Transport Secretary: East Coast Franchise

Alan Brown Excerpts

Wednesday 23rd May 2018 Commons Chamber

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

It is a pleasure to follow the Transport Secretary. He made a speech that will certainly appeal to his Back Benchers, but I would not say it was a forensic demolition of the argument for public ownership of the east coast main line. When the Transport Secretary throws out phrases like “Labour just hate the private sector” and “they would turn our economy into a Venezuelan economy” that seems like smoke and mirrors to me, rather than forensic analysis.

This censure motion relates directly to the handling of the east coast main line franchise. I am happy to support it on that basis, but there has been a further catalogue of errors on the Transport Secretary’s watch. I want to touch on some of that as well, as it builds up to where are today.

It is clear from the opening speeches that there are opposing views across the Chamber on the merits of privatisation and franchising, but one thing that I am confident about is that, as the hon. Member for Middlesbrough (Andy McDonald) touched on, the Transport Secretary wrongly connects cause and effect when it comes to privatisation of the railways. He continually plays up the increased investment in the railways since privatisation and the subsequent increase in passenger numbers as if it all just magically happened when British Rail was broken up and sold off. It can be argued that British Rail was struggling—it did have some poor rolling stock and it was outdated—but that is only half the picture because the Government would not allow British Rail to borrow to invest in the railways. The Transport Secretary says British Rail did not have access to capital, but that was because the Government would not allow it to access capital.

There was another restriction on the railways at the time. Substantial investment was needed following the 1988 Clapham rail crash, and further rolling stock upgrades and the channel tunnel were bleeding money elsewhere that British Rail was not allowed to access. Once John Major’s Government sold off British Rail, they allowed private borrowing, so it is correct that additional money was levered in, but that money was levered in on the basis that it could be recovered only through fares or through Government subsidy. If the Transport Secretary cannot acknowledge that money can be borrowed only because it is underpinned by the taxpayer, either it shows a real lack of understanding of where the money comes from, or it shows his ideological blind spot.

That attitude permeates all the way through the failed east coast franchise. The Transport Secretary has previously more or less shrugged his shoulders in the Chamber and said, “Well, you know what? Stuff happens. Some franchises fail, and that is the way the private world operates. Some fail and we move on, but do you know what? Others will come along and they will be successful, so why worry?”

[Christine Jardine (Edinburgh West) (LD)]

Does the hon. Gentleman agree that one of the flaws in the east coast franchise, and one of the reasons it failed, is that it was so badly set up in the first place, with the backloading of payments? Does he agree that perhaps we should take this opportunity, as we go into a different arrangement, to look at how we set up franchises to make sure we do not doom them to failure?

[Alan Brown]

I agree with the hon. Lady. I will address a couple of those points because I agree wholeheartedly with what she says about the tender process and the backloading.

The reality is that private investors and companies either make money out of a franchise or they seem to be allowed to walk away. The Transport Secretary stated at the Dispatch Box that what is now happening is not a bail-out of VTEC. But if VTEC owes £2 billion in track premiums and is allowed to walk away without paying anything, that must by definition be a £2 billion bail-out. That is so simple and it cannot be argued against.

[Huw Merriman]

Surely the definition of a bail-out is when the Government actually have to pay money to the company, which of course they are not doing. If anything, the criticism of the Government is that they have ripped off the private sector and got more money from it than it could deliver.

[Alan Brown]

Yes, there we see the ideological blind spot yet again. If somebody owes me £2 billion, I would be writing off £2 billion of debt if I said, “Forget about it. It’s okay.” Let us say it is technically not a bail-out, but the Government are writing off £2 billion of debt that that company owes the taxpayer. The company is walking away and getting rid of a £2 billion liability, and I do not understand why Conservative Members are trying to argue different.

The Transport Secretary has previously justified the predicament by saying the franchisee got its sums wrong. That should not be an excuse, but, as I have repeatedly said, and the shadow Minister also touched on this, it means the Department for Transport also got its sums wrong when it thought the tender was suitable for award. It is not just the franchisee that got its sums wrong; the Department for Transport got its sums wrong, too.

The Government failed in their due diligence. What about the supposed parent company guarantees? Those guarantees clearly have not been worth much to the taxpayer. We do not know what the runner-up bids looked like, but do those runners up have a case against the Government, given they clearly failed in their due diligence by awarding this franchise, from which VTEC gets to walk away?

As the hon. Member for Edinburgh West (Christine Jardine) said, we know VTEC backloaded the track premiums. If another consortium’s bid did not backload the track premiums, the taxpayer might already have made more money, but we do not know whether there was such a bid because it is all clouded in commercial confidentiality. It also shows, yet again, that no lessons were learned from the failed 2012 west coast franchise. The Transport Secretary had a duty to ensure that lessons were learned and properly applied in awarding the east coast franchise, and it is clear that not enough analysis was undertaken.

When the story broke, although VTEC got the sums wrong, Richard Branson blamed some of the reduced numbers on Network Rail. Given the Transport Secretary also has responsibility for Network Rail, what is the truth in that statement? If it is true that Network Rail was the problem, VTEC should be compensated because that is the way the franchise model works. If it is not true, why has the Transport Secretary not come out fighting to disprove Richard Branson’s comments, instead of casually defending VTEC at the Dispatch Box? It is more smoke and mirrors from VTEC.

At the Transport Committee, the chief executive of Stagecoach used excuses such as that the Scottish referendum and Brexit hit the numbers. Considering that our referendum was in 2014, before the franchise was awarded, that is clearly patent nonsense.

Despite all that, the Transport Secretary’s new wheeze to prevent a blame game between the track owner and the franchise holder is a combined partnership model. That might improve things, but at this stage we do not know what the set-up will look like or how it will interact with other services outwith the franchise. Given the repeated Back-Bench Tory support for open access on the line, there will clearly be further complications for such a partnership to address. It is absolutely guaranteed that there will be further issues down the line.

[Fiona Onasanya (Peterborough) (Lab)]

The Public Accounts Committee found last month that the passenger growth forecast by Virgin and Stagecoach was wildly wrong. In the light of what the hon. Gentleman is saying, does that prove the rail franchising model is broken?

[Alan Brown]

It certainly proves the current model is broken. If a franchisee gets its figures wildly wrong, it goes back to the due diligence by the Department for Transport, which clearly accepted the wildly wrong and inflated figures. Action is needed to remedy that.

Even if we accept the Government’s partnership model, the Transport Secretary has made it clear he believes that the private sector always operates better than the public sector. Surely then, at the very least, he should allow the public sector to bid for franchises: if he is that confident the private sector will win, he does not have to worry about the public sector bidding. Let the public sector bid and let us see which is the most competitive.

[Mr Kevan Jones]

Is it not the case that what we are seeing here is not a free market situation at all? In a free market situation, a failing franchisee would lose money, too. The current situation is tantamount to going into a casino, putting on a bet, losing and being given back the stake. Surely risk should be shared with the private sector in future arrangements so it takes a hit, as well as the taxpayer.

[Alan Brown]

I completely agree. Rail franchise holders have been able to walk away. As has been said, the profits are privatised and the losses are underpinned by the taxpayer. That is not a proper free market model because there is absolutely no punitive action against franchise holders when they fail.

[Huw Merriman]

If that were the case, why did the share prices of the companies involved collapse?

[Alan Brown]

Funnily enough, Stagecoach’s share price increased when the Transport Secretary gave a statement from the Dispatch Box in February. Share prices go up and down, which is to do with the overall performance of these companies, and they are very big companies. The whole point of these big companies bidding and providing parent company guarantees is that it is supposed to offset the risk, rather than leaving the risk to the taxpayer.

On the question of state-owned companies or public sector organisations running franchises, the Transport Secretary’s logic completely falls apart when we consider that four foreign state-owned rail companies already operate franchises in the UK. Those companies are making a profit here for reinvestment in their domestic set-up, which is proof that state-run railways can work efficiently.

The previous east coast main line services are further proof that public ownership can work. When the previous franchise failed and was taken into public sector operation, it returned £1 billion in track fees to the Treasury and turned an operating profit of £42 million. So, as has been asked before, why move away from that successful model to one where VTEC can come in with inflated sums and then get to walk away? It is clearly not right.

The southern rail franchise shambles also happened on the Transport Secretary’s watch. The main conclusion of the NAO’s report is that it could not be demonstrated that the franchise has delivered value for money. At the time, the operator blamed Network Rail and the unions, and the Government blamed the unions, completely ignoring the Transport Secretary’s role in refusing to engage with them. The fact is that 60% of the cancellations were due to Govia Thameslink Railway and only 40% were caused by Network Rail. The UK Government set up the model supposedly to deal with the complex infrastructure upgrades, but the Government took all the revenue risks, so the strikes actually cost the taxpayer, because the loss of revenue is underwritten. The Government also awarded the franchise based on an even higher roll-out of driver-only operation, which is what caused some of the disputes.

[Ian Mearns]

This is not just a problem with southern. Southern is a failing franchise, but northern seems to be on the verge of failing, too, with complaints from passengers across the north of England about services regularly not being provided.

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[Alan Brown]

I agree, and I think that the Government are now looking at northern because it is yet another failing franchise—another sign that the current system is just not fit for purpose.

I go back to the problems with the southern franchise. The NAO report makes it clear that the Department for Transport’s responsibility was large, especially for access to the network and timetabling pressures. Such errors led to an additional £60 million being allocated from the Treasury, following a loss in revenue and other costs. Again, all that happened on this Transport Secretary’s watch.

[Chris Grayling]

I do not want to deflect attention in any way, but may I remind the hon. Gentleman that that franchise was not set up while I was Secretary of State?

[Alan Brown]

I am happy to accept that, but all the current problems are happening under the Secretary of State’s watch. He has refused to get involved in trying to resolve the disputes to move things forward. I accept the fact about when it was set up, but he could have been stronger in his leadership and his interventions instead of letting things rumble on.

Another issue that I have with the Secretary of State’s overall competence is his dogmatic refusal to devolve Network Rail to Scotland. The organisation is clearly too big, and it has a bad reputation for delays and overspend, so why would he not want to take the opportunity to devolve it, allowing the Scottish Government to take full responsibility? It has been estimated that a unified management structure could save up to £100 million a year, and that alone should appeal to a Tory Secretary of State, so I just do not understand his dogmatic refusal to engage.

Then there is his lack of engagement with the Scottish Government about the funding for control period 6 in Scotland. The allocation is way less than his regulator recommended for track maintenance and growth in Scotland’s railways. Why is he being so obstinate in refusing to meet the Scottish Government or to consider what might be a fair funding settlement? We also had the recent railcard fiasco. The autumn Budget included the announcement of a discounted railcard for 26 to 30-year-olds, except the Treasury did not put any money into the scheme. In answer to a written question, I was told that the rail industry would pay for it itself, but that was done without discussions with the industry so, lo and behold, the scheme is in chaos. Who would have thought it? Again, that happened under this Secretary of State’s watch.

The Transport Secretary’s slash-and-burn attitude to rail electrification projects and the short-sighted selection of hybrid engines will lead to continued diesel pollution. He has also so far refused to fund or consider meaningful upgrades to the west coast main line north of Crewe. The way that high-speed rail will be implemented means that journeys between Scotland and Crewe will take longer on high-speed trains than they take currently with Virgin Trains, so we need further investment north of Crewe.

I will deviate from rail slightly before I finish. The Transport Secretary’s incompetence is summed up by his proclamations that there will be no border checks post Brexit. The suggestion is that lorries will not be stopped—just like on the US-Canada border—but that just shows that he does not have a grasp of his brief. That is why I am more than happy to support the motion.

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[Alec Shelbrooke]

Just give me two seconds. When we look at the money that was earned, some £1 billion was returned in three years compared with £1 billion in five years under nationalisation.

[Alan Brown]

The hon. Gentleman is talking about the problems caused by Network Rail. Will he remind the House who was in charge of Network Rail for the Government?

[Alec Shelbrooke]

I am delighted that the hon. Gentleman has made that point. Indeed, that is the problem with a nationalised company. Many people have said, “Oh, it’s the Secretary of State’s responsibility in a nationalised company, ” but that is not how it works—it is not how it has ever worked. On the one hand, people are saying that the Secretary of State should take complete control of the railways, and on the other that he should get out. People who are running a nationalised operation do not share the sense of urgency of those in the private sector. There are litanies of delayed or missing projects under Network Rail.

--- Later in debate ---

[Tommy Sheppard (Edinburgh East) (SNP)]

I always travel by train when I can, and with respect to colleagues from the north-east of England, I am going to lay claim in this debate to be Virgin Trains East Coast’s best customer. I have made 32 return journeys from Edinburgh to London in the past 12 months. That is the equivalent of circumnavigating the globe in a Virgin train and it gives me quite an insight into the service.

I pay tribute to the staff of that service who have served me over these years—the people who drive the trains, who check the tickets, who serve the drinks, who provide the information—and also the many hundreds of staff who work in the depots, cleaning and engineering these magnificent machines. I think it is a shame, the way in which they have been treated, and that they are constantly being told that their boss and their uniform is changing, rather than being valued for the service that they provide.

We have heard a lot about ideology in this debate. The Government seem convinced that their opponents are motivated only by ideological dogma. Anyone reviewing the text of this debate surely can only conclude that the reverse is the truth—that in fact, it is the Government who are so blinkered by ideological dogma in favour of privatisation that they refuse even to consider the possibility of a contemporary public sector alternative. That seems to me very regrettable, because there are many positive reasons why the public sector alternative should be considered. I just want to name two.

The first reason is that it would allow integration of the management of the service and remove the ridiculous separation between the train and the track that is responsible for many of the problems that we are facing in the operation. What better way to ensure that the track serves the demands of the train service than to place it under the management of the same people who manage the train service? The idea of separating a vehicle from what it is travelling on might make sense with a road network, where there are lots of different avenues to travel, but the train only has one track on which to get from A to B, and the management of those things ought to be integrated. That could happen, in a public sector organisation.

[Alan Brown]

Clearly, I agree with the points that my hon. Friend is making. Does this not further reinforce the argument that, in Scotland, Network Rail should be devolved to Scotland, to allow the Scottish Government to have that integration he is talking about?

[Tommy Sheppard]

Indeed, and I will come to that later.

The second big positive of having a public sector operator is that it will allow for much greater investment—we would not have to have investment that was contingent on franchise payments and on levels of use; we could just take a serious decision, as a grown-up country, and say, “We need to rapidly and significantly invest more in our rail network if we are to bring it up to scratch and achieve the type of global service that our competitors can achieve.”

I represent Edinburgh East, including the world-famous Waverley station. I admit there have been some improvements over the past few years—we have seen the market share of the rail journey from Edinburgh to London rise to a peak of 37%—but that still leaves nearly two thirds of the people who make the journey from Edinburgh to London taking the plane. Surely that is a ridiculous situation, and we must take urgent action.

The industry will tell us that, when we get the journey time down to four hours, that is a tipping point and that will take market share to around 40% but, to get the train as the majority means of transport between Scotland and London, we will have to reduce the journey time to three hours, and that can only happen with massive investment in a high-speed network and it can only happen with a new fleet of trains. So I want the Minister to confirm that these changes that are taking place will not in any way affect the delivery in December of the roll-out of the new Azuma fleet on the east coast line and that he will engage seriously and purposefully with the Scottish Government in discussing the investment required for HST in the future.

The Scottish Government, because of devolution, have some responsibility for the rail network in Scotland, yet as with so many other things it is working in a straitjacket that is set by this place. We have repeatedly said, over a long period, that the franchise for rail services in Scotland should be run by a public sector operator. We tried, in a debate on the last Scotland Bill, to get the whole regime transferred to Holyrood, but could not find support from any other parties in this Chamber. There is now a golden opportunity, however, for the Department for Transport to take seriously the Scottish Government’s request. Now we have the ability to put a public sector operator into the tender process, there is an opportunity in Scotland—if they will not do it here—to use this to experiment to see how a contemporary public sector operation takes place. The Thatcher Government began the attacks on British Rail when, as a service, it was still reeling from the attacks of Beeching and the massive line closures. We do not know what a public sector operator would be like now if privatisation had not happened. Maybe—just maybe—we might have had trains as good as people have in France and Germany.

This is a motion of censure, and I find it surprising that the Secretary of State has absented himself from the debate. This is not a normal motion on a matter of policy; it is a motion that questions the capability and commitment of an individual. At the very least, he ought to have the decency and respect to be in attendance in this Chamber to hear the case against him.