Rail Update

Baroness Randerson Excerpts

Monday 5th February 2018 Lords Chamber

[Lord Kennedy of Southwark (Lab Co-op)]

I thank the noble Baroness for repeating the Statement made in the other place earlier today. Railways were privatised in 1994. Whatever we think of privatisation—there was lots going on at that time—it is fair to say that it has not gone well over the last few years. There were problems with Railtrack, Network Rail and various companies, and here we are again with another problem with the railways.

Today’s announcement by the Secretary of State, repeated by the noble Baroness, is just another monumental misjudgment, and adds to a growing list of miscalculations by the Secretary of State. I do not think that taxpayers or rail passengers are at the heart of this, or the rail industry itself. The culture in the Department for Transport is not serving the taxpayer or the travelling public well. I regularly use the railways in and around London as well as to and from the Midlands and the north of Scotland. With all the times that I have been detrained at Doncaster and elsewhere, and the problems and frustrations on the east coast line, it is really just not good enough.

It is frustrating to hear in the Statement what the Minister said about the new tender, that of course we cannot prevent the provider from actually tendering, because legally we are not allowed to do that. That is fair enough, but I recall the public sector being prevented from tendering for this contract; it was running it very well but was not even allowed to tender, which is very frustrating. If we want to get the best value for taxpayers, you want to get the best service possible.

I just do not believe that making direct awards to Virgin/Stagecoach on the west coast or east coast represents good value for money at all. I am really not convinced by that one little bit. We now have a number of train companies getting contracts without competition; many of our routes are now run that way—west coast, Great Western, east Midlands, CrossCountry and now east coast. That is because the Secretary of State is ideologically opposed to the public sector running railways; that is the political dogma that we have here today in front of us.

The Statement from the Minister is lengthy, and I have a couple of questions. The Statement said that the problem was that Stagecoach got the numbers wrong, that it overbid and is now paying the price. Maybe the Minister can explain to the House whether, when the bid was submitted—I assume that it was analysed and looked at—anybody anywhere thought, “Oh, maybe they’ve got their figures wrong here”. At the end of the day, of course you want to get a lot of money for your contract but, if it was actually not going to work, why did nobody spot that? Were any questions raised anywhere, when that contract came in? I would be very interested to hear what happened with that contract. Also, with regard to contracts in future, what is going to happen there?

The Statement talks about ensuring the,

“smooth running of the east coast franchise for its passengers”.

Can the Minister say a bit more about that? How will the Government ensure that it will be a smooth operation with no problems for passengers? I like the idea of this short-term, not-for-profit basis for a railway. That is the policy of the Co-operative Party. I have been a member of that party for many years, and we have a policy for a people’s railway, with the whole railway run on a not-for-profit basis. So I am delighted to see that, even if it is only in one small part of the policy, the Government have actually taken that point on board.

Can the Minister say a bit more about the operator of last resort? Who would that operator actually be? How would it actually be done? On the legal advice, the Minister said that they could not actually exclude Stagecoach or anyone who failed. Would it not be wise to draw up the contract in such a way that, if an operator fails to deliver on it, they cannot come straight back in and have that contract again? They may need to look at that as well because, if they cannot get the bid right, what is the point of having people running it who cannot get it done properly?

I shall leave it there and look forward to the Minister’s response on the issues that I have raised.

[Baroness Randerson (LD)]

I start from a rather different position, as I do not believe that the answer lies in renationalisation—but I am sure that the Minister will accept that things are not going well. We have had the fiasco of Southern and we have had Carillion being given more and more contracts, despite the profit warnings. We have had HS2 and the unauthorised payments, and now we have the east coast. The DfT seems to be presiding over a tale of muddle and huge commercial misjudgment.

The Secretary of State in his Statement says that Stagecoach/Virgin overbid. We all knew that it had done so; there was commentary in the commercial press at the time by other operators that this was a hugely overoptimistic bid. Why did the DfT allow that bid to go ahead if it was unrealistic?

The Statement says that,

“the franchise had breached a key financial covenant”.

Can the Minister please explain to us what that is, and why they are stepping in now as opposed to at any other point?

Much is made in the Statement of the £1 billion return to the public purse, but does the Minister accept that the railways are run as a service to passengers and that maybe the DfT is expecting far too great a return to the public purse, and the whole concept on which this is based is unrealistic? The Government are slowly reducing the percentage subsidy to our railways at a time when the railways are expanding and the number of passengers is generally increasing. Does the Minister accept that this is actually unrealistic as a way forward?

I am glad that the Statement includes options for the future and that among them it has the DfT as the operator of last resort. When that happened before, rather a good job was done by the state stepping in, and I urge the Government to do that in the case of Southern. Does the Minister consider that the concept of a franchisee needs to be expanded so that it includes public/private partnership and public sector bodies? Maybe mutual models, which involve staff and passengers, could be allowed to bid as well.

I also want to ask about the knock-on effect on other franchises. It is known that other franchisees are having a tough time. We need only a small hint of further problems in the economy and those franchisees could say, “The Government stepped in this time—why can they not step in and help us?”.

Finally, how is it that there is no adequate legal ground to exclude Stagecoach from further bids at this point? Surely the DfT should be writing the franchises more tightly than this.

[Baroness Sugg]

My Lords, as the Statement set out, our priority is to ensure the continued smooth running of the east coast main line for the passengers who use the service. As the Statement said, it has a 90% passenger satisfaction score, and we are looking at the future options for either direct operation through the DfT or Stagecoach continuing to operate. We will look at each of those options and work out the best solution to match the three principles set out. As the Statement says, it is a profitable line and we want that to continue in future.

On the franchising system and privatisation, the franchises will maintain an element of risk because they are run by private companies, and the success of the franchise is down to how they run the service. I think that the benefits of privatisation have been made clear in the Statement. I could add that, back in the mid-1990s, taxpayers paid out £1.8 billion in subsidies to the operators, and now the operators invest in the railways and pay premiums to the taxpayer—of £763 million last year. We have also seen investment of more than £6 billion from private investment over the last 11 years.

We are continuing to improve and refine the franchising model. Obviously there was an overbidding in this case, and we look at the performances of all franchises closely. In recent franchises, we have looked to take a different approach to the risks and are now moving more clearly towards the offer which will provide the highest-quality service for passengers and away from the highest bidder. The noble Baroness was absolutely right that passengers should be put first.

To address some of the lessons that we have learned from previous franchise evaluations, we have introduced new measures to deter overbidding as well as improving on our financial modelling and stress testing. With this added testing, the department will be able to forecast bids that are likely to default and exclude them in future. We have engaged with the market about those changes and continue to highlight to prospective bidders the more rigorous testing that bids will be subject to on the upcoming franchise competitions.

On the operator of last resort, there will be a team within the Department for Transport, supported by specialist advisers, to maintain continuity of passenger services. As I say, the changes in the rail strategy last year are designed to ensure that we get the best of both public and private sector worlds, and the new model will keep the benefits of privatisation while maintaining vital infrastructure in public hands. We have already begun this process of evolving how we run the railway.