Rail Fares

Debate between John McDonnell and John Leech

Wednesday 5th September 2012 Commons Chamber

[John McDonnell]

Time and again, when rail franchises have collapsed, they have been brought under public ownership and control. We saw that with the First Capital Connect franchise in the south-east. When that service was in public ownership, it was one of the most efficient and cost-effective services. Unfortunately, the previous Government—this Government pursued this as well—put it out to the private sector again.

The Secretary of State referred in his opening remarks to the investment in electrification and high-speed rail. I wholeheartedly welcome that investment, but I have concerns about the High Speed 2 route. I am particularly concerned about how it has been consulted on. The two-stage approach and the development of the line—the two stages being those that link London to the midlands and to the north—were consulted on separately from the publication of the route to Heathrow, which will affect my constituency. Nevertheless, I welcome the concept of investment in high-speed rail for the future.

Great play has been made in this debate of the issue of reform and its impact on costs and fares. I think that all the rail unions will be willing to meet to discuss the reform of the current system of franchising and of the operation of the railways. I met Roy McNulty on a regular basis. He is a nice old buffer and I do not in any way disparage his commitment or the genuineness of his approach to the review of the railway network, but I have to say that, even under the previous Government, the terms of reference of the McNulty review were specifically limited and that his horizons were, therefore, limited. My hon. Friend the Member for Wirral South (Alison McGovern) has made the point that the comparisons with Europe were hardly straightforward. The comparison was between a franchising system and systems that were largely in the public sector, publicly owned and publicly managed. He was not allowed to look at what public ownership and public control could mean in this country compared with elsewhere. As I have said, the only time that such ownership has occurred here in recent years is when private sector franchises have collapsed and the public sector has taken them over and managed them efficiently and effectively.

The problem with the McNulty review—this has been touched on—is that he envisages, at the most recent estimate, a cut of 20,000 jobs. That will have consequences for services, and many of our constituents have expressed concerns about that.

[Mr Leech]

The unions mentioned the figure of 20,000 job losses to our Transport Committee, but that figure was rejected by others in the industry, who said that the actual numbers were far lower.

[John McDonnell]

The range cited is anything between 5,000 and 20,000. Even if the figure is 5,000, a significant number of jobs will go. In those areas where the general proposals have been translated into concrete ones at the local level, passengers and communities have expressed consternation. For example, the west midlands is trying to translate some of the reductions in staffing into the service itself and faces 80 ticket office closures. That will result in a reduction of staff in the station, so there are concerns about losing the service and about security on platforms and at stations. As a result, a new campaign was launched in August and 40 main stations across the country were picketed by community groups and unions. The campaign was joined by the TUC, the Campaign for Better Transport, Climate Rush and a number of other groups. I issue a warning—perhaps I will send the Secretary of State a note about this—that the campaign was also joined by the women’s institute. Any Minister who takes on the 210,000 members of the women’s institute does so at his or her peril.

This point has been touched on by the hon. Member for Brighton, Pavilion (Caroline Lucas), but there needs to be a discussion about why the fares have increased and why the travelling public have been burdened by those increases over the years. We need to have a debate—I hope that this will happen under the new Secretary of State—about how we should organise our railways. We cannot ignore the understanding and appreciation that now exists of the impact of privatisation. I would welcome a more open debate in which people took a more agnostic approach to privatisation, rather than an ideologically committed one, as has been the case in the past.

I refer Members to the “Rebuilding Rail” report, which came out a couple of months ago. It looked at the value-for-money arguments of the existing franchising mechanism and compared the public subsidy that was put into British Rail with the current subsidy. That independent report found that public subsidy had doubled under the franchising system from £2.4 billion to more than £5.4 billion. From 2005-06 to 2009-10, the average subsidy going into the privatised system was £1.2 billion a year. The total subsidy under privatisation is now nearly £12 billion.

When we have had this argument in the past, a number of Members from all parts of the House have argued that the private companies that operate the franchises are paying a premium and putting money back into the system. I pay tribute to the detailed work of John Stittle, the senior lecturer in accounting at the university of Essex, in the “Rebuilding Rail” report. He looked at how the money has, in effect, been laundered through Network Rail. We have increased the public subsidies to Network Rail, resulting in a reduction in the track operational costs for private companies, which has enabled them to pay the premiums. Under privatisation, there has been a straightforward subsidy from the taxpayer to the private companies to run the system, the passengers have been hit by high fares, and the premiums that the companies pay back to the state, which they extol the virtues of, have actually been paid for by subsidies laundered through Network Rail. That is why we need a re-examination of the whole structure. I hope that we will now have that open debate.

The “Rebuilding Rail” report shows—this is partly reflected by McNulty—that the high costs that are resulting in high fares are a result of the complex structure of the franchising system. It highlights other issues such as the higher interest payments that were paid to keep Network Rail’s debts off the Government balance sheet; the debt write-offs that have occurred under privatisation; and the costs arising from the fragmentation of the system between numerous organisations and subcontractors, which my hon. Friend the Member for North Ayrshire and Arran (Katy Clark) pointed out. The profit margins of the complex tiers of contractors and subcontractors are forcing rail fares up, because of their high costs. The level of the dividend payments to private investors is unacceptable to the travelling public when fares are increasing. As I said, there is an average subsidy of £1.2 billion a year and more than £11 billion of public funds have been paid out so far.

I hope that we will have some new thinking. I hope that we will again look at public ownership as an option. The hon. Member for Brighton, Pavilion demonstrated, although it was dismissed by the Liberal spokesperson, that independent examination of the matter has shown that public ownership could be reintroduced in the railway system at virtually zero cost. As the franchises end, they can be brought back into public ownership, as has happened with two franchises, at no additional cost. Even if the Government are not willing to go as far as the full renationalisation of the railway system, as I would wish, it is open to them to keep at least one franchise in the public sector to be the benchmark against which other franchises are judged. That would enable the system to be evaluated properly and for pressure to be placed on the private sector element of the system.

I hope that with a new Secretary of State and a new Transport team, we can have a constructive dialogue. However, I cannot see a constructive dialogue coming from passengers if they are hit in successive years by fare increases. Although I will vote for the Opposition motion, my view is not just that fares should be frozen or capped, but that the travelling public deserve a cut in fares. Many passengers feel that they are being fleeced, both through increased fares and because they have to pay through their taxes for increased public subsidies while a number of the private companies make unacceptable levels of profit.

Two weeks ago, when the franchising issue broke, Branson, the head of Virgin, expressed his concerns about losing the franchise. One article repeated the quotation from his finance director when the privatisation of the railways first happened: that it was their opportunity literally to print money. That is what many of the private companies have done as a result of the franchising system. I believe that that is obscene, as will many passengers when they face further price increases in their fares. As the hon. Member for Northampton South said, that puts people’s ability to maintain their employment in jeopardy.

I welcome the new Secretary of State. I support the motion and hope that we can go further at a later date. I hope that with the new rail team, we can have a wider debate that is unfettered by the ideological commitment to privatisation that there has been in the past.