Transport Secretary: East Coast Franchise

Gareth Thomas Excerpts

Wednesday 23rd May 2018 Commons Chamber

[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.