Railway Industry

Hugh Bayley Excerpts

Tuesday 19th October 2010 Westminster Hall

[Katy Clark (North Ayrshire and Arran) (Lab)]

It is a pleasure to see you in the Chair, Mr Dobbin, and to have this opportunity to debate the future of the railways.

I want to set this debate in the context of the economic situation that we face and express the concern felt in many quarters that the policies we believe that the Government may pursue could make things worse. I hope that colleagues will join me in welcoming the thousands of trade unionists who are coming to the House today as part of the TUC lobby of Parliament. They include many rail workers. I hope that we will listen to what they say before tomorrow’s comprehensive spending review.

I pay tribute to the rail workers who work in all conditions to keep Britain moving. It is important that their voice is heard in this debate; I hope to discuss their concerns and those of service users. I declare an interest as a member of various parliamentary trade union groups organised by the railway trade unions. I have also worked closely on the issues with the National Union of Rail, Maritime and Transport Workers, the Transport Salaried Staffs Association and ASLEF.

It is important to remind ourselves of the three policy areas under consideration that involve the future of the railways. First, the previous Government, after the 2009 pre-Budget report, established a value-for-money review of our railways. According to the Government, the review, headed by Sir Roy McNulty, has no no-go areas; everything is up for grabs. The new Government have asked that the review be expedited. We understand that it will be published in March, but the Secretary of State has already been given the interim findings, which I am told are likely to be published in November. I also understand that Sir Roy told the Secretary of State that his interim report was not at a stage to be used to inform any decisions made in the comprehensive spending review, but will the Minister confirm that?

The second major policy context for this debate is the comprehensive spending review. Like other Departments, the Department for Transport will, we believe, be asked to make big cuts. There are understandable concerns that if we make cuts to our railways, we will damage the infrastructure needed to drive economic recovery and growth as well as to meet the ambitious targets that we set ourselves in the Climate Change Act 2008. There is also concern that the comprehensive spending review will punish UK passengers with even higher fares, although ours are already the highest in Europe.

The third major policy area is the Government’s review of rail franchising, which has generated headlines saying that the train operating companies are clubbing together to demand that the Government hand over longer franchises. The companies are also demanding more say in—and, we believe, eventual control over—our railways, including track, signals and stations. The suggestion seems to be that we should re-create the big, private, regional rail companies that the Labour Government eliminated in 1945 when we nationalised the railways.

Given those policy areas, I will use this debate to highlight some concerns raised by passengers and rail workers. We have read reports in the press that the protection afforded by regulated fares might be weakened, and that UK fares—already the most expensive in Europe—could rise by 30% or more. Passengers will find that hard to stomach, particularly as they know that senior directors of the big five transport companies that control most of the railways are still paying themselves salaries that most people, frankly, consider obscene. We know that the railways depend almost entirely on annual public subsidies and the revenues generated by fares. In effect, by awarding themselves such large salaries, railway executives are forcing taxpayers and fare payers to subsidise their excess.

The trade union RMT has researched the matter and provided me with some shocking figures. RMT says that Moir Lockhead—recently of FirstGroup, which runs First Capital Connect, First Great Western, Hull Trains, First TransPennine and ScotRail—was paid more than £500,000 last year, as was Ray O’Toole, recently of National Express, which runs c2c Railways. David Martin of Arriva, the highest-paid director, was paid almost £750,000, and Brian Souter of Stagecoach Group is paid more than that for running South West Trains and East Midlands Trains, but top of the tree is Keith Ludeman of Go-Ahead Group, who was paid a salary of £916,000 last year and whose salary has since increased by 35% to £1.2 million.

Will the Minister comment on those salaries and join me in agreeing that passengers, who face big fare increases and are likely to suffer the consequences of cuts in the subsidies provided to our railways, will find such salaries unacceptable? Those salaries are paid, in effect, by the taxpayer and fare payer. I hope that she will agree that transport bosses should be exercising pay restraint, particularly at a time when the Government are asking everybody else to tighten their belts. I also hope that she will agree to write to the transport companies asking them to exercise restraint.

My second point is about the behaviour of the privatised transport companies and the profits that they have made from privatisation. Over the past 10 years, the biggest five transport companies have paid dividends of more than £2 billion to shareholders. Over the past seven years, the three rolling stock leasing companies that own the trains have paid dividends of more than £1 billion. Professor Jean Shaoul of Manchester university estimates that since privatisation, dividends of more than £10 billion have been paid.

As colleagues will know, windfall taxes on utilities have been levied successfully in the past. The Government are also considering a levy on bankers. Will the Minister agree to consider imposing a windfall tax on the profits of the privatised railway system instead of penalising passengers with fare increases? At the very least, does she agree that instead of paying huge dividends, railway companies should be helping protect passengers and taxpayers at this time by agreeing to freeze dividend payments and invest all profits back into our railways instead?

Will the Minister consider the work of Richard Murphy of the Tax Justice Network? He undertook a study, a copy of which has been submitted to the value-for- money review, that considered the available sets of accounts for the six railway operating companies and three railway leasing companies operating in the UK between 2002 and 2006. He found that during that period alone, those companies owed £1.3 billion in unpaid tax that the Government had not chased. Will she read a copy of that study and examine its conclusions?

My third point relates to the future of Network Rail. The Minister will be aware from the McNulty review of the railways that the same companies paying their top directors such handsome salaries and making massive profits now hope also to profit by taking over the tracks and signals currently owned and operated by Network Rail. Although Network Rail is a private company, it is a not-for-dividend company. That means the £4 billion or £5 billion annual subsidy does not leak out of the industry in dividend payment; instead, any profits are reinvested in the railways. Whatever faults Network Rail may have, taking railway maintenance back in-house has clearly had the effect of reintegrating much of our railways. Indeed, I believe that that has been responsible for the significant improvements in punctuality since the Hatfield disaster.

[Hugh Bayley (York Central) (Lab)]

I congratulate my hon. Friend on securing this important and timely debate. When the track renewals company Jarvis went belly up earlier this year, some 1,200 employees were made redundant and only about a quarter of them have so far got another job in the railway industry. Does my hon. Friend agree that the Government will need the skills of skilled track-laying workers, if they build the new north-south high-speed railway that will run from London to Birmingham and on to Yorkshire and the north-west? I regret that I must attend another meeting at 10.30 am, but will my hon. Friend press the Minister on what the Government can do to secure jobs for those redundant workers who have not yet got jobs themselves, so that their skills can be retained in the railway industry and used to build new railways?

[Katy Clark]

My hon. Friend makes some powerful points, to which I will return later in my contribution. The privatised rail companies propose to threaten the progress that has been made in the railways in recent years. They want their companies to take over the infrastructure, perhaps on leases that would coincide with the length of the franchises. There is talk of trialling such arrangements in Merseyside or Scotland. The train operating companies have promised that that will incentivise them to invest in the railways, but they have provided absolutely no evidence to support that submission. Indeed, the evidence of the past and of their tenure with the railway passenger services shows that they simply seek to maximise profit and boardroom pay, as I have already mentioned. In fact, the Government’s own consultation document, “Reforming Rail Franchising,” states:

“European procurement law makes clear that contracts over 15 years require significant investment to be provided by the franchisee. Therefore, our starting proposition is that 12 - 15 years should be the standard length of franchises”.

That seems to say that we should extend franchises to the maximum length at which franchise holders have no legal obligation to invest significantly and leave investment completely at the discretion of the franchise holder.