East Coast Main Line

Debate between Andy McDonald and Ian Murray

Wednesday 5th June 2013 Westminster Hall

[Andy McDonald]

I am grateful to the hon. Gentleman for highlighting the weaknesses of the entire structure of these private franchises. He does so eloquently.

A serious overhaul of the franchise process is necessary. The Minister may well claim that, following the Brown review, a new process is indeed in place. In that case, one has to wonder why existing private sector franchises, which would be the ideal testing ground for the process, are instead receiving extensions of up to 50 months. The Government’s haste to extricate themselves from running trains is all the more baffling when more than half the rail franchises in Britain are to some extent state-controlled already; it is just not the British state that is in control.

[Ian Murray (Edinburgh South) (Lab)]

Will my hon. Friend give way?

[Andy McDonald]

I will in a moment.

Putting aside East Coast and London Overground, there are 17 franchises in the UK, of which 10 are operated, to a greater or lesser extent, by the Governments of our European neighbours. Chiltern, CrossCountry and Wales & Borders franchises are operated by Arriva—a wholly owned subsidiary of Deutsche Bahn, the majority shareholder of which is the German Government. Greater Anglia is run by Abellio, the international arm of the Dutch Government’s rail operator Nederlandse Spoorwegen, which also runs Merseyrail Electrics and the aforementioned Northern franchise in partnership with Serco. The South Eastern, Southern and West Midlands franchises appear at first sight to be privately run and are operated by Govia—a joint venture between Go-Ahead Group and Keolis. Keolis, the largest private sector French transport group, is, however, majority owned by SNCF, the French state rail operator. Keolis also runs TransPennine Express, in collaboration with First Group. Are hon. Members, particularly those of a Eurosceptic bent, content that when they pay an extortionate sum for a ticket on Southern, South Eastern, TransPennine or West Midlands trains, their money is on the TGV to Monsieur Hollande? Why does this Government believe that other countries can run our rail services, but that Britain cannot?

The remaining seven franchises are hardly a model of laissez-faire, split as they are between three and a half private companies: Stagecoach, National Express, FirstGroup, and Virgin Trains, which is half-owned by its alleged competitor Stagecoach. New entrants cannot possibly afford to take on these mammoth projects and the risks that may accrue. The original 25 franchises offered in 1995 have shrunk to just 17 today, following mergers, making the barriers even higher.

The previous Conservative Government themselves recognised the barriers to new entrants when they banned British Rail from bidding for franchises in the wake of privatisation. The then Minister for Public Transport, now Baron Freeman, said:

“I am concerned that it would be very difficult to have a fair and equal competition if British Rail was a bidder.”—[Official Report, 26 July 1993; Vol. 229, c. 578W.]

The current debate is about not a free market versus a state monopoly, but whether a public asset, for which the taxpayer will remain liable, should be managed by the British Government, a foreign Government or one of a handful of private companies that are large enough to meet the criteria of the bid.

Such companies will always underestimate costs and overestimate revenue when they bid for contracts, because they know that, if they do not, their competitors will win the bid. They are looking to their next set of quarterly reports and their next shareholder annual general meeting; Governments are looking to the next century. The truth is that no Government can afford to let the rail network go to rack and ruin. The state will always have to intervene to protect that vital national asset and the lives of its citizens. As the saying goes, it is too big to fail.

Train operating companies know that, and they also know that if it all goes wrong, the taxpayer will be left holding the line. Christopher Garnett, the former chief executive of the train operator Great North Eastern Railway—the first franchise operators of the east coast main line—said during the failure of that company:

“The market will self-destruct as bidders bid to win on ever-tighter margins. When it goes wrong, it’s going to come right back to the Department for Transport.”

Since privatisation in 1996, both companies that have run inter-city services on the east coast have failed or walked away from the franchise mid-contract. Passengers will rightly be worried that history might repeat itself under a re-privatised service.

Many of those who are now Government Members once supported keeping the east coast main line in public hands. Before he held his current office, the Deputy Prime Minister said in 2009:

“Our railways should not be a plaything for private companies and we think giving it the stability of public ownership during the next franchise period would be much better”.

He added that

“it’s not an industry, it’s a public service. Our rail services are public services.”

If you will forgive the phrase, Dr McCrea, “I agree with Nick,” but as is ever the case nowadays, we are unsure whether the Deputy Prime Minister agrees with himself.

As many hon. Members whose constituents have lobbied against High Speed 2 know, railways do not affect just those whom the Government call “customers”. Stan Higgins, the chief executive of the North East of England Process Industry Cluster—the hon. Member for Redcar (Ian Swales) knows that confederation of the leading process businesses in our region well—told me the view of his members:

“We’re running railways for profit, as opposed to as a service to our industries and our communities.”

By the franchising process, the public are being disfranchised.

I want to quote the Conservative Secretary of State for Transport who moved the Second Reading of the Railways Bill that carved up and sold off British Rail. He said that that company had

“too little responsiveness to customers’ needs, whether passenger or freight; no real competition; and too little diversity and innovation…; an insufficiently sharp awareness on the part of employees that their success depends on satisfying the customer—indeed, on attracting more customers; and an instinctive tendency to ask for more taxpayers’ subsidy and to feel that public subsidy will always be there as a crutch whenever things look difficult.”—[Official Report, 2 February 1993; Vol. 218, c. 156.]

Those were the reasons for privatisation, and I will look at them one by one. East Coast has increased services in response to customer demand. It has successfully increased revenue in the face of competition from not only road transport, but domestic flights that are far cheaper than anything faced by British Rail. It has innovated with new services for first-class carriages and sold more than 1 million e-tickets. It has the highest rates of customer satisfaction of any long-distance franchise, and staff who are engaged with the company and with passengers. A million more journeys take place on East Coast now than when the franchise became public. Far from crying for subsidy, it makes the lowest demands on the public purse of any rail franchise.

Mr George Strauss, the Parliamentary Secretary to the Ministry of Transport at the time of nationalisation in 1946, said:

“I am sure that Parliament would not tolerate paying a permanent subsidy to a particular section of privately owned industry when, plainly, that industry as a whole, if properly organised, could be self-supporting.”—[Official Report, 18 December 1946; Vol. 431, c. 1975.]

The choice before us is between an unending subsidy to private interests and continued public ownership of a line that, in public hands, is 99% self-supporting. The question that I must ask the Government, and Members who oppose keeping the line in the hands of those who have managed it so well, is whether any evidence would get them to drop their prejudice that private is always better than public.