Open Access Rail Services

Lord Johnson of Marylebone Excerpts

Tuesday 10th July 2018 Westminster Hall

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

It is a pleasure, Mr Hollobone, to serve under your chairmanship, which I am sure has played its part in attracting not one but two illustrious former Rail Ministers to the debate.

I congratulate my hon. Friend the Member for Cleethorpes (Martin Vickers) on securing the debate and on the landmark town deal for Greater Grimsby that was agreed last week. More than 8,800 new jobs and nearly 10,000 new homes will be delivered in Greater Grimsby, including his proud constituency of Cleethorpes, thanks to a deal worth £67 million. The deal encompasses improvements to key roads and the establishment of enterprise zones to attract and support businesses in the area, further increasing investment and employment.

Competition through open access on the rail system has delivered benefits to parts of the network, as my hon. Friend highlighted and as the Competition and Markets Authority noted in its 2016 report on rail competition. For a number of years we have had successful open access operators on the network, such as Hull Trains and Grand Central, delivering important services to the communities that they serve.

In the right circumstances, therefore, the Government have supported open access applications—for example, Hull Trains’ successful application to run innovative services in 2017 in support of Hull’s year as the city of culture. Those services gave many more people the opportunity to enjoy the city’s excellent showcase, and they still operate today.

Ultimately, the independent Office of Rail and Road determines applications to run open access services based on industry consultation and its own analysis, balancing the range of statutory duties, which include benefits for passengers; the financial impact on the Government and, critically, existing passengers; and the performance impacts on the network. Grand Central’s 2016 application to run services to Cleethorpes was not granted by the ORR, but as a Department we want future applications that offer genuine benefits for passengers, serve new markets such as Cleethorpes and deliver innovative services that complement the existing franchising system. We made that position clear in “A Strategic Vision for Rail”, published last November, and in the guidance we issued to the Office of Rail and Road last July.

It is important to pick up on the point made by my hon. Friend about open access operators not receiving any Government subsidy. It is true that we do not directly subsidise open access operators, but they 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 creates something of an uneven playing field, which distorts the incentives of operators and means that we cannot realise the full benefits of competition for passengers.

The CMA recommended that, with robust reforms in place, open access could deliver benefits for passengers. The Department for Transport and the Government agree with that assessment. That is why we are working closely with the ORR on its proposals for reforming track access charges in the next rail control period CP6 from 2019 to 2024. Under those reforms, open access operators will pay an appropriate amount towards the fixed costs of the network where they can. We support that as a vital step in creating a level playing field between franchised and open access operators.

We have also consulted on a possible public service obligation levy. The 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 the free market was left entirely to itself. The Government offer greater passenger choice through the franchising system to deliver social as well as economic benefits. A greater contribution from open access operators towards the costs of the railways and a more level playing field should lead to more opportunities for open access services, but it is critical that we get the reforms in place first so we can start on the right footing.

It is important to state that franchised operators will still deliver the vast majority of services. We need public accountability to ensure everyone can benefit.

[Martin Vickers]

I welcome the Minister’s comments, particularly on creating a level playing field. Does he acknowledge that it would be beneficial for perhaps two franchise operators to operate on some of our main lines, such as the east coast? That would provide competition between them.

[Joseph Johnson]

Indeed, in 2016 the Competition and Markets Authority said that there could be a greater role for open access of up to 30% of train paths on some routes. It suggested that it would like two to three open access operators on each inter-city route—east and west coast—and also on the Great Western main line. That recommendation was subject to important reforms to ensure that the open access operators make that appropriate contribution towards the cost of the railway. Those reforms were the ones I mentioned: to track access charging and the introduction of a public service obligation. Both would therefore see open access operators pay a sufficient contribution towards the overall cost of the railway.

It is right that government retains sufficient control over services and fares as well as operator profits through franchising contracts. Those contracts allow government to ensure the provision of socially and economically beneficial services that the market would not otherwise provide and protect passengers by regulating certain fares. It is also right to recognise the role that franchising plays in rebalancing the economy—franchise payments from the most heavily utilised parts of the network fund services in other regions, thereby maintaining the national network and providing a range of economic and social opportunities that would not otherwise materialise.

Open access has an important role to play in delivering new, innovative and commercially viable services for passengers, but it must fulfil that role as part of a railway that serves as a national asset and not just a business. That means operating alongside and complementing a franchising system that allows the railway to shape and support people, businesses and the economy all over the country.

Question put and agreed to.