Increasing Choice for Rail Passengers

John Penrose Excerpts

Wednesday 11th July 2018 Westminster Hall

[Mrs Madeleine Moon (in the Chair)]

Because of the Division, this debate will last until 5.43 pm.

[John Penrose (Weston-super-Mare) (Con)]

I beg to move,

That this House has considered increasing choice for rail passengers.

It is a pleasure to have you in charge of our proceedings, Mrs Moon. It seems that almost no one is terribly happy with how our railways are performing at the moment. Not passengers, who have to suffer delayed or cancelled trains when timetables go into meltdown, as they have done repeatedly recently, causing misery for millions. Not the unions, who have been in an on-off dispute on a variety of routes for months. Not the staff, who have to cope with angry passengers every day. Not the rail firms, who have repeatedly handed back expensive franchises to the Government because they cannot make them work, and not rail Ministers, who face continuous incoming flak, from urgent questions in Parliament to critical headlines and irate passengers who lose thousands of man-and-woman hours battling to get to and from work every day.

That is odd, because until recently Britain’s railways were quite a success story; something to be proud of. Since denationalisation, passenger rail journeys have more than doubled, and we have one of the safest railways for passengers of any major network in the EU. What has gone wrong? Why is everybody on all sides unhappy with where we are today? I argue it is because franchising has run its course. It might have worked in the past, but not any more—at least, not well enough. It has become a brittle, inflexible, fiendishly complicated, expensive old thing that causes misery and frustration for millions and which nobody loves.

The root of the problem is that franchises put train firms, rather than passengers, first, because passengers do not have any real choices when things go wrong. Why should we be at the mercy of a single train company when the timetable melts down? If a train is delayed or cancelled, we ought to be able to switch to a different firm’s service that is still running instead; franchising takes away that choice. If we do not like the service the franchise-holding firm provides—tough. Our only choices are to get in the car, which could mean traffic jams and is not very green, get on a bus, which is usually slow, or just lump it and get back on the train.

It is weird, really. We would not put up with being banned from changing to a different brand of coffee, cornflakes or broadband. We expect to be able to choose between a dizzying array of different car insurers or energy firms. But trains? No.

[Stephen Hammond (Wimbledon) (Con)]

Although I agree with my hon. Friend that franchising has severe problems and has run its course, does he agree that one of the central problems is Network Rail and its inability efficiently to allocate track access, and the money it gets for investment and upgrading, to the franchises, as it would do if there was more open access on the system?

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[John Penrose]

I completely agree; Network Rail has all the wrong incentives. I plan to lay out how we might be able to improve them in future. If it had the right incentives to find and to build more capacity, it would be better for Network Rail, the travelling public and rail firms.

If franchising is bust, I will come on to what I think is an alternative in a second. Before I do so, at the risk of perhaps annoying some of my friends in the Labour party, I must pause to say that I am afraid I do not think renationalisation is a valid option as an alternative at the moment. That is not because of the staff, the ownership models or anything like that; it is because politicians, people such as us in this room, no matter whether we are from the political left or right, are generally useless managers of a complicated operation such as a rail system. We take short-term decisions based on elections rather than proper investment cycles, we meddle in details we know little about and we frequently cave in to the vested interests of management or staff at the expense of customers. Anyone who remembers the bad old days of British Rail will know it was a disaster: an uncomfortable, unreliable service with few passengers, starved of investment and with shockingly bad industrial relations. It is pretty hard to argue that it represented some long-lost golden age of rail that we ought to return to.

[John Redwood (Wokingham) (Con)]

Does my hon. Friend agree that there is a lot of misunderstanding in the debate about rail? The fact is that all the track, signals and stations are nationalised and publicly provided, and the small amount of competition is just a competition, once in a while, to run to a timetable that is state approved and controlled, and to standards that are laid down by the state. We effectively have a nationalised monopoly at the moment.

[John Penrose]

I completely agree with my right hon. Friend. I fear that renationalisation is trying to answer the wrong question when we are starting from a position where we, as taxpayers, own the track and network in the first place. It is time to stop obsessing about the failed and stale old-fashioned options of yesterday, whether franchising or nationalisation, and instead to try a new, better alternative that puts passengers first. Open access rail breaks up the franchises so passengers have a choice of different train companies on their local route. If they do not like one, they do not have to wait 10 years or more for the next franchise to be signed, because a different firm’s train will be along in a few minutes.

[John Howell (Henley) (Con)]

I wonder whether there is an opportunity to put into practice what my hon. Friend is talking about with the new Oxford-Milton Keynes-Cambridge railway, and whether what he is suggesting would provide a much better alternative to the existing model?

[John Penrose]

My hon. Friend is exactly right; it is much easier to introduce open access rail where there is no established incumbent franchise operator at all. I plan to go on and develop that idea on a broader basis along just the line he mentions, but that is a good example to get us started, if I can put it that way.

Open access rail forces train companies to raise their game; therefore, open access services are usually better. They are far less brittle, for a start, because no single company can dictate the entire timetable. Fares tend to rise more slowly. There are fewer delays and less overcrowding. This is not some unproven experiment. If we talk to local people in Hull, for example, where open access is already in place, or the Labour and Conservative MPs who represent them in that area, the verdict is cross-party and pretty unanimous: they all think it is great.

[Dr Dan Poulter (Central Suffolk and North Ipswich) (Con)]

I am sympathetic to my hon. Friend’s point; he is making a good speech and I congratulate him on securing the debate. He is right to say that renationalisation of the franchises is not a panacea for improving reliability and quality. He is making some good points about open access rail improving competition, which I am not unsympathetic to, and putting the passenger first; but what about those areas where there is potentially a non-profitable railway line? Would passengers perhaps be the losers in that situation rather than the winners, and would a reduced service be the result?

[John Penrose]

That is a crucial point. The answer is that if we do any system wrong then passengers could lose out. It is perfectly possible to organise open access rail in a way that avoids the problem that my hon. Friend rightly points out could exist. If he will bear with me for a second, I plan to develop that point a little further, but he is absolutely right to point out that it is a potential difficulty if it is not properly designed in.

In principle, the reason that open access works is that it treats trains like air travel. Heathrow or Gatwick let you fly to Paris or Rome on a choice of different airlines, not just one. Why can we not do the same for our railways? Franchises would stop collapsing, because we would not need them anymore. Rail firms would experiment more creatively with new routes that passengers are not getting at the moment, and if one firm was crippled by strikes, we could still get to work on another firm’s trains.

So what is the obstacle? What is stopping us from getting on and doing that tomorrow? The answer is: not much, apart from the existing franchises, which brings us to the point that my hon. Friend the Member for Henley (John Howell) raised. Any rail firm that has paid a very large amount of money to buy itself a monopoly on a particular route will understandably be unhappy if someone suggests it ought to face competition from another operator as well. That is not what it paid for, nor is it what its contracts say. However, what happens when those existing franchises end or do not exist to begin with, when they reach their contractual end dates, or when the franchise-owner decides it cannot make them work and hands them back, as has just happened—again—on the east coast main line? What then?

At that stage, at that moment, there is an opportunity. There is no one with a vested interest in protecting an existing franchise investment, or with legal contractual franchising rights, on that route. We can change the system completely. Ask train companies about open access competition on a route where they own a franchise and, understandably, they will bridle; but ask them the same question on a route where there is no incumbent, and their reaction changes profoundly. Let us take the opportunity that every franchise end point can offer and steadily, progressively, route by route change things for the better.

We could start with the east coast main line. We should auction track slots, so Network Rail suddenly has a huge incentive to find and build more capacity on the network, as my hon. Friend the Member for Wimbledon (Stephen Hammond) said. We should let train firms try out new services, to connect places that are not linked at the moment or to run existing services more efficiently. We should bundle some slots together for peak commuter services into cities such as London or Bristol, or for less economic stations, as my hon. Friend the Member for Central Suffolk and North Ipswich (Dr Poulter) said, and expect some to need reverse auctions, where we are minimising a subsidy rather than maximising income, as a result.

We should stop specifying which rolling stock train firms have to use in minute detail, down sometimes to the design of the fabric on the seats, and replace reams of complicated legal paperwork with a few simple, easily measured common standards of good-quality train performance, safety, overcrowding and reliability, which every train firm has to hit. That would turn open access from being a bit-part, marginal add-on to franchising into the main event—the central, mainstream way of organising and running the entire rail network. It would be simpler, less brittle, more creative and flexible, and better value for money for passengers and taxpayers alike. It would be more efficient in the way it used the network and how it invested scarce resources in track or rolling stock. Best of all, it would, at long last, put the passenger first. I look forward to the Minister’s enthusiastic response.

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[Alan Brown (Kilmarnock and Loudoun) (SNP)]

It is a pleasure to serve under your chairmanship, Mrs Moon. Like other hon. Members, I congratulate the hon. Member for Weston-super-Mare (John Penrose) on initiating the debate and putting forward new ideas and thinking on the operation of the rail system. One thing that I think we can all agree on is that, as the hon. Gentleman said in his opening remarks, the existing franchise system is absolutely broken. There are too many direct awards, which means a lack of competition and less pressure on prices. We have had the east coast main line shambles. No matter how we dress it up, Virgin Trains East Coast has been able to walk away owing the taxpayer £2 billion. That is a £2 billion write-off of bad debt. There are also the ongoing issues with Southern Railway, and of course there are the latest timetabling issues, so there is no doubt that the franchising system as it is operating under this Government is not working; it is not fit for purpose.

The hon. Member for Weston-super-Mare stated his belief that franchises put train companies first, rather than passengers. I certainly agree that train companies—obviously—have to make profits, but I would suggest that with open access there would still be companies that would have to make profits, so they might still be driven to display the same behaviours.

[John Penrose]

Nothing says that open access has to be among profit-making companies. There could be not-for-profits and publicly owned companies, providing that they all compete with one another on a level playing field. I just want to reassure the hon. Gentleman about that.

[Alan Brown]

As a complete free marketeer, I welcome the fact that the hon. Gentleman is saying that we can have not-for-profit and public sector involvement. I agree with that sentiment.

I think, however, that the hon. Gentleman has over-simplified how this could work. It was suggested that if one train company is not operating to satisfaction, a passenger can switch to another train company, just like shopping for coffee. I have a funny feeling it will not be that simple for widespread open access. We have heard the benefits that open access can bring, but the reality is that train operators will still be bound by the same constraints of the existing network, particularly station capacity at mainline stations. There therefore might not be the flexibility to have so many train operators competing. Slot access has to be managed. We must also consider the movement of freight on the rails. There are a number of elements that need to be understood and factored in, which might restrict open access slot availability.

It was suggested that that might incentivise Network Rail to build more capacity. At the end of the day, however, if that is an incentive for Network Rail, the taxpayer still has to fund Network Rail upfront for the costs or Network Rail will have to borrow against optimistic future track rental fees. There is a risk, therefore, that it will not incentivise Network Rail to start duplicating rail networks across the UK.

It was also said that this would be comparable to the way we shop around for air services. I do not think that is comparable. The constraints on Heathrow stifle competition just now. There is not the widespread competition in air routes that everybody would like to see. Particularly for connectivity in Scotland, passengers do not have the choice that we would like. Again, it is a slightly idealistic comparison. Having said that, I welcome the suggestion. It has merits and it can work, but it will not be able to work as an entity by itself, because we will still need to protect the less-profitable routes. I suggest that it would need to be part of the mix, but I would not dismiss it out of hand.

The hon. Member for Ayr, Carrick and Cumnock (Bill Grant), in my opinion, wrongly conflated cause and effect with the end of British Rail—franchising was brought in, and suddenly passenger numbers rocketed and all the rest of it—but that was because Government constraints on investment in the rail rolling stock were lifted. There was therefore investment in the rolling stock, which the franchises were allowed to do, but that investment was still paid for by a combination of train users and the general taxpayer, because many franchises are subsidised. It was a direct consequence not of privatising British Rail and breaking up the rail network, but of allowing that investment to take place. Too often, many Conservative MPs seem to think that franchising the system created magic money. They seem to think the franchises were like the Prime Minister’s magic money tree, but they are not. It is always funded from somewhere —that is, from the general taxpayer.

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[The Minister of State, Department for Transport (Joseph Johnson)]

It is a pleasure, Mrs Moon, to serve under your chairmanship.

I start by congratulating my hon. Friend the Member for Weston-super-Mare (John Penrose) on securing this import debate, which, as he is aware, follows hard on the heels of a similar debate yesterday. We wait months for a debate on open access, then two come along at once. He made a terrific and really powerful speech, and I very much look forward to addressing in my remarks some of the points that he and other right hon. and hon. Members raised.

First, I will say that I and the Government are truly grateful to all the staff on the railway network. In about 90 minutes, I am sure that many of them would want to watch England play Croatia in the World cup semi-final, but instead they will be performing sterling duties, keeping the railways running and the trains moving. I just want to register for the record how grateful I am to them for that. This is a debate about choice and competition, and those members of staff will not necessarily have that choice later on today.

The choice to be able to travel by rail at all is one of the most important things that we can offer people. Whether they travel to commute to work, to do business or to connect with friends and loved ones, we want to offer people the choice of a wide range of journeys and services, and the railway has been steadily delivering more and more of that choice. The number of passenger journeys on offer in Great Britain has increased by over a quarter since privatisation and, as my hon. Friend the Member for Ayr, Carrick and Cumnock (Bill Grant) said earlier, passenger numbers have more than doubled.

Since 2015 alone, we have opened 21 new stations on the national rail network, including in communities such as Bradford, Midlothian and Devon. These stations offer new journey opportunities and relieve the urban congestion that slows down growth.

Having just heard the remarks of the Opposition Front-Bench spokesperson, the hon. Member for York Central (Rachael Maskell), I believe that she would do well to heed the concerns that were conveyed by the hon. Member for Keighley (John Grogan). I believe that he is absolutely right to be concerned about the loss of choice that would undoubtedly result from the policy of wholesale nationalisation of the entire railway network advocated by the Labour party.

Our commitments to go further and to make further investment will meet demands for more capacity on the network. That was a point spoken to powerfully by my right hon. Friend the Member for Wokingham (John Redwood). He was absolutely right to ask the important questions that he did about how we can deliver more capacity more efficiently, and he made important and valuable points about the need to accelerate the roll-out of digital signalling and the development of the digital railway in general, and also about the need for further investment in passing loops. I reassure him on digital signalling that we absolutely recognise the benefits that he spoke of, and that the roll-out of digital signalling across the UK is under way. Emblematic features of that roll-out are in parts of the Thameslink programme, for example, and in Crossrail.

We are also committed to giving passengers the choice of how to pay for their journey, including smart cards, contactless cards and mobile phone payments. The railway also offers passengers a range of times at which to travel and flexibility over when they want to return, all provided for through a single, joined-up ticketing system. So we are fully behind the idea of offering passengers choice and our strategic vision for rail, which was published last November, set out our plans to offer even more choice.

My hon. Friend the Member for Weston-super-Mare spoke about a further type of choice in his remarks—indeed, it was the focus of his remarks—and that is choice of operator. For many journeys, passengers have a choice of operators. However, it is not always practical or efficient to have multiple operators running on the same route. On many commuter routes, having a single operator is the best way to meet passengers’ preferences. This was recognised by the Competition and Markets Authority in its 2016 report on passenger rail competition. Passengers on these routes generally want a “turn-up-and-go” service, whereby they can get on the next train. With multiple competing, non-franchised operators, this would not be possible, because passengers’ tickets would only be valid on one operator’s services.

However—I am about to make remarks that I believe my hon. Friend will find more encouraging—I agree that there is a place for choice between operators in some specific cases. That is particularly so on inter-city lines, where travel is often more discretionary; for example, where people are visiting family and friends, or indeed many of the great tourist destinations that the UK has to offer, including, obviously, Weston-super-Mare, which is a place close to my heart. These passengers often book in advance and take a specific train, allowing them to choose a service that best suits their needs.

My hon. Friend also mentioned the east coast main line in his remarks.

[John Penrose]

Before the Minister moves on—he is being very helpful in trying to cover all the different points—may I just ask him a question? He just mentioned and celebrated the existence of this integrated ticketing system that he is talking about. Does that not rather solve the problem that he is then saying will crop up if we try to have people who cannot turn up and go using different operators on the same line?

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[Joseph Johnson]

My right hon. Friend has made an important observation. We can certainly look at ways to make tickets more fungible, but the purpose of the present integrated smart ticketing system is to enable passengers to “turn up and go”, to use the latest technology and so on. As yet, it has not focused on making tickets fungible between operators, and I am sure that is something that, as the open access policy develops and as open access develops as a feature of our system, will become more prevalent.

As the CMA recommended, however, a greater role for open access requires robust reforms to create a level playing field between different types of operator. At present, as my hon. Friend the Member for Weston-super-Mare knows, open access operators do not pay towards the fixed costs of the network on which they operate, nor do they contribute towards the vital social services that the franchised operators that they compete with deliver. That distorts the incentives of operators and means that we cannot realise the full benefits of competition for passengers.

That is why we are now working closely with the Office of Rail Regulation on its proposals for reforming track access charges in the next rail control period, from 2019 to 2024. These reforms will see open access operators pay an appropriate amount towards the fixed costs of the network where they are able to. We support this move as a vital step in creating the level playing field between open access and franchised operators.

We have also consulted on a possible public service obligation levy. Such a levy would complement track access charging reform, so that open access operators would also pay towards the social services that franchises deliver to many stations. Those stations would not have the levels of service they do today if left entirely to the free market, and the Government offer greater passenger choice through the franchising system to deliver social as well as economic benefits.

[John Penrose]

The Minister is being generous with his time. I suggest to him that he can avoid quite a lot of this regulatory and bureaucratic complexity if he simply switches to auctioning track slots for these things. At that point, the market-clearing price would be discovered. He does not have to set all these other additional points at all.

[Joseph Johnson]

I just observe that the franchising system as it exists today is already a version of the auction that my hon. Friend describes, in the sense that franchise bidders bid a specification that they feel is optimal for that area and the Department then assesses their bids. It is, in effect, an auction in some ways.

A greater contribution by open access operators towards the cost of the railways and a more level playing field should lead to more opportunities for open access services, and thus potentially greater choice for passengers. However, it is crucial that we get the reforms in place first, so that we can start on the right footing. I leave my hon. Friend a moment to wind up.

[John Penrose]

I thank everybody who has contributed to this afternoon’s debate. There has not been complete cross-party unanimity—far from it—but what we do have is a clear framing of a likely political choice. I encourage the Minister, who has been helpful and encouraging, to go further and faster in this area. At that point, we will frame a very clear political choice between those who want to give passengers more choice through competition and those who want to do it in a different way. At that point, voters would at least then know what they are voting for and choosing on the day.

Question put and agreed to.

Resolved,

That this House has considered increasing choice for rail passengers.