy that was reversed by the incoming Government.

A final word about fragmentation—a word that was used a lot by the Minister. The final impact assessment says that the Bill aims to reduce industry fragmentation. A common criticism of privatisation is that we have ended up with an industry that is fragmented and should be brought together. I understand that argument, but it should be treated with some caution. The most popular and safest form of public transport is by air, yet you could not find an industry that is more fragmented. The airlines do not own the aircraft, they do not own the airports, they do not run the national air traffic system, they do not do the baggage handling or the catering. Some airlines do not even employ the pilots but get in self-employed pilots. I prefer to use “specialised” to “fragmented” in describing a transport industry. I challenge the assertion that an industry which is fragmented or specialised is less efficient than an integrated one.

The Bill will probably go through but, as a political midwife, I hope that the Government will see whether some of the progeny of privatisation might be saved.