Transport Secretary: East Coast Franchise

Andy McDonald Excerpts

Wednesday 23rd May 2018 Commons Chamber

[Andy McDonald (Middlesbrough) (Lab)]

I beg to move,

That this House censures the Secretary of State for Transport, the Rt hon Member for Epsom and Ewell, for his handling of the East Coast franchise and his proposal to re-privatise the route rather than operate it as a public sector operation; and calls on the Government to reduce his ministerial salary by £2,400 per year.

Labour has brought forward today’s motion because of the lack of candour and lack of debate around the future of the east coast franchise, both inside this House and outside. Not for the first time, the Secretary of State for Transport has fallen desperately short in matters of clarity and courtesy in his ministerial conduct. I believe that manners maketh the man and manners also maketh the Minister.

I would like to take this opportunity to advise the House that a week ago today I was denied the usual courtesy of being furnished with a copy of the Minister’s statement at least 45 minutes before the statement was made. I was allowed sight of the statement at 12.15 pm in an ante room on the upper ministerial corridor. I was not permitted to retain a copy and simply had to grab the few minutes afforded to me to make brief handwritten notes. With Prime Minister’s questions scheduled to finish at 12.45 pm and there being no other business before the House, that gave me the briefest sight of the document that I was to respond to.

To add insult to injury, I was not even provided with a hard copy of the statement as it was being delivered at the Dispatch Box. I noted that you, Mr Speaker, did have the benefit of a hard copy of the Secretary of State’s statement as he delivered it, but sadly I did not have that luxury.

[Mr Speaker]

I say in the most gentle spirit—we do not want to go over all of it in detail—that the copy for me was of limited use. It was very interesting to read, but of limited use. It would have been of greater use to the hon. Gentleman.

[Andy McDonald]

I am grateful, Mr Speaker.

It seems that certain newspapers had sight of the statement approximately an hour before its delivery. That courtesy ought to have been afforded to Her Majesty’s Opposition. To add further injury to further insult, the Secretary of State told this House, in the course of responding to questions on the statement, that the Opposition had been provided with a copy of the statement. Being given brief sight of the statement, by any reasonable interpretation, is a far cry from being provided with a copy. I trust the House will accept that this is not the way to go about business. Even at this stage, I live in hope that the Secretary of State will accept that his behaviour was not what is expected of a Minister of the Crown.

In my remarks today, I intend to examine how rail operations in the United Kingdom got into such an inexplicable and unsustainable place and consider whether the Government’s policy solutions are the right ones. Before I do so, however, I would like to deal with a preliminary issue. Each time we debate the railway, the Secretary of State argues that the private sector funds investment in the railway that we would not have under public ownership. That is simply untrue and misunderstands where investment comes from. It is the taxpayer and the fare payer, not private companies, who fund investment in the railway. Every bit of new track, every new station or new train is paid for by the public. The private sector only finances investment and it does so at a profit, such as rolling stock companies who finance the purchase of new trains and take home eye-watering profits.

[Sir Desmond Swayne (New Forest West) (Con)]

Can the hon. Gentleman explain to me the difference between paying for something and financing it?

[Andy McDonald]

Absolutely. The private sector can organise financing, but the funding has to come from somewhere. It always comes from the same source: it is provided by taxpayers and by fare-paying passengers. It is paid for, so it is wrong for the Secretary of State to repeatedly credit companies with the investment made by taxpayers and passengers who are paying sky-high fares. Public ownership does not mean less investment. Under Labour, it will mean greater investment.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

I am not sure whether this is bad timing, but the hon. Gentleman will be aware that today in Wales the Labour Government have awarded the Welsh franchise to a multinational French-Spanish company, KeolisAmey, in a £5 billion 15-year deal, despite a manifesto promise to award it on a not-for-profit basis. Why are his Labour colleagues in Wales directly contradicting what he is proposing today?

[Andy McDonald]

That is entirely a matter for the Welsh Government.

The east coast saga is littered with incompetence and delusion, alongside a frankly cavalier regard for the public and passenger interest by a succession of Transport Ministers.

[Helen Goodman (Bishop Auckland) (Lab)]

This is now the sixth change of management for the east coast main line in 11 years. That cannot be good for any organisation. Does my hon. Friend know what is happening to the planned investment programme of new trains being built by Hitachi in the north-east?

[Andy McDonald]

My hon. Friend is entirely right. There are people now working on the east coast main line who are expecting their sixth change of uniform in 10 years. It is absolutely ludicrous. There has been an appalling record over the past several years.

[Jenny Chapman (Darlington) (Lab)]

My hon. Friend says something that sums it up. This has been about changing uniforms and livery on trains, while the promised improvements to service, the new routes and the benefits to passengers have never ever materialised.

[Andy McDonald]

My hon. Friend is entirely right. It is ludicrous that the reported cost of changing the livery yet again on this network is an estimated £13 million.

[Huw Merriman (Bexhill and Battle) (Con)]

I am very grateful to the hon. Gentleman. He is being very kind in giving way. Does he recognise that since 2015, when the franchise was put back into private hands, there have been an extra 1.74 million seats and an extra 40 services each week from London to Edinburgh? Is it therefore not the case that we have seen not only a 20% increase in money coming in, but an increase in service?

[Andy McDonald]

If we speak to people who take that train journey regularly, I think they will have their own observations about the quality of service. However, if the hon. Gentleman bears with me, I will deal with his remarks as I develop my speech.

[Simon Hoare (North Dorset) (Con)]

Will the hon. Gentleman give way?

[Andy McDonald]

I really want to make some progress—I have taken a lot of interventions thus far.

I am concerned that the Government’s unimaginative and ill-thought-out response to the current crisis threatens the taxpayer interest yet further. Following the west coast franchise debacle in 2012, there were numerous reviews and process changes to rail franchising. We were told that nothing like that could ever happen again. In an act of ideological spite, the east coast franchise was forced back out into the private sector by a coalition Government desperate to tie the hands of a possible Labour Government in 2015. Passengers and taxpayers have lived to regret that decision.

[Liz Twist (Blaydon) (Lab)]

Does my hon. Friend agree that there is huge support in the north-east for a directly operated railway in not just the short term, but the long term? The experience in the north-east proved that this was a viable proposition and one that has tremendous support from the public and passengers.

[Andy McDonald]

I agree entirely with my hon. Friend. There is great support for a publicly owned railway on the east coast—

[Edward Argar (Charnwood) (Con)]

Will the hon. Gentleman give way?

[Alec Shelbrooke (Elmet and Rothwell) (Con)]

Will the hon. Gentleman give way?

[Andy McDonald]

I’ll tell you what: I will answer one intervention and when I have finished with that one, I’ll see if I should answer another one—how does that go as a deal?

My hon. Friend the Member for Blaydon (Liz Twist) is entirely correct about that, and she is right about the response from the people who work on the railway. The investment in their training and performance reflected that and the benefits of the quality of the railway are because of the hard work and dedication of the people who work within it.

The Secretary of State said more than once that Virgin-Stagecoach got its numbers wrong when its bid for the east coast franchise was accepted in 2014. Why, then, did the Department accept the bid? What due diligence of the bid took place? Two of the Department’s franchise bid advisers told the Transport Committee on Monday that the Virgin-Stagecoach bid got through the DFT’s financial robustness test and financial risk assessment test. If that is the case, the financial robustness test and the financial risk assessment test are wholly ineffective and inadequate. Those same witnesses—the Department’s own advisers—suggested that the east coast franchise was doomed from day one. That is hardly a ringing endorsement from those in the know. In all those circumstances, what faith can we have in the Department’s processes?

This week it emerged that the Secretary of State allowed HS2 to appoint Ernst and Young to investigate Carillion, notwithstanding that EY was advising HS2. Clearly that is a direct, obvious and major conflict of interest. The Business, Energy and Industrial Strategy and the Work and Pensions Committees asked if appropriate diligence took place. It seems that the Secretary of State’s failure to conduct proper due diligence is not isolated. EY, it should be recalled, is one of the Department’s technical advisers on the east coast operator of last resort.

Stagecoach knew that it would not meet its revenue targets weeks after taking over the east coast franchise in March 2015. The company was in constant dialogue with the Department about it. The Secretary of State has been in post since July 2016 and must have known about this for that period of time. Why did he do nothing? Has not this Transport Secretary been asleep at the wheel?

We learned this morning that the Government knew that Carillion was at risk for more than a year before the company went bust. As with the east coast franchise, the Government sat on their hands and did nothing. What about the Department’s managing director for passenger rail services, Peter Wilkinson, who was brought in at such great expense in 2012 to “get rail franchising back on track”? I am not a personnel expert, but I would say that Mr Wilkinson must be in breach of his contract.

Let us get into some of the details. On 14 Feb 2018, DFT OLR Ltd—presumably OLR stood for “operator of last resort”—was renamed London North Eastern Railway Ltd. It is a company limited by shares to a nominal value of just £1. The company has six directors, four of whom are listed with the occupation “civil servant”. They include the DFT’s head of passenger service, Peter Wilkinson; the DFT’s lead on in-franchise change, Richard Cantwell; and the DFT’s head of franchise policy and design, Simon Smith—the other civil servant does not show up on the DFT’s organogram.

Not only was LNER established in February, but the domain name was registered on 29 March. Why has it taken the Secretary of State three months to inform the House of a decision that he took all those months ago? Last year, it emerged that the Government decided to cancel rail electrification projects in March but they did not announce the decisions until after the general election in July. The collapse of the east coast franchise should set alarm bells ringing at the Department for Transport.

[Rachel Reeves (Leeds West) (Lab)]

Virgin-Stagecoach has let down passengers, as well as the taxpayer. Does my hon. Friend agree that Virgin-Stagecoach should not be allowed to bid for any other train routes? If it were, that would make a mockery of the whole system of privatisation and outsourcing, with absolutely no responsibility or accountability?

[Andy McDonald]

My hon. Friend makes a very good point: we seem to be in the business of rewarding failure. The smack on the wrist for Virgin-Stagecoach was to give it an extension on the west coast line. How on earth does that relate to a franchise that has failed?

As I said, the collapse of the east coast franchise should set alarm bells ringing at the DFT. The Secretary of State acknowledges that his Department accepted a bid that was too high, yet at the time of the bid, Virgin Trains East Coast was told by the DFT that it was the highest-quality bid that it had ever received. If the highest-quality bid ever received could go so badly wrong so quickly, what does that mean for other franchises?

[Gareth Thomas (Harrow West) (Lab/Co-op)]

Will my hon. Friend give way?

[Andy McDonald]

I will.

[Mr Speaker]

Order. Before the hon. Member for Harrow West (Gareth Thomas) intervenes, the shadow Transport Secretary has been most generous in giving way, and that is perfectly proper, but I just emphasise that 15 Back Benchers want to speak. Therefore, it might be an idea to think in terms of finishing the speeches from Front Benchers by 10 past or quarter past 2 at the latest. If it is possible to do so earlier, so much the better. I call Mr Gareth Thomas.

[Gareth Thomas]

I am grateful to you, Mr Speaker, and to my hon. Friend the Member for Middlesbrough (Andy McDonald) for accepting this intervention before you got up to make your own. Is my hon. Friend aware of the Centre for Policy Studies—not a natural ally for him, perhaps—and its recent report in which it alluded to fundamental problems with rail competition and the declining market interest in bidding for rail franchises? Would he therefore take this opportunity to commend to the Secretary of State the recent Co-operative party report setting out a new approach to public ownership of the railways?

[Andy McDonald]

I am grateful to my hon. Friend for his intervention. He makes his point very well. With your guidance in mind, Mr Speaker, I put the House on notice that I do not intend to take any further interventions—I shall crack on.

The franchising model is based on ever-growing passenger numbers. Indeed, other franchise agreements have been agreed with similarly optimistic assumptions about growing passenger numbers and fares revenue. Even in times of growing usage, franchises have proven to be unsustainable, yet we are now seeing a period of falling passenger numbers. In the last two quarters, rail passenger usage fell by 0.4% and 0.9%, driven by respective 8.1% and 9.4% falls in season-ticket journeys. That is a result of above-inflation fare rises; people who have seen fares rise at three times the rate of wages since 2010 are opting for cheaper modes of transport. Passengers are being priced off the railway. This declining usage threatens the integrity and financial sustainability of the railway and the franchising system itself, as other operators find themselves in similar trouble to Virgin-Stagecoach on the east coast.

What, then, is the Secretary of State’s solution? Will he abandon above-inflation fare rises, as Labour has pledged to do, so that passengers can afford to travel by rail and patronage can be boosted? If not, how does he plan to handle problems with franchises down the line? Will he do as he has done with the east coast and allow companies to walk away from their contracts, thereby forfeiting billions of pounds in premium payments owed to the Treasury, before handing services over to other companies that will agree to pay less back to the taxpayer?

The new west coast partnership franchise has a £20 million parent company guarantee. This contrasts with the £200 million guaranteed by Stagecoach on the east coast. Less risk for the private sector means more risk for the public purse. Both options would allow private operators to renege on their contracts, at a cost of billions of pounds, and makes a mockery of rail franchising by telling private operators that the state will intervene if they are in trouble, removing risk and incentivising reckless bids. It would be a case of profits being privatised and losses socialised.

The Public Accounts Committee and the Transport Committee have published reports that are scathing of both the Secretary of State’s handling of franchises and the franchising system more generally, which is clearly failing on its own terms. The Secretary of State is attempting to prop up the franchising model for ideological reasons. Since 2010, there have been more direct awards—companies being gifted services without having to bid—than successful franchising competitions, meaning that the system resembles state-sponsored monopolies rather than a market where franchisees make bids they are expected to honour.

I have yet to hear the Secretary of State articulate a solution to these fundamental flaws in rail franchising. So far, he has only proposed to tinker around the edges. The strategic vision for rail announced last November will be a future case study for media students on Government presentational double-speak. Amid reversing the Beeching cuts and announcing the invitation to tender for the next south-eastern franchise, there were two sentences on how the east coast franchise had failed. The strategic vision embodies his approach to his ministerial brief and to announcements in this House: smoke, mirrors, ambiguities, jargon, technicalities, empty aspirations and discourtesy.

[Lilian Greenwood (Nottingham South) (Lab)]

Can my hon. Friend offer any insight into the Secretary of State’s long-term vision for rail franchising? Did he hear the evidence to the Transport Committee on Monday on the proposed east coast partnership, when Iryna Terlecky, a rail professional with decades of experience, told us that she had

“no idea how it might work”?

She added:

“If I was doing this kind of partnership, I would not do it on the east coast”

because it was

“completely counter-intuitive”.

Can he understand why the Secretary of State is going down this path?

--- Later in debate ---

[Andy McDonald]

I am grateful for my hon. Friend’s intervention. I value the work she does so astutely as Chair of the Transport Committee. It is remarkable that those experts and advisers are making such comments. I will come on to deal with the choice of the east coast for a potential partnership option in my concluding remarks.

[Simon Hoare]

A moment or so ago, the hon. Gentleman mentioned ideology. I am a Welshman and I thought I understood the Welsh Labour party. What is the difference between the ideologies of Welsh Labour and London Labour on these vital transport issues? Clearly there is a difference, as alluded to by the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards).

[Andy McDonald]

The hon. Gentleman will recognise of course that the Government forced through the franchise option, so they had no choice in Wales.

Like his time at the Ministry of Justice, the Secretary of State must hope to be moved on before his wrecking-ball approach to decisions reveals its true horrors. He seems incapable of being direct with Members and the public alike. Given his track record, is it any wonder that no one takes the east coast partnership idea seriously? Where on earth did he come up with it? In the back of a taxi on the way to Parliament to deliver his statement?

As my hon. Friend the Chair of the Select Committee has remarked, the east coast is the last line on the rail network on which a partnership between a train and track operator has been launched. More than 20 passenger, freight and open access operators use the east coast main line. The east coast franchise runs less than 10% of services. Why would anyone put this operator in charge? There is no basis for the Secretary of State’s assurances that the governance of the partnership would be independent.

The Secretary of State knows that Network Rail’s London and north-eastern route covers the east midlands. Putting that route into an east coast partnership will force Network Rail to prioritise the east coast over the east midlands and further damage a region that is losing rail electrification and services because of timetable changes. Will his east coast partnership not undermine the national rail infrastructure manager, Network Rail? His new market-led proposals for rail enhancements also undermine Network Rail’s role and increase the Department’s micro-management of rail. Is there not simply too much political interference in rail?

[Mr Ronnie Campbell (Blyth Valley) (Lab)]

Will my hon. Friend give way?

[Andy McDonald]

I will give way briefly, but it will be my last intervention.

[Mr Campbell]

Like many north-east MPs, I travel on the east coast line every week, and I am always being asked this question by passengers and staff: why on earth did the coalition Government get rid of a perfectly good company that put £1 billion over four years into the Treasury and give the franchise to Virgin-Stagecoach? That has never really been explained.

[Andy McDonald]

I think the explanation is quite simple: it was done out of ideological obsession and to put the franchise outwith the reach of anybody else.

By contrast, the next Labour Government will allow rail professionals to get on with their jobs free from political interference. [Interruption.] They do not seem to understand the difference.

[Kwasi Kwarteng (Spelthorne) (Con)]

rose—

[Andy McDonald]

No, I am not taking any more interventions. Sit!

Last week, the Secretary of State failed to address my concerns about four other highly vulnerable rail franchises being provided with revenue support by the Department. Is it his intention to take these contracts within the operator of last resort function should they fail?

[Kwasi Kwarteng]

How does the hon. Gentleman square his statement that there is too much political interference in the rail network with his party’s stated desire to nationalise the entire network? It does not make any sense.

[Andy McDonald]

Had the hon. Gentleman been here for the entirety of the debate, he might have heard me refer to that; I know he has just walked in. The object of the exercise is to put rail professionals in charge of the railway system.

Is it not the reality that the franchise system is totally broken? It is finished; it’s a dead parrot; it is no more. The one thing the Secretary of State is right about is that track and train should be unified, but that should not be done simply to further his ideological obsession with parcelling up public services for profiteers. I am glad, therefore, that this service has been taken out of the franchising system and placed under public control, although the fact that it is a consortium of private companies brought about during the partial privatisation of the operator of last resort prevents it from being properly described as full public ownership.

A minimum estimate is that £725 million flows out of the railway every year into the pockets of shareholders. In addition, £200 million each year is wasted through a disjointed system. Breaking the railway up into pieces was necessary to sell it off, but it has created an inefficient railway. A few years ago, the McNulty report found our railways to be 40% less efficient than European comparators.

I do not agree with the Members who favour a “halfway house” option—having a degree of public ownership, but retaining the broader franchising model, along with a public sector operator or two—as that would mean failing to realise the full benefits of public ownership. What is needed is a fully integrated railway that is fully in public ownership. A unified railway in public ownership, serving the interests of British citizens, their communities, their jobs and their businesses is what Labour will deliver, and the sooner we can have a general election to bring it about, the better. I commend the motion to the House.

--- Later in debate ---

[Andy McDonald]

Had the franchise run its full term, would the Secretary of State have expected Virgin Trains East Coast to pay the full £3.3 billion in premiums?

[Chris Grayling]

Any franchise that runs its full term is expected to pay the full premiums, but when National Express went under and there was a further £1.5 billion of premiums to pay, that money continued to be paid by the new operator, in the same way that the premiums that we are expecting will continue to be paid by the operator in this instance. This is my point: the hon. Gentleman does not understand how the finances of the railways work, and that is why the Labour party is so unfit to be in opposition, let alone to govern.