Network Rail

Jim Dowd Excerpts

Tuesday 13th January 2015 Westminster Hall

[Mark Reckless (Rochester and Strood) (UKIP)]

Network Rail has a quite extraordinary governance structure. It was set up in that way, as I think almost all parties would agree, with the primary aim of keeping its debt off the Government’s books. However, since a ruling from Eurostat, implemented by the Office for National Statistics here, that debt is now on the Government’s balance sheets, with that decision having been taken finally in December 2013, with the reclassification of the entity taking effect on 1 September 2014.

Last week, when I asked the Secretary of State for Transport whether it was not therefore time to reform Network Rail’s labyrinthine governance structure to make it more accountable, he replied that he would take my question as a representation to cancel the building of a new railway station in my constituency. I fear that exchange probably told us more about the Secretary of State’s character than it did about the governance of Network Rail, hence today’s debate, which follows yesterday’s publication of Network Rail’s report on the post-Christmas disruption. I will focus on two issues—pay and governance—before finally making one or two remarks about Rochester and the applicability of these issues to my constituency.

Yesterday, a report was published by Dr Francis Paonessa, who is the managing director of infrastructure projects at Network Rail. He is paid an annual salary of £425,000 with a further bonus opportunity of 20% of salary. I intend no personal criticism to Dr Francis Paonessa, who is clearly a manager of stature. Before taking his current role with Network Rail, he was the UK managing director of Bombardier, which, under his leadership, secured the important Crossrail contract for building trains, having previously lost out on the Thameslink contract to Siemens. Clearly, running leading infrastructure projects requires a different set of skills, given their complexity, but he replaced Simon Kirby, who moved on to head up HS2 Ltd as chief executive—clearly a huge job, at least potentially. However, the excessive cost structure in the rail industry, led by Network Rail, underlines my party’s belief that HS2 is unaffordable. Half a dozen people at Network Rail, at least, earn similar sums to Dr Francis Paonessa. Mark Carne, the chief executive, earns substantially more. Why has their pay not been cut to reflect the transfer of Network Rail as an organisation from the private to the public sector?

We talk often, as a comparator, about how much the Prime Minister earns, but the numbers of people earning in excess of the Prime Minister’s salary are legion within Network Rail. It has moved from being a private sector to a public sector organisation, and surely we should be told what new standards are being applied in Network Rail following that move.

In March 2012, the Department for Transport wrote:

“As a private sector company, Network Rail sets performance pay levels for its senior staff”—

but it no longer is a private sector company, so who is setting those pay and performance-related pay numbers now? Who are those senior managers accountable to for their pay? Is it the Secretary of State? Is it the so-called members of Network Rail, about which more in a moment, or is it themselves? Mark Carne has announced that he intends to limit his bonus to just 5% of his salary—of course, that bonus will still be more than average earnings across the country and in my constituency.

In particular, we have seen the failures over the post-Christmas period and the disruption that caused to many people across the country seeking to use the network, the extent to which it has become standard to have long-running periods of shutdown over Christmas and new year, the length of some of these infrastructure projects and the closures involved and the lack of predictability about them. In my constituency, we greatly welcomed the new railway station in Rochester, but one point I have from my constituents is why people cannot be warned further in advance about closures, so that they can plan around them.

[Jim Dowd (Lewisham West and Penge) (Lab)]

On the point about the disruption and giving notice in advance, Network Rail had years to prepare for the shutdown of London Bridge station over the recent Christmas period as part of the admirable Thameslink programme. However, they made a huge blunder in organising that, the effects of which have still not been concluded and people’s journeys are still being disrupted. It is not bonuses that the managers should be looking at, but fines.

[Mark Reckless]

The hon. Gentleman makes a good point, which comes back to how these people are held accountable and whether that is through the withholding of a bonus or some other form of discipline, such as a reduction in salary. I do not know whether we are talking about fines, perhaps on a regulatory basis, or whether he is suggesting that it should be on a criminal basis—that would be very strong for such a management role. What I think my constituents and his want is accountability, and we simply do not have that with the current structure.

From 1 September 2014, we have had a new agreement between the Department and Network Rail, but there is, I believe at least, a lack of clarity about what difference that agreement is making in how Network Rail is held to account. Why do we still have these 46 public members and a similar number of industry members, ostensibly playing a part akin to shareholders in this organisation? There was a vote back in, I believe, November 2009. Thirty-six of those members—I do not know whether turkeys voting for Christmas is a fair comparison here—voted to decrease their numbers, but 36 voted against that, and that has remained the situation ever since, despite the Government saying again in March 2012:

“We therefore welcome the governance proposals that Network Rail is announcing, including: reducing the number of members to a more sensible level, thereby improving the quality of decision-making.”

Has that happened?

In the same report, “Reforming our Railways: Putting the Customer First”, the Government said:

“Network Rail is a private-sector, not-for-dividend company, limited by guarantee…we believe the existing structure is capable of delivering the outcomes and the savings we need without disruptive and unnecessary organisational change... equity is a strong driver of efficiency and value for money.”

How in this unique, convoluted, labyrinthine governance structure does equity operate as a driver of efficiency? We have these industry members that the board reports to, to a degree. One might think it is useful perhaps to have that reporting line to the customer, but whenever those customers’ interests are involved, that member steps aside on the basis of there being a conflict of interest, so how can that governance structure work and is it really a sensible way for us to proceed?

In my constituency of Rochester and Strood, we have had the impact of the London Bridge changes. The disruption has affected some people. The sheer length of the closure of London Bridge station for Charing Cross-bound trains that we are currently dealing with is an enormous issue. We have to hold Network Rail to account for the costs that it applies, which are largely passed on in fares to the customer, but also for the length of time that these projects take. I would be interested to hear the Minister’s view. Could she tell us what she has done to ensure that that closure period is as short as possible and the costs are as low as possible? I just have an innate suspicion of an organisation that is not accountable, or at least not in a way that I can understand or in the way in which other organisations are.

The Minister will no doubt refer to the report, published yesterday by Dr Francis Paonessa, explaining away, defending and, to an extent, putting Network Rail’s side of the story in terms of the disruption that we saw immediately after Christmas, but that report is not addressed to anyone. I do not know: is it for the board of Network Rail, for its members, for the Secretary of State or for Parliament? It does not say. There is a foreword by Mark Carne and a whole series of explanations and, to some extent, excuses, but who ultimately holds Network Rail to account for that? Why is it being paid so much money? Why is that disruption allowed, and do we really believe that this labyrinthine governance structure and the costs that we see in this industry are the best we can do? I believe that this country can do it better, and it is time we got on with that and dealt with some of the governance issues at Network Rail and ensured that it works better.

--- Later in debate ---

[Claire Perry]

I am keen to answer the questions, if the hon. Gentleman will allow me to proceed.

As I was saying, an unprecedented amount of engineering work went on over the holiday period, because the main driver of problems on the railways is twofold. First, passenger growth is unprecedented. About 1.6 billion passenger journeys are now made every year, twice as many as before privatisation. Secondly, successive Governments have underinvested in the railways for many a long year.

The hon. Gentleman asked about London Bridge station, as did the hon. Member for Lewisham West and Penge (Jim Dowd). That station is 176 years old, and frankly, it has been ignored, although it is one of the busiest pinch points into London. That work is finally being done, so that residents across the south and south-east can transit in and out of London much more effectively.

[Jim Dowd]

I congratulate the Minister on organising a meeting next week with the principal train operating companies running into London Bridge—Southern and Southeastern. Can she confirm that we will also have an opportunity to consider the position regarding London Bridge itself and the colossal debacle that my constituents and many others have had to experience for 10 days now, with little sign of the problems abating?

[Claire Perry]

I agree with the hon. Gentleman; I think that he uses a good adjective. I have visited the station, and my officials have been there. The Secretary of State himself went there during rush hour. We are extremely concerned that the engineering works, which are fantastically overdue, are delivered in a way that does not inconvenience passengers. That gets to the crux of the matter.

This is not a governance problem; it is a failure to work across industry, with passenger benefit front and central. Enormous operational improvements will clearly be delivered by this Government’s unprecedented £38 billion investment in the railways, which is long overdue and will benefit all Members in this room, but it must be delivered by thinking first and foremost about how passengers will use the network and about the benefits for them.

As we saw in the McNulty report published several years ago, the challenge for British railways is to do what we suggested then and join up the objectives of Network Rail and the train operating companies to carry on this unprecedented amount of investment, as we know can be done across the network. I am happy to reassure Members that the Government are committed across the board not only to ensuring operational independence, but, clearly, to delivering better services for passengers in the running of the railways. I am also happy to reassure Members that we remain committed to our huge programme of planned improvements, including the entire rebuild of Rochester station by the end of this year and £120 million of signalling works in east Kent, which I am sure the hon. Member for Rochester and Strood is rising to congratulate the Government on providing.