Rail Franchising

Alan Brown Excerpts

Wednesday 10th January 2018 Commons Chamber

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

A belated happy new year to you, Madam Deputy Speaker. I also welcome the new Ministers to the Front Bench and pay tribute to the work done by the previous Minister, the right hon. Member for South Holland and The Deepings (Mr Hayes). He certainly knew how to conduct himself at the Dispatch Box, and perhaps the Secretary of State should be thinking about how he conducts himself. He said that the hon. Member for Middlesbrough (Andy McDonald) spoke for 25 minutes just talking rubbish, but he then spent 18 minutes just union bashing before getting on to any substantive point.

Let me be probably the first in the Chamber today to congratulate Virgin on its recent decision to stop selling the Daily Mail on the west coast route. I am sure that many Members will agree when I say that I hope other outlets follow suit. That is probably the last compliment I will pay Virgin, but I want to commend the hard work of its staff. I encounter them fairly regularly on the west coast route and I can certainly testify to their professionalism and hard work.

The motion covers rail franchising in general and the bail-out of Virgin East Coast in particular. It is fair to say that there are opposite views across the Chamber on the merits of privatisation and franchising—we have already seen that in this debate—but one thing I am really confident about is that the Transport Secretary wrongly connects cause and effect when it comes to the privatisation of the railway. It can be argued, and has been, that British Rail was struggling, with poor rolling stock that was outdated, but that is only half the picture. Any under-investment in British Rail and rolling stock was due to Government constraints. Passenger numbers were affected by the recession, in terms of both affordability and commuters having jobs to travel to. Spending power for investment was further hampered by the safety-critical upgrades required following the 1988 Clapham rail crash, and upgrades needed to service the Channel tunnel links—yet another example of investment in the south-east of England to the detriment of the rest of the United Kingdom.

The response of John Major’s Government to the problems in British Rail was to privatise and sell it off, but they did that at such a pace that there was no co-ordinated or strategic approach. History shows that that rushed privatisation gave us Railtrack, which eventually went bust and was replaced by Network Rail. If ever there was a demonstration that infrastructure is best owned and managed by the public sector, to avoid profit being put before safety, that is the prime example. I do not pretend that Network Rail is operating as efficiently as possible, but it certainly does not put profit before safety.

The franchise approach to privatisation gave us a model in which the countries of Great Britain were the only ones to have completely divested themselves of any public stake in passenger rail operations. Given the problems since then, that appears to be another clear example of the UK leading the world, but leading it down completely the wrong path. What rail privatisation gave us was a complex model—stuck doggedly to by the Tories and the Blair and Brown Governments—of charging, interactions, private companies requiring large profits, and ticketing arrangements, and a way for companies and the network owner to play a game of blaming each other for problems.

The problems are aptly summed up in the report on the southern rail franchise just published by the National Audit Office, the main conclusion of which is that it cannot be demonstrated that the franchise has delivered value for money. The operator blames Network Rail and the unions. The Government blame the unions, as we heard again today from the Secretary of State, but completely ignore the part they played. The bottom line is that 60% of cancellations were due to Govia Thameslink and 40% due to Network Rail. It was the UK Government who set up the model that was supposed to align with the complex infrastructure upgrades; it was the UK Government who took the revenue risks, which means that strikes cost the taxpayer money; and it was the UK Government who awarded the franchise based on even further roll-out of driver-only operation; so the initial unwillingness on the part of the UK Government and Transport Secretaries to get involved is shameful.

The NAO also makes it quite clear that the Department for Transport had a large responsibility, especially in relation to access to the network and timetabling pressures. I am concerned that the DFT’s lack of understanding of pressures arising from upgrades and timetabling will have an impact on the west coast franchise and HS2 awards. Is that the reason why the invitation to tender for the west coast franchise, which was due in November 2017, still has not been issued and we do not know when it will happen?

Other franchise issues include the failed award of the west coast franchise in 2012. I am sure that, had Virgin Trains won that franchise in 2012, it would happily have taken it rather than threaten court action. As we have already heard, the case led to direct awards. According to a Library briefing, 12 of 16 franchises have now been subject to direct award. Further failures by the Department for Transport give us the worst of both worlds—there is no competition, and short-term awards provide no incentive for long-term investment, yet the companies are still guaranteed a profit. That is a poor set-up.

[Alison Thewliss (Glasgow Central) (SNP)]

According to the House of Commons Library briefing, the direct award for the west coast franchise mentions a commitment to work to remodel Carstairs junction, which is seen as significant bottleneck in the network. Anyone who has travelled on the line knows that time spent at Carstairs is often time that could be shaved off a journey, therefore making rail more attractive. Does my hon. Friend agree that the Government should increase investment to remove bottlenecks such as Carstairs junction?

[Alan Brown]

I agree with my hon. Friend. Carstairs junction could be a major blockage for HS2, as well as the other operation, so I hope that the Minister was listening to her intervention and will explain why, if the remodelling was a part of the direct award, it has not happened yet.

[John Penrose (Weston-super-Mare) (Con)]

The hon. Gentleman decries the lack of competition from direct awards, so have he and his party considered the report of 18 months ago from the Competition and Markets Authority calling for more on-track competition within franchises as an alternative to the increasing allocation of monopolies through franchising?

[Alan Brown]

I am not against competition per se. There is certainly lots of information about models that are deemed to work better than others. One aspect of competition is that the public sector should be allowed to make its own bids for operating franchises. A bit of competition might help to drive innovation, but in no way should the public sector be barred from the process.

We then have the Virgin Trains East Coast shambles on the east coast line. The Transport Secretary stood at the Dispatch Box again to say that there was no bail- out. When he responded to me during proceedings on the statement, he claimed that the parent company guarantees would protect the taxpayer, but we now have confirmation that franchise fees were backloaded, meaning that Virgin was able to walk away without paying the £2 billion premium track fees it was supposed to pay. That was confirmed at the Dispatch Box. He said, “It’s okay, we’re going to get the £165 million parent company guarantee,” but that is considerably less than the £2 billion premium fees the taxpayer would otherwise have received, so the argument is nonsense. To say that the franchise might have failed is no excuse. It is testament, again, to the failed model currently being operated by this UK Government. The very fact that Stagecoach’s shares went up after we heard news of the new model proposed by the Transport Secretary tells us who is walking away with the best deal from the new arrangements.

The east coast main line gives us proof that public ownership can work. When the previous franchise failed, it was successfully run as a public operation that paid over £1 billion in track rental fees to the taxpayer and returned a nominal profit of £42 million from the overall operation. The large private companies would not suffer a £42 million profit, because they would think it too little, but it would be welcome for the public sector and could drive further investment. Another failing of the franchise model is that it only allows big companies to operate, and they chase massive profits, at the behest of their shareholders.

The public-private alliance model proposed by the Transport Secretary might in theory be an improvement but, again, it is bonkers not to revert to the working model under the public franchise. The new model will still contain risk in terms of multi-layer operations and interactions, and even the timetabling to get it in place, as was outlined by the hon. Member for Middlesbrough.

[Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)]

One of these new models is the Oxford to Cambridge line, in respect of which the Transport Secretary has said he is happy to devolve power to a private company. Does my hon. Friend therefore find it strange that the right hon. Gentleman would not be willing to devolve an operation such as Network Rail to Scotland, where we could make a real difference for the travelling public?

[Alan Brown]

I agree with my hon. Friend and I was going to come to that point later. I cannot understand the UK Government’s intransigence over devolving Network Rail, which it is anticipated would save the taxpayer £30 million and increase accountability to the Scottish Government.

I have touched on some of the causes of the demise of British Rail. Since privatisation, passenger numbers and investment have increased, but again we need to go back to cause and effect, because that was not a direct consequence of privatisation. It has been possible to lever in private investment, but that is recouped through passenger fares and public subsidy—that is the bottom line. When the Government allowed private investment to come in, they decided to be a bit bolder in specifying increased services, new rolling stock and other improvements for the franchises. However, that same ambition could be replicated either under nationalisation or by allowing public sector investment, rather than everything being levered in through private investment. Following privatisation, there was also an upturn in the economy, so a range of factors actually contributed to better passenger experience and increased numbers. The Transport Secretary really needs to move away from his “private equals good; public equals bad and inefficient” mentality, but I fear that today there are no signs of that changing.

In its 1997 manifesto, Labour reneged on its commitment to renationalising the rail system, but it at least commissioned the McNulty review in 2009 to identify better value for money in the railway franchise system. Incredibly, the Tory Government sat on that report for six years before coming up with modest proposals to vertically align the infrastructure and passenger operations in an alliance model.

Alliances can be made to work, or at least to work better than they do under the current franchise system. The ScotRail-Abellio alliance is the only franchise that stipulates that all staff must be paid the real living wage. It also guarantees trade union representation at every franchise board meeting, no compulsory redundancies and 100 new apprentices. Rather than making staff’s terms and conditions a mechanism for greater profit, the Scottish Government have incorporated protecting them into the contract. On passenger experience, there will be new rolling stock, 23% more carriages, a new approach to cycling interaction, and a drive to expand tourism. Those aims, ambitions and protections contrast directly with the attitude of the Secretary of State and the Tory’s southern rail franchise.

That is not to say that there were not teething problems with the new Abellio alliance, but it is now the best performing large franchise in the UK. Even so, the Scottish Government are putting in place measures to allow a public sector procurement bid to be submitted either at the end of the franchise or at the mid-point, where there is a possible break. The success of CalMac ferries in competing in the private sector shows how this can be achieved.

As we heard in the intervention made by my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry), if responsibility for Network Rail was devolved to Scotland, with the body under the control of the Scottish Government, the operation of rail services in Scotland would be much more efficient, and there would be much more accountability. That would give us a better way to move forward.

[Mr Paul Sweeney (Glasgow North East) (Lab/Co-op)]

On the devolution of Network Rail, does the hon. Gentleman accept that power over devolved franchises has already been devolved? Enhanced capability was devolved in May 2016 whereby public sector bids could be brought forward for ScotRail. That was known well in advance of the current tender. Is it not the case that ScotRail could have been in public hands today if the Scottish Government had delayed that tender?

[Alan Brown]

A small history lesson: it was the UK Labour Government who refused to hand these powers over to Scotland. They had the chance to do so in 2000 and 2005. Since the Scottish National party Government came to power in 2007, they have written to three Transport Secretaries to ask for the powers to be devolved to Scotland, and three times that has been refused. The shortlist for the ScotRail-Abellio tender process was drawn up in November 2013, so the initial invitation to tender came way before that. The contract was awarded in October 2014—a year and a half before the new powers came into play. It is absolutely ridiculous to say that the Scottish Government could have sat on their hands and waited for future powers that might not have come. They did come, the Scottish Government will use them in the future, and they are preparing that public sector bid, so I thank the hon. Gentleman for that intervention.

[Alison Thewliss]

Does my hon. Friend agree that the experience from our casework is that Network Rail is not an accountable body at all? When we try to raise constituency cases, or make complaints about works on the line or things that it wants to do, it is very difficult to get any answers from it, because it just does not want to consult. It just wants to do things and pays lip service to community engagement.

[Alan Brown]

It is certainly a big problem. Network Rail is too big. The fact that it is effectively accountable to two Governments, but ultimately to the UK Government, causes further problems.

The Labour party is calling for full-scale renationalisation. I am certainly not against that—there is clear merit to keeping all moneys within the public purse—but I have concerns about the model proposed in its manifesto, in that the result might be something that is too large to be fully accountable, which touches on my hon. Friend’s intervention. Labour’s proposed model shows that it believes that the railway can be nationalised within the EU single market, given the EU firewall proposed between rail access and the network/operations side of the business, so the argument that we cannot be in the single market and have national railways clearly falls, as the Labour party itself recognises. We do know that nationalisation works, given how many state-owned railway companies current operate in the UK, and of course they are doing so under EU rules. The Tory anti-nationalisation attitude is therefore clearly utter nonsense.

The Library briefing on rail structures suggests there is no agreed best model operating in the world, but it does give some excellent examples of variations in models. What is clear is that public sector involvement or state-owned franchise companies can work. The UK has a franchise model that has not worked effectively, and a change of thinking is undoubtedly required.

[Several hon. Members rose—]