East Coast Main Line Franchise

Alan Reid Excerpts

Thursday 20th June 2013 Commons Chamber

[Sheila Gilmore]

I think the important thing to bear in mind is that the service is not failing in the ways the Minister said it was. If a Government propose a policy, it has to be based on the right evidence and not on an inaccurate interpretation of the situation.

Let me now talk about what East Coast does with its profits. In the previous debate, my hon. Friend the Member for Middlesbrough pointed out that whereas private operators are obliged to pay dividends, public operators can reinvest all their profits back into the service, which in East Coast’s case has amounted to more than £40 million since 2009. One of the criticisms that has been made in the past and might still be levelled now at a public operator is that, because the dead hand of bureaucracy lies on it, such an operator cannot be as efficient and as fleet of foot as a private sector operator, but it is true to say that East Coast is organisationally distinct from the Department for Transport. It is staffed by railway professionals and is therefore able to take the best of a private sector company in terms of efficiency, innovation and entrepreneurialism, but because it is in the public sector, any profits it makes are available to the Treasury and all of us as citizens of this country and taxpayers.

I am concerned that talking down East Coast to justify the proposed refranchising will damage morale at the company. That is most unfair, because staff and management have worked extremely hard and achieved good results, with 1 million extra passengers carried in 2012 compared with 2009 and record passenger satisfaction. I hope that, when he responds to the debate, the Minister will correct his remarks on punctuality and premium payments; acknowledge that East Coast reinvests all its profits and can emulate private sector efficiency; and congratulate staff and management on East Coast’s success. I think that that will be an important message to send back to the work force.

Given East Coast’s success, it makes no sense to prioritise its reprivatisation while other long-distance operators are being offered long extensions. Under the Government’s initial franchising timetable, the new west coast main line contract was due to start in October 2012. Under the new timetable, and as a result of prioritising East Coast, the current operator of the west coast main line, Virgin, will be offered a total of four and half years of extensions up to April 2017. Similarly, for the new Great Western contract, which was meant to start in April this year, the operator, First Group, is being offered three years of extensions up to July 2016.

Let us look again at another reason the Minister gave for prioritising the east coast main line over others. He said that the line

“connects industries in the north with commerce in the south, provides cross-border services to Scotland and helps to drive the development of tourism and the success of Edinburgh and Leeds as key financial centres outside London. That is why it is at the forefront of our new rail franchising programme”.—[Official Report, 5 June 2013; Vol. 563, c. 252WH.]

I accept all those things, although many of them can be said about other rail lines.

It is important for business that we have a good, strong railway service on the east coast main line. I am regularly accompanied on my weekly commute by an increasing number of business travellers, many of whom work in my city’s sizeable banking sector. Those people have often been attracted away from short-haul flights by East Coast’s excellent new first class offer, which in the long term could benefit our environment. Business travellers are also attracted by the new services that have been introduced, including a later evening service and an earlier morning service, which enable people who want, or have, to travel to London for business meetings to do so by rail in a way that was not possible before.

However, the west coast main line and the Great Western line are also important for business. The west coast main line connects five of the seven largest conurbations in Britain, and Great Western serves Bristol, Cardiff and the prosperous Thames valley, so the claim that the Government have decided to prioritise the east coast main line because of its importance to business does not really stack up—at least, it is not a reason for prioritising the east coast main line over the other services that were previously due for refranchising.

By deferring proper franchise competition on these other lines in favour of extensions, the damage done to business on those routes could well outweigh any benefit accrued by prioritising the reprivatisation of the east coast main line, because extending those franchises involves little or no competition. It is likely to cost franchises a lot while failing to deliver any improvements in service.

It also leaves the Government in a weak bargaining position with the franchise operators by offering them those franchises without competition. After all, one of the reasons the Government would no doubt give for wanting to franchise is to have competition that would drive innovation and improvement. However, as far as the other lines are concerned, it is more or less a case of giving the operators an extension.

The only bargaining chip that the Government appear to have is to call in East Coast’s parent company, Directly Operated Railways, presumably as some kind of threat to the franchise operator, so that if it does not settle for a reasonable sum the line might be given over to Directly Operated Railways. That seems rather odd, from a Government who are telling us that they do not want rail lines to be operated in that way.

[Mr Alan Reid (Argyll and Bute) (LD)]

I have been listening carefully to the hon. Lady’s argument, but I am afraid that I have lost the thread a bit. Will she clarify whether she is opposed to the refranchising of the east coast main line in principle, or does she simply want it to be held back for a certain length of time so that other franchises can be retendered, which is what she seems to be arguing for?

[Sheila Gilmore]

rose—

--- Later in debate ---

[Grahame M. Morris]

Yes, we can speculate about who might take on the franchise, but it is incredibly profitable and I am sure there will be no shortage of takers. That money should be going into the Treasury at this time of austerity, however.

[Mr Reid]

I have been listening carefully to the hon. Gentleman’s speech, but I am still not sure whether he is arguing for the east coast main line to be operated by a publicly owned company permanently or just for a temporary period that happens to be longer than the Government propose?

[Grahame M. Morris]

I can give a direct answer to that: yes, I am arguing for permanent public ownership. I am in favour of directly delivered public services, and although I do not want to take up too much time, I have some pretty powerful arguments on why that should be the case.

The hon. Member for Harrogate and Knaresborough (Andrew Jones) talked about competition. Even if someone could not support the entire network being in public ownership, I think a reasonable person might be able to say that, for reasons of having a comparator, we should keep the very successful public provision through DOR, to act as a test and yardstick for us to assess how the private sector is doing. Instead we have the preposterous position of a failed private operator of the franchise not being barred from bidding, but instead being allowed to rebid to operate it. The Government seem quite happy to allow that.

Another perversity is that the Government seem to have this ideological, dogmatic hatred of nationalisation and publicly provided services. They are against the idea of a directly operated public service on the east coast. They are quite happy for public sector companies based in Germany, France and Holland to operate such franchises, but not UK public sector companies. That seems completely inconsistent.

The hon. Member for Peterborough (Mr Jackson) gave some interesting statistics about the cost of season tickets. It is interesting to look at the costs in some European countries. Research shows that a 24-mile commute into Paris costs about £924 a year, a similar commute into Berlin costs some £700, and a similar commute into Madrid costs £654. A similar commute into London costs £3,268 a year. How can anybody suggest that the privately operated service is a huge success and stands international comparison? This follows a decade of inflation-busting fare increases which, although never welcome, are putting an unbearable strain on family budgets at a time of austerity, with wages frozen and in many cases falling.

I understand that the rail Minister is a regular user of the network—after being persuaded to swap his chauffeur-driven ministerial limousine for the train. Has he had a chance to explain to other commuters exactly what privatised rail has delivered for the taxpayer—other than the highest fares in Europe? It certainly has not delivered investment. Sir David Higgins, the head of Network Rail, has warned that it would take

“30 years of continuous investment to ensure our railways get to the level of some of the European railways that we admire”.

Dividends to shareholders of the big five transport companies that are contracted to run the UK rail service have reached nearly £2.5 billion since 2000, and there are plenty of examples of excessive boardroom pay; some of the highest paid directors have received in excess of £1 million.

However, East Coast and Directly Operated Railways offer a genuine alternative, with all profits being reinvested in services or in the Treasury—money which otherwise would have been used as dividends for shareholders or bonuses for fat cats. According to the “Rebuilding Rail” report, the cost of running the railway has more than doubled in real terms since privatisation. It is estimated that privatisation costs the equivalent of £1.2 billion a year—more than the cost of public ownership.

In the face of multiple market failures, higher costs to the public in fares and subsidies, and lower premium payments, there is nothing more ideological than the Minister and the Tory party remaining wedded to this disastrous railway privatisation policy. I hope he will listen to the concerns expressed today by Members, and by the British public, and end this failed franchise policy.

--- Later in debate ---

[Mr Alan Reid (Argyll and Bute) (LD)]

The east coast main line is vital in providing connections between Scotland, north-east England, Yorkshire, eastern England and London. Liberal Democrats in government are delivering a massive investment in rail infrastructure and are determined to put passengers at the heart of the railway system. That is why, as part of this coalition Government, we are investing £240 million in the east coast main line between 2014 and 2019.

On 25 March, the coalition Government announced that the franchise for the east coast main line is due to be returned to the private sector in February 2015. Officials from the Department are meeting interested parties, including Transport Scotland, to ensure that future changes to the east coast main line are co-ordinated successfully. Part of the programme will be the establishment of new vehicles for the inter-city east coast franchise, which will replace the existing set of diesel-powered high-speed trains from 2018 onwards.

It is true that under the nationalised operating company, there has been an extended period of successful operation, but—

[Sheila Gilmore]

Will the hon. Gentleman confirm that the new rolling stock is not linked to the refranchise?

[Mr Reid]

The Government are providing the money for the new rolling stock. Yes, it is perfectly possible that if the railway was to continue under the directly operated company that new rolling stock could still be provided.

Before the hon. Member for Edinburgh East (Sheila Gilmore) interrupted me, I said the word “but”, and I want to draw the House’s attention to one of the conclusions of the Brown review. It highlighted that any significant delay in the resumption of the franchising process could have a negative effect on investments involving rolling stock, upgrades and expansion and could result in some international suppliers deciding to make alternative investments outside the UK.

In a supporting letter from Mr Brown to the Transport Secretary, dated 31 December 2012, he wrote:

“I have come to the conclusion that the franchising system is not broken, but, on the contrary, it has made a major contribution to Britain’s increasingly successful rail network. There is no credible case for major structural change.”

That demonstrates that the operation of train services indefinitely by the directly operated company is not an alternative to our system. Direct operation is a key part of the private franchising model, but it was only ever meant to be a short-term mechanism as a measure of last resort.

We heard Labour Members arguing for the continuation of the directly operated model, but the Labour party is divided. By my count, we have two votes for nationalisation for ever, one for nationalisation for an indefinite period and, from the hon. Member for Edinburgh East, one for “Don’t know”. I do not think I received an answer to my intervention, but if she wishes to clarify that I am perfectly happy to give way to her a second time. The resumption of the franchise process should take place at a speed and pace that works for the Department and allows it to make necessary improvements. That was one of the key proposals of the Brown review and is why the Department will now ensure that no more than three to four franchise competitions are delivered per year in total.

Let me conclude by reiterating the commitment from the Liberal Democrats, as part of the coalition Government, to the improvement of our railways. We and our coalition partners are determined to place the passenger at the heart of the rail system and deliver better value for money in the system following years of extreme inefficiency under Labour. That is why we are delivering the biggest investment in our railways since the Victorian era. The east coast franchise and the new vehicles that are coming with it are an important part of that investment package.

--- Later in debate ---

[Mr Reid]

But the crux of the matter is this: is it Labour party policy that this service should remain in public ownership for ever or simply for a temporary period that happens to be longer than the one the Government have set out?

[Graeme Morrice]

As I have just mentioned, we will hear from our Front Bencher on this shortly. My own view is that this should be for an indefinite period, but the clear blue water between us and the Government on this issue is that we support a successful public service, whereas the Liberal Democrats are as one with the Conservatives in supporting the privatisation of this service. We have to question the reason why. Has this been proposed for the right financial and service reasons, or is there another, perhaps more partisan, explanation?

I wish to raise a relatively straightforward issue of fact. In an answer to a recent parliamentary question, the Minister of State said that investment in the east coast main line’s infrastructure is not dependent on reprivatising passenger operations. He said:

“Funding for the 2014-19 upgrade of the east coast main line will be delivered through the Office of Rail Regulation approving a £240 million increase in the value of Network Rail’s regulatory access base. Network Rail may then borrow up to this amount to fund the upgrade works.”—[Official Report, 15 April 2013; Vol. 561, c. 2W.]

However, he has since asserted otherwise on a number of occasions. For example, at the Transport Committee meeting on 24 April he said:

“What I think is important, looking to the future, is how you make the needed and important investment in the East Coast Main Line to bring it up to scratch. You will be as aware as I am that part of the electrification is very antiquated and needs to be replaced and upgraded because it is causing significant problems to the quality of service. I do not believe that keeping the East Coast Main Line in public ownership is the most effective and swiftest way of getting that investment. I believe that returning the East Coast Main Line to a franchise operation offers the best opportunity to move forward. In addition, the Government and the rail industry, through Network Rail, are continuing to invest in the East Coast Main Line, but we need to accelerate that and increase it.”

Then, at Transport questions on 25 April, the Minister stated that

“yes, there will be taxpayers’ money involved in investing in the east coast main line, but, more importantly, the involvement of the private sector means that we can increase, over and above the taxpayers’ money, the money that can be invested in enhancing and improving the service for passengers.”—[Official Report, 25 April 2013; Vol. 561, c. 995.]

Despite a number of hon. Members raising this with the Minister in the debate a fortnight ago, he failed to address this point in his reply. Therefore I would be grateful if he could now state once and for all whether any elements of replacing and upgrading the electrification on the east coast main line are dependent on the transfer of the operation of passenger services to the private sector. Similarly, it would be helpful if he could explain how this investment will be delivered more swiftly if reprivatisation takes place. Finally, can he provide more detail of the increased investment, over and above the taxpayers’ money being put into the line, that would be delivered as a result of privatisation?

--- Later in debate ---

[Lilian Greenwood]

I cannot speak about that as I was not here, but the fact is that we now conducting a thorough review of the how the railways are structured. East Coast should be kept as a not-for-dividend operator, and we are committed to doing that.

[Mr Reid]

Will the hon. Lady give way?

[Lilian Greenwood]

No, as I want to make some progress.

Decisions on rolling stock have been postponed and a lack of orders is hitting the supply chain, threatening jobs and skills. The National Audit Office has raised serious concerns over the Department for Transport’s ability to deliver major projects, including HS2, and the Thameslink rolling stock contract is only now being signed after an unacceptable three-year delay.

With that background, it is no surprise that the rail industry has been shaken with a loss of confidence in the franchising process, hurting not just those on the front line, but the wider industry as well. Instead of concentrating on the problems caused by the collapse of the west coast and Great Western tenders, the Government are selling off the one part of the network that is benefiting from an extended period of stability. The east coast line could benefit further if the Government only had the courage to support it. Management have prepared a five-year plan for improving services, but Ministers have damned East Coast with faint praise, conceding that it is doing a good job, yet pushing through their politically motivated timetable for privatisation.

As Lord Adonis and my right hon. Friend the Member for Tooting (Sadiq Khan) said this week, it makes no sense to reprivatise an East Coast service that is working. Let me quote the noble Lord:

“East Coast is doing a great job and it should be allowed to get on with it…It has an impressive performance record, it has a loyal customer following and it is making big payments back to the government from its profit—to keep fares down for the travelling public—without needing to pay dividends to private shareholders …The government’s decision to rig the franchising timetable to get this unnecessary privatisation under way is requiring them to agree costly extensions to other contracts, wasting tax-payers’ money.”

He is right, and I hope that the Government listen to that argument.

We now have an opportunity to learn lessons and improve the rail industry for the better. Ministers should proceed on the basis of the best evidence available and promote what works instead of relying on political dogma. So it is disappointing to see them repeating the mistakes of the 1990s, when the ill-thought-through privatisation of the rail industry left us with problems with which the network is still grappling today. Now we have this unneeded, unwanted, and unjustified privatisation of the east coast main line—a service that has quietly and successfully improved the quality of journeys; a not-for-dividend operator that has delivered good value for money and reinvested profits in the service, unlike the private operator that walked away. There is no financial or operational case for privatisation. It is a transparently political act from a Government who are prepared to risk undoing the progress of the recent past. Passengers deserve better. I hope that Ministers will listen to the arguments made in the House today and halt this costly and unnecessary privatisation.