East Coast Main Line

Ian Murray Excerpts

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.

--- Later in debate ---

[Hugh Bayley (York Central) (Lab)]

I, too, congratulate my hon. Friend the Member for Middlesbrough (Andy McDonald) on securing an important debate.

The headquarters of the east coast main line has been in York ever since the line was built in the 19th century, and hundreds of skilled jobs in my constituency depend on its staying there—jobs at the headquarters and in the Network Rail management of the east coast main line, and hundreds of jobs in private civil, structural, signalling and electrical engineering firms that work for the railways. There have been two private sector-created hiatuses, caused by franchise collapses, on the east coast main line. Now there is a Government-created hiatus—a refranchising. I urge the Minister to make sure that there is stability and that those jobs stay in York.

In February, I asked my right hon. Friend the Minister—I call him my friend because we sat next to each other at the Democratic convention, cheering Obama to the hilt; he is one of us—at Transport questions:

“Before the Government announce their franchising schedule will they look at the feasibility of running a public sector franchise on the east coast for a period to compare like for like with a private franchise on the west coast to resolve the issue”

of whether privatisation works?

He said:

“I am afraid that he is not going to tease out of me in advance what my right hon. Friend the Secretary of State will announce”.—[Official Report, 28 February 2013; Vol. 559, c. 463-4.]

I wish that the Government had given the idea consideration before they announced that they intended to go ahead with franchising, but since they deliberately did not, and told the House they were not going to do so, I ask them to consider the proposition now.

There are three fundamental questions for the Minister. Do the Government want lower fares on the railway, so that the railways become more affordable and passengers get out of their cars and on to trains? Does he want a high return on the public investment that there has been in railways for decades? Does he want ever-improving quality and safety? I am sure that his answer to all three questions would be yes. Has privatisation delivered on those dimensions? On fares: no, it clearly has not. On the return on investment, track charges now being obtained by Network Rail are lower than they were 20 years ago. The East Coast train company is giving the Government a higher return than its predecessor private companies. In round terms, it turns over £650 million a year and gives the Government a profit of £200 million. In the middle of a downturn, for East Coast to provide the Government with a 30% return is doing pretty well, and I do not think the Government should put that in jeopardy.

[Ian Murray]

I congratulate my hon. Friend the Member for Middlesbrough (Andy McDonald) on a wonderful speech. My hon. Friend the Member for York Central (Hugh Bayley) is getting to the crux of the matter. I travel on the east coast line—400 miles, for four hours 20 minutes—about twice a week. Does he agree that if a private operator returned that amount of money to the Government, they would champion it as a great way for the private industry to run the railways?

[Hugh Bayley]

They would, and rightly so but they should also do so for a public sector operator.

I was on the Public Bill Committee—they were called Standing Committees in those days—that considered the Railways Act 1993. We were told that the railways had to be privatised because there would then be masses of new private sector investment in the railways. Sadly, that has not happened. I totted up the investment for the first two years in which the Government were in power: 2010 and 2011. Network Rail invested more than 10 times as much as all the private rail companies put together. It invested £9,739 million and the private sector invested £780 million. In truth, the jury is still out on whether rail privatisation works.