Passenger Railway Services (Public Ownership) Bill

Lord Hendy of Richmond Hill Excerpts

Committee stage
Wednesday 23rd October 2024 Lords Chamber

[Baroness Randerson (LD)]

My Lords, one of the clear attractions of the new system should be increased transparency. There should be no chance that the new authority would be able to hide behind commercial confidentiality. One public body would make life very much easier in terms of national answerability. I do not agree with the mechanism suggested by the noble Lord, Lord Moylan, but he is making a valid point. Can the Minister confirm that the passenger standards authority, the passenger body that is going to be the champion of passenger standards, will have the power to investigate fares and report on problems? I gently point out that the Government will no longer be able to blame the train operators. All the blame will now fall on the Government, and passengers will make judgments based on that. It is therefore important that there is a public way for the Government to explain their decisions in relation to train fares and the fare structure overall.

[The Minister of State, Department for Transport (Lord Hendy of Richmond Hill) (Lab)]

First, I briefly note my intention to write to the noble Lord, Lord Teverson, on his points about public investment that I did not manage to address on Monday. I also intend to address later the question asked by the noble Lord, Lord Young of Cookham, on Monday.

On fares, there is nothing new here. The regulation of fares has always been by government through its contracts with operators, whether public or private, and as far as this Bill is concerned, that will continue.

[Baroness Randerson (LD)]

I want just to make the point that, as the Minister well knows, the fare system is so complicated that, in practice, people have not been able to understand it adequately in order to make those judgments, and one of the Government’s aims, quite laudably, is to make it simpler. I also point out that the Minister is talking about regulated fares, and I think about half the fares in the market are not regulated.

[Lord Hendy of Richmond Hill (Lab)]

I thank the noble Baroness for her intervention. Of course, she is absolutely right. The fare system is far too complex, whether it is regulated fares or unregulated fares. One of the primary purposes of bringing train operations into public ownership is to provide the basis of rationalising that fare system without the associated complications of either compensation to private sector operators or, indeed, their saying that some of the information needed to do that is commercially confidential and hence cannot be used to rationalise the system that nobody understands.

On Amendment 19, the department already holds its public train operating companies to account for their financial management through regular review of their management accounts and business plans, as part of its routine contract management activities. That is equally true in relation to privately owned operators whose costs are funded by taxpayers. This scrutiny supports the monitoring of performance against the Secretary of State’s priority to deliver an affordable and sustainable railway. The amendment refers specifically to the auditing of publicly owned train companies’ accounts. It is already the case that those companies must publish their audited accounts annually, which are available in Companies House, so there is already full transparency of their financial performance and management. The proposed amendment would add little value to the existing scrutiny of their financial performance by DOHL ass shareholder, the Department for Transport’s contracting authority, and their own financial auditors, as well as the public via the public audited accounts. That would be an unnecessary additional cost to be borne by the taxpayer which I cannot support.

Regarding Amendment 20, the department already publishes information on its website about payments made to operators under its rail contracts. The department’s published annual report and accounts also detail the department’s expenditure on each contract, as well as any associated year-end balances in respect of payments made in advance or still due to be paid. The Bill does not change that, so there is no need for the taxpayer to pay for an independent body to report on the same data. As I have said previously, the most significant financial impact of the Bill will be that taxpayers will no longer have to foot the bill for tens of millions of pounds in fees paid to private operators each year for the benefit of their shareholders.

Amendment 23 raises the specific question of whether public ownership will expose the Government to pension liabilities that previously sat with private operators. Under the current national rail contracts, DfT funds the legitimate actual costs of the train operating companies. For example, this includes the net operational costs of running services and the cost of leasing rolling stock and pension contributions.

The noble Lord, Lord Young, asked a specific question on Monday about how the Office for National Statistics might classify publicly owned operators in future. I cannot, of course, answer that question, as future classification decisions are a matter for the independent ONS, not for me or my department. What I can do is to confirm the current classification of the DfT contracted operators, which are all currently classified as public non-financial corporations, including the four DOHL-owned operators. I can also confirm what has happened previously when a service is transferred from private to public ownership. For example, following the transfer of services into DOHL, the ONS recently considered the classification of TransPennine trains, and concluded that they should remain classified as a public non-financial corporation. That fact that these publicly owned operators are classified in this way, along with the privately owned operators, means that their costs already impact the public finances. For example—and this is particularly relevant to Amendment 25—both private and publicly owned operators’ rolling stock lease payments already come out of the department’s resource budget.

Turning to pensions, I cannot agree with those who assert that the franchising model left responsibility for funding pension liabilities entirely with the private sector. Even under the form of franchising that was in place before the pandemic, pension costs were to a substantial extent a long-term liability for the public sector. First, this is because the franchising system meant the bidder simply priced any changes in costs into their bids at reletting, changing the amount of subsidy payable to the operator or the premium receivable by Government. This meant that the burden of any increases in pension costs arising during the term of the contract would, at the point of retendering, be passed to the taxpayer. Secondly, in the more recent franchise competitions the department was required to share the risk of any adverse movements in pension deficit recovery payments, as that had become a risk that the private operators stated they were unable to bear. The Bill therefore does not materially change the Government’s level of exposure to liabilities.

On the noble Lord’s second amendment regarding pension liabilities, in previous transfers to DOHL the transferring staff have remained within their existing section of the Railways Pension Scheme at the point of transfer. Railways Pension Scheme contribution rates will not change when services transfer from private to public sector operation and, as mentioned a moment ago, the cost of employer pension contributions is already borne by the Government under the terms of the existing contracts.

The noble Lord may also find it helpful to know that the department already reports in its annual report and accounts the employer’s share of the net pension scheme surplus or deficit, the employer’s share of pension scheme assets and the employer’s share of pension scheme liabilities.

In response to the noble Baroness, Lady Randerson, transparency will be enhanced by public ownership. In respect of the question about the passenger standards authority, I am afraid it is too early to say what it will and will not do. That is why we are going to consult about its duties in order to make sure that it represents passengers’ interests in the best way possible.

In view of these observations, noting in particular that the costs of public sector operations are already in the public domain, I urge the noble Lord not to press these amendments.

[Lord Moylan (Con)]

My Lords, I may have expressed myself very poorly when I presented these amendments, but I think it is fair to say—I do not mean to sound overcritical—that the Minister has misconceived all of them, or at least the three that I spent some time on. So perhaps the House will indulge me if I simply run through once again the points that I was hoping to make but obviously have not done so very successfully.

I shall start with the remark about pensions. I was not asking the question, “Who funds the pension contributions?” That is an interesting question but one to which I already had the answer, so I did not feel that I needed to ask it. I was asking a specific question about where the balance sheet liability lies, which is a very different question. Are the accumulated liabilities, including unfunded liabilities, now going to score effectively as government debt—the whole package, not the payment year by year? It is the difference, if you like, between the balance sheet and the profit and loss. I have asked a question about balance sheet and the Minister has answered a question about profit and loss. I do not expect to get anything further out of him today but, once he has had a chance to reflect on my comments, he may want to write to me because it is a point that needs to be properly explored and indeed, I suspect, will be returned to in relation to leases when my noble friend Lord Young of Cookham takes the matter up later.

On the question of fares being charged, I take the Minister back to the pre-Covid period when the system under which we operate at the moment was functioning in the way that was expected—Covid of course destroyed and damaged the operation of that system. It is true that not all the fares but a large number of them were set by the Government, but the Government in that case had no interest whatsoever in allowing the train operating companies to make super profits or to exploit passengers who were effectively captive. It will be a different matter when the company operating the trains is a subsidiary of the Department for Transport, and any surplus—we must bear in mind that there are railway lines in this country that generate surpluses—will accrue to the department and therefore presumably to HM Treasury. I put it as a counterfactual question to the Minister: does he believe that, if passport issuance or visa issuance were in the hands of the private sector, the Home Office would allow the private sector to set such outrageously high fees and keep the profits? Of course it would not. The only reason why the Home Office can set such very high fees for a captive audience is that it can keep the profits, or at least they score against the expenditure of the Home Office. It has a financial interest in super returns, which is not true if the super returns are to be retained by the private sector, as was the case under the system that we are currently operating under when it was effectively running. So I do not think the Minister has quite grasped my point.

A similar question arises in relation to costs. He has explained—and I do not deny for a moment—that the department publishes information on what it pays to the train operating companies under its contracts. I am not asking: what do they pay? I am asking: is it efficiently spent? Once it becomes part of the department, there is no interest in demonstrating that efficiency has been achieved if political interests overwrite that. There will be no way of knowing with confidence whether efficiency is being achieved unless there is some sort of independent monitor.

It is possible that having reflected on my closing remarks the Minister wants to take these matters up in correspondence, or we can come back to them on Report. But I think his responses—and I blame myself for this—have failed to understand the points I was getting at. I thought they were reasonably clear but obviously I did not do a very good job. With that, and with the leave of the Committee, I would like to withdraw my amendment.

--- Later in debate ---

[Baroness Randerson (LD)]

My Lords, there are of course some excellent examples of open access operators and some very successful ones, but I am a bit sceptical. We have a Government who are so opposed to competition on the railways that even very good train operators, such as Greater Anglia, have to be removed as a priority. I am sceptical that the Government would be keen to encourage further open access operators. I think I drew attention to this in our debates on Monday. I feel it is illogical that the Government are putting an end to the train operators that have fully rounded franchises but will tolerate open access. Open access is, in reality, capitalism red in tooth and claw, in comparison with the role of train operating companies managing the franchises they have.

The Government here are set up as a judge and a jury over open access operators and whether more will be allowed. Can the Minister tell us how the judgment will be made on future open access operators, or tell us with total frankness that we have what we have and are unlikely to get any more?

[Lord Hendy of Richmond Hill (Lab)]

The Bill before the House is specifically about the ownership of services currently operated under contract to the Secretary of State, Scottish Ministers or Welsh Ministers. Transferring and retaining these services in public ownership will not affect open access operators or prevent them running as they do now. It is therefore not necessary, as in Amendment 24, to require the Government to lay a report on the impact of public ownership on open access operators, given that this Bill will not affect the rights of those operators to access the network and run services. I emphasise that as part of the wider railways Bill, any proposed changes to access arrangements and the body that decides them will, of course, be subject to consideration and debate by your Lordships’ House before they are implemented. I beg for some patience in this debate.

Turning to Amendment 27, which requires the ORR to produce an independent report on access, I again reassure the House that under the present public ownership Bill, the ORR will continue its role in relation to access decisions. There is therefore no need for this amendment; an independent function is already in place that will decide on access to ensure there is no disadvantage to non-publicly owned operators. We will set out further detail on GBR roles and responsibilities in the coming months. Given those reassurances and that this Bill does not affect the rights of open access operators to run services, I urge the noble Lord to withdraw the amendment.

[Lord Moylan (Con)]

My Lords, once again I am being deflected more than answered. I did not suggest that existing open access operators were going to be closed down. In fact, it says quite explicitly in the biblical document Getting Britain Moving that current

“independent operators (such as Hull Trains and Lumo) … will remain”.

I take it that the existing operators are guaranteed to remain, at least as far as the current terms of their arrangements are concerned.

I find it very worrying that the Minister cannot say whether his long-term vision includes allowing the ORR to make these decisions, or taking it, which I understood is very much the logic of his Bill, into Great British Railways. It simply is not enough to say that this can be deferred. Open access operators that might want to bid for new services—not the existing ones, I grant you—are now going to be entering a period with a very chilling effect, because they will not know whether open access is going to be welcomed in the future. They will not know, when the new Bill comes forward in 18 months’ time, whether they are going to be welcomed or turned away. That is a direct consequence of this Bill and not something that can simply be deferred on the grounds that it will all be wrapped up in 18 months or so.

I find it very unfortunate that the Minister cannot give a franker and more candid answer on the Government’s intentions at this stage. I fear that the effects for passengers of the measure in front of us are therefore going to be detrimental, even in the short term. With that, I beg leave to withdraw my amendment.

--- Later in debate ---

[Lord Sikka (Lab)]

My Lords, I do not want to reply to the noble Lord, Lord Moylan, because I would be here all night picking holes in every point he made in reference to me.

Perhaps I may help the Minister out. The noble Lord, Lord Young of Cookham, talked about the liabilities of Network Rail. The composition of government debt published by the ONS includes the liabilities of Network Rail, but the assets acquired with that debt are excluded. That means that the government debt is overstated. In a balance sheet, you will have assets and liabilities. In the ONS approach, only Network Rail’s liabilities are included in the debt. I understand that, for quite a long while, the Treasury has been looking at reconfiguring the composition of public debt, and I very much hope that, soon, it will do the proper thing by either taking off the debt altogether from the ONS numbers or including Network Rail’s assets as well.

[Lord Hendy of Richmond Hill (Lab)]

My Lords, I am grateful to all noble Lords who contributed to this discussion. First, I should say that the objective of this limited Bill before the Committee remains to unify track and train, to provide better services to passengers, to reduce the cost of the railway and to increase the railway’s income. The phrase I would use to start with is, “We are where we are”.

The noble Lord, Lord Young of Cookham, referred to Network Rail. I am very familiar with its arrangements post being put back on the Government’s balance sheet. All I can say to the noble Lord is that managing it is and has been a difficult job. However, it has still managed to make significant investment in the railway infrastructure of Great Britain. In some ways, its exposure to being in the public sector did it a great deal of good. I was paid significantly less to chair it than my predecessor was; its chief executive is paid significantly less than any of his predecessors and to my mind, he does a very good job. The organisation is a good deal more frugal than it used to be, yet it still does some very good things in operating the railway infrastructure.

The noble Lord, Lord Young of Cookham, knows that Chiltern was always an outlier. There was no other plausible large-scale investment in railway infrastructure by a train operating company; certainly, there has been no recent interest in it. If you looked at the owners of the train operating companies now, you would see that their balance sheets simply would not support it.

Of course, the noble Lord knows that I cannot predict what the Office for National Statistics will or will not say. Although the suggestion is that, after six years, LNER was still capable of being put back in the private sector, there was absolutely no evidence that it or Northern, which was in public ownership for four years, was being prepared at all. There was also no move in the previous Government’s department to do so. Nevertheless, there was no change in the status of the public accounts of those companies. The noble Lord may speculate that there might be in future, with these arrangements, but I could equally assert that experience suggests that there will not be.

My noble friend Lord Sikka made a further point about the treatment of the assets and liabilities of Network Rail. I will write to both him and the noble Lord, Lord Young of Cookham, about that.

On the other hand, I recognise completely the passion with which my noble friends Lord Sikka and Lord Hanworth spoke about the rolling stock companies. Again, we are where we are. I heard my noble friends’ arguments with interest, but the Government will not buy back the rolling stock companies. Great British Railways will enable a longer-term view of the rolling stock market and it will reduce the margins it needs to make. Everybody is right to say that rolling stock lasts for 30 to 35 years, but a railway that is more accurately able to predict how long that rolling stock should last and where it should be used will reduce the uncertainty of relatively short-term leases. It will also significantly reduce the cost of those leases and will actually enhance competition in the market. We will see how that market evolves over time.

Having said all that, I urge the noble Lord to withdraw his amendment.

[Lord Young of Cookham (Con)]

I am grateful to all noble Lords who have spoken in this debate. The noble Lord, Lord Sikka, said that the Treasury would like to redefine what is public expenditure and what is not. I am sure that is the case—it would like to get some liabilities off the balance sheet. The whole point of having an independent ONS is so that the Treasury, led by politicians, cannot adjust the figures and the liabilities to suit its convenience.

What has not come out in this debate is that there is competition between the roscos to supply the wants of the train operating companies. Originally, there were three, now there are four, and there have been two recent entrants. The competition between them has driven down the costs. The Government, who on Monday spent time trying to persuade foreign investors to invest in infrastructure, will have been a little disappointed to hear the noble Lord, Lord Sikka, being less than complimentary about the investments that they have made in some important parts of the infrastructure.