East Coast Main Line Franchise

Lilian Greenwood Excerpts

Thursday 20th June 2013 Commons Chamber

[Lilian Greenwood (Nottingham South) (Lab)]

I congratulate my hon. Friend the Member for Edinburgh East (Sheila Gilmore) on securing this important and timely debate, which builds on her strong campaigning work on behalf of passengers, and the many hon. Members who have supported the compelling case that she set out.

Since the Government announced the reprivatisation of East Coast services in March, the decision has been fiercely criticised in Parliament and the country at large. Ministers have been pressed on numerous occasions in this House and through dozens of written questions, yet they have not produced a single credible reason for rushing through this costly and unnecessary privatisation—a point that my hon. Friend the Member for York Central (Hugh Bayley) made very eloquently, as did many others. Instead, one by one, the props supporting the Government’s argument have been kicked away.

We were told that the east coast main line had to be privatised because punctuality had plateaud; and perhaps it really had disappointed in four weeks out of 52. That was the narrow window that the Minister quoted when he appeared before the Select Committee on Transport. Indeed, he even described East Coast as the worst operator for punctuality. However, contrary to what the hon. Member for Peterborough (Mr Jackson) claimed, the annual figures show that over the last year the east coast main line has outperformed the west coast on punctuality, according to both the public performance measure and the narrower “right time” assessment. Punctuality is now better than under the previous, failed private operators and is at its best since records began.

[Mr Stewart Jackson]

I thank the shadow Transport spokesman for giving way, but I did not actually say that. I compared the performance with the performance of the best-performing train operating companies, rather than making a strict comparison with the west coast main line. That is an important distinction.

[Lilian Greenwood]

I shall have to refer back to the record, but it is my recollection that the hon. Gentleman described East Coast as the worst operator for punctuality, which is certainly not the case, so this privatisation cannot be about punctuality.

We were also told that the east coast main line must be privatised in order to attract private sector investment. The Minister told the Select Committee:

“I do not believe that keeping the East Coast Main Line in public ownership is the most effective and swiftest way of getting that investment.”

However, as he has confirmed in written answers to hon. Members, the cost of rolling stock procurement and track upgrades on the east coast main line will be met through public spending, just as the cost of the £9 billion west coast upgrade was borne by the taxpayer. If anything, the Government’s plans threaten investment. At the moment, all the east coast profits are invested in the service, instead of being split with shareholders. That would end in 2015 if the Government have their way, so this privatisation cannot be about investment either.

We were also told that privatisation would deliver better value for money. On that point the Government’s argument takes its final departure from reality. Since 2009, East Coast has returned £640 million to the taxpayer and invested £40 million of its profits back in the service. As the Office of Rail Regulation recently confirmed, East Coast receives virtually no subsidy and yet made the second highest premium payments of any operator in 2011-12. To put that into context, subsidy accounted for just 1% of East Coast’s income, compared with an industry average of 32%.

East Coast is also performing a vital role as a public sector comparator, especially as the Government seek to negotiate extensions with operators. This is an important point, and I shall return to it shortly. East Coast delivers good value for money, benefiting taxpayers and fare payers. Let us compare today’s situation with the instability and cost that resulted from the collapse of Sea Containers and the decision of National Express to walk away from the franchise. Against that backdrop, and taking into account ageing rolling stock and a route that was last upgraded in the 1980s, Directly Operated Railways has done very well to record such a strong financial performance.

East Coast’s improvements to financial and operational performance have also been reflected in better services for passengers. Since 2009, the operator has introduced a new timetable providing 19 more services per day and, far from lacking innovation, it has taken initiatives on customer services. For example, many train operating companies are encouraging passengers to print advance-purchase single tickets at home, but East Coast is the only operator that allows them to amend a print-at-home ticket up to the evening before departure.

The proposed privatisation is not about passengers. It is not about operational performance and it is not about value for money. It is about politics, and the determination of the Government to end a successful, not-for-dividend alternative to franchising. The taxpayer will end up footing the bill for this politically motivated decision. There will be the immediate cost of running the franchise competition. Will the Minister tell the House what the overall cost will be to the taxpayer of refranchising the east coast route?

That covers only the direct cost, however. As we seek to reduce inefficiencies on the railways, East Coast provides a useful public sector comparator—a benchmark against which we can measure the costs of franchised operators. That was certainly the position of the present local transport Minister, the Under-Secretary of State for Transport, the hon. Member for Lewes (Norman Baker). Perhaps he did not enjoy the support of the hon. Member for Argyll and Bute (Mr Reid) when, in 2009, he told the House:

“My view on the franchise agreements is clear…if a franchise is handed in to the Government—handed back—it should be held in the public sector as a public interest franchise, not least as a comparator for other franchise agreements currently operating.”—[Official Report, 3 June 2009; Vol. 495, c. 83WH.]

That was his view in opposition. I wonder whether it is still his view in power.

[Mr Jackson]

Will the hon. Lady give way?

[Lilian Greenwood]

I will not give way at the moment. I do not want to run out of time.

Directly Operated Railways has another function. It allows the Government a fall-back operator, should they fail in their current negotiations for franchise extensions. Indeed, earlier this month, the Minister of State, Department for Transport, the right hon. Member for Chelmsford (Mr Burns) told the House:

“The operation of train services by DOR is an essential part of the privatised franchising model.”—[Official Report, 5 June 2013; Vol. 563, c. 225WH.]

However, the Government are proposing to remove all operational responsibilities from DOR, leaving the body hamstrung. He cannot expect to retain the experienced and capable management team at DOR once the East Coast route is privatised. As the Department goes into negotiations for franchise extensions and direct awards, the train operating companies will know that Ministers are loth, for political reasons, to transfer operations to Directly Operated Railways. That must be dispiriting for those civil servants who are sent to negotiate the best possible deal for the taxpayer. As my hon. Friend the Member for Edinburgh East has noted, Ministers have taken their strongest bargaining chip and thrown it away. This mindset and this lack of imagination are compounding the costs incurred by the shambolic collapse of rail franchising on this Government’s watch. That collapse has cost the taxpayer at least £55 million, and the price is rising.

[Mr Jackson]

I have to ask the hon. Lady a straightforward question: in 13 years, why did not the Labour Government repeal section 25 of the Railways Act 1993 in order to facilitate the franchising regime that she and her hon. Friends think is the right way forward?

--- Later in debate ---

[Lilian Greenwood]

I cannot speak about that as I was not here, but the fact is that we now conducting a thorough review of the how the railways are structured. East Coast should be kept as a not-for-dividend operator, and we are committed to doing that.

[Mr Reid]

Will the hon. Lady give way?

[Lilian Greenwood]

No, as I want to make some progress.

Decisions on rolling stock have been postponed and a lack of orders is hitting the supply chain, threatening jobs and skills. The National Audit Office has raised serious concerns over the Department for Transport’s ability to deliver major projects, including HS2, and the Thameslink rolling stock contract is only now being signed after an unacceptable three-year delay.

With that background, it is no surprise that the rail industry has been shaken with a loss of confidence in the franchising process, hurting not just those on the front line, but the wider industry as well. Instead of concentrating on the problems caused by the collapse of the west coast and Great Western tenders, the Government are selling off the one part of the network that is benefiting from an extended period of stability. The east coast line could benefit further if the Government only had the courage to support it. Management have prepared a five-year plan for improving services, but Ministers have damned East Coast with faint praise, conceding that it is doing a good job, yet pushing through their politically motivated timetable for privatisation.

As Lord Adonis and my right hon. Friend the Member for Tooting (Sadiq Khan) said this week, it makes no sense to reprivatise an East Coast service that is working. Let me quote the noble Lord:

“East Coast is doing a great job and it should be allowed to get on with it…It has an impressive performance record, it has a loyal customer following and it is making big payments back to the government from its profit—to keep fares down for the travelling public—without needing to pay dividends to private shareholders …The government’s decision to rig the franchising timetable to get this unnecessary privatisation under way is requiring them to agree costly extensions to other contracts, wasting tax-payers’ money.”

He is right, and I hope that the Government listen to that argument.

We now have an opportunity to learn lessons and improve the rail industry for the better. Ministers should proceed on the basis of the best evidence available and promote what works instead of relying on political dogma. So it is disappointing to see them repeating the mistakes of the 1990s, when the ill-thought-through privatisation of the rail industry left us with problems with which the network is still grappling today. Now we have this unneeded, unwanted, and unjustified privatisation of the east coast main line—a service that has quietly and successfully improved the quality of journeys; a not-for-dividend operator that has delivered good value for money and reinvested profits in the service, unlike the private operator that walked away. There is no financial or operational case for privatisation. It is a transparently political act from a Government who are prepared to risk undoing the progress of the recent past. Passengers deserve better. I hope that Ministers will listen to the arguments made in the House today and halt this costly and unnecessary privatisation.

--- Later in debate ---

[Mr Burns]

I was wondering whether the hon. Lady was going to intervene.

[Lilian Greenwood]

I intervene merely to confirm that I have not had any telephone conversation with the noble Lord since we last spoke over the Dispatch Box.

[Madam Deputy Speaker]

I call Simon Hughes. I am sorry; I mean Simon Burns.

--- Later in debate ---

[Mr Burns]

No, I want to make some progress.

By returning the east coast franchise to a private sector operator, we will provide certainty of ownership and much longer-term planning horizons that are not available to public sector operators. That is vital at a time when this Government are making significant investment in the franchise, both in the infrastructure through our rail investment strategy and in new rolling stock as part of the inter-city express programme. A strong private sector partner will be able to build on that investment and work with local stakeholders, the Department and the railway industry to ensure that the best possible deal is delivered for passengers and taxpayers.

I heard the concerns raised by a number of hon. Members about services along the line and what they would like to see for their constituents and the service in general in any future provision.

[Lilian Greenwood]

The Minister recently said the east coast needs a long-term private sector partner that is able to cope with the totality of this change programme. Will he explain to the House in plain English what precisely he meant by that?

[Mr Burns]

Absolutely, and doing so will also help answer the points made by the hon. Member for Livingston. The Government are investing significantly in the east coast main line because its infrastructure needs to be improved and enhanced, but Governments are not awash with unlimited amounts of money. We are more ambitious for the east coast main line, and we believe from the experience of other franchisees that they are prepared to invest their money as well, to build on the investment that the Government provide, through Network Rail and other sources, to ensure that there is more investment in improving services for passengers, which is the key aim. That is why this Government are making record amounts of investment in infrastructure, amounting to billions and billions of pounds; such is our commitment to improving passenger services.

[Mr Burns]

No, because I am running out of time.

Part of the success of franchising comes from having both a private sector that is willing and able to invest and manage risks and a Government who have the ability to step in, in the short term, to ensure the continued service of the railways in the event of a franchise failure. While we do everything we can to avoid such failure, we must be in a position to step in so that there is a continuation of service if a franchisee were to get into trouble, as happened with National Express on the east coast main line in 2009. That is the whole purpose of DOR. It is not a company like other companies providing franchise services within the rail network. It is there as a company of last resort in an emergency to ensure continuity of service under the Railways Acts. This should never be considered a long-term solution, and it is not an alternative model to franchising. Many Members totally misunderstood or did not get that point. This is fundamental: DOR is not an alternative model to franchising. We firmly believe that the private sector is best placed to deliver the best value for the passenger and taxpayer, and DOR allows us to make that choice.

[Lilian Greenwood]

Will the Minister give way?

[Mr Burns]

No; I am running out of time. The nature of Directly Operated Railways, as an interim measure and operator of last resort, means it would not be right or practicable for it to plan beyond the short term. In order to provide the stability and innovation that is needed for any business, in particular a rail franchise that serves the public, it is necessary to be able to plan well into the future and make investment decisions that have a horizon beyond the short term. To meet this need, the inter-city east coast franchise must be transferred back to the private sector.

A number of Members have suggested that East Coast should be maintained in public ownership for an extended period to provide a comparator or baseline for future private sector operators on the franchise, or against operators on other parts of the network. This approach does not work. All franchises are different, and with changes to charges and funding occurring every five years, they even differ from themselves over time. Any attempt directly to compare one franchise with another, or even one incumbent with another on the same franchise, ends up simply comparing apples with pears. East Coast, a large inter-city franchise, is obviously different from Essex Thameside, a franchise providing commuter services on a much smaller route. Clearly, it would be folly to try to make valid comparisons between them. However, even with the apparently similar inter-city west coast franchise, differences in fleet size, cost base, network grant, investment plans, disruption and other factors make drawing a valid comparison with East Coast almost impossible.

There is a comparator already in existence. In the past 17 years since privatisation, the number of passengers using the railways has doubled from 750 million to 1.5 billion. The number of journeys has doubled, and the amount of freight moving off our congested roads and on to the railways has increased by 60%. The comparator is the British Rail model that satisfied no one, failed to respond to its customers and was totally unsuccessful.