Passenger Railway Services (Public Ownership) Bill

Lord Lansley Excerpts

Report stage
Wednesday 6th November 2024 Lords Chamber

[Lord Gascoigne (Con)]

My Lords, I rise briefly to fire the starting gun on Report with my Amendment 1. In doing so, I express my gratitude to my noble friend Lord Moylan for his support with this amendment. I also thank the Minister for taking the time to meet me the other day. I very much appreciated the opportunity he took to address my many questions in his usual cordial way.

This amendment today flows from my first amendment in Committee. Everyone wants the trains to improve. That is a given. As I said in Committee, and when I met the Minister recently, the reason I care about this is that we need the whole rail reform package and we need it not to be piecemeal. Personally, I would like to go down the route proposed under the Williams-Shapps review, but I recognise that that ship has probably sailed. That said, the overall goal is the same: to make it more efficient; to make it easier to travel; to make it more punctual and, ultimately, to improve the passenger service.

In Committee I used the word “Ronseal”: making sure that the Bill delivers what it is intended to, so that it does, in effect, what is on the tin. While I will not repeat word for word what I said, there are three technical points I want to address following on from Committee, for the benefit of the House today.

First, is this Tory language being inserted really a sort of Trojan horse, ready to pounce on the unsuspecting Minister in the Labour Government once they have welcomed it? No. In Getting Britain Moving: Labour’s Plan to Fix Britain’s Railways, published during the campaign, the then Shadow Secretary of State said in the foreword:

“We need a modern rail system—with improved services for passengers and better value for money for taxpayers—to serve as the backbone of a modern Britain”.


Later, she said:

“Labour’s challenge is to put our rail system back on track to sustainable growth and improvement”.


This was followed by:

“Labour’s vision is to deliver a unified and simplified rail system that relentlessly focuses on securing improved services for passengers and better value for money for taxpayers”.


Indeed, in just the foreword alone, there are eight references to either “improve”, “improving” or “improved services”, not to mention countless others in the rest of the document.

The Government and Labour may argue that those references are about the whole suite of rail reform: it is only then that you will get a better service after everything has changed. However, after the election, at Second Reading, in response to questions, the Transport Minister in the Commons said:

“Let me begin by dealing with the issue of public ownership. According to the shadow Secretary of State ... we have no proof that it will improve outcomes for passengers, but that is clearly not the case. We know for a fact that this Bill will save tens of millions of pounds in fees, and if that is not a good start, I do not know what is”.


A little later he went on to say:

“I am confident that public ownership will provide the right foundations to drive forward improvements for passengers”.—[Official Report, Commons, 29/7/24; col. 1135.]


I could read out plenty of other quotes which all use the same terminology and the same rationale for this Bill, but, as I hope noble Lords can see, this is not about me inserting language into this debate: it is already there from the Labour Party, both in opposition and in government.

Secondly, are we not overlapping existing commitments? My noble friend made the inspired observation in Committee that similar references are made in the Railways Act 1993. He is, as ever, correct that the obligation to improve services is used elsewhere and is not altered by this Bill, so why cannot it, or a reference to upholding that element of the 1993 Act, be put in this Bill?

Thirdly, from a technical point of view, do we need a purpose clause given that this Bill is focused on how nationalisation will take effect? I have said before that some will question whether a purpose clause is needed, given that this is a tightly focused Bill. I will suggest later why it is needed in general terms, but, from a purely technical point of view, in Clause 2 the Secretary of State will have to take a view and make a judgment of the virtue or otherwise of a franchise when deciding whether temporarily to extend the said franchise. By inserting this purpose clause at the outset, it is a necessary barometer setting out exactly what this Bill is seeking to do and what should be the Secretary of State’s overriding concern when making a decision.

This is not about stopping the Bill, nor is it about inserting assessments, reports or tests before anything can happen. There is no bureaucracy being created here, I am pleased to say to my friend the noble Lord, Lord Snape. It would not be costly—indeed, it would not cost anything—and I am not saying that it would lead to cheaper fares, although that is what people want to see and expect. It would not add anything onerous or new. As I said, this is language used elsewhere in legislation. It does not issue specific demands or expectations about cleanliness, the number of guards, ensuring decent toilets—or toilets that are open, which they absolutely should be. My amendment could talk about access and address some of the shocking things we heard in Committee about the experience of disabled people when travelling, which I know will come up later. But it merely sets out what the goal of reform is, to ensure that everyone from top to bottom knows what the Government are doing this for. We wish them to succeed in improving the service. It is language that Labour has used, and which is used elsewhere in legislation, to make it clear what the Bill will deliver. I beg to move.

[Lord Lansley (Con)]

My Lords, I support my noble friend on his Amendment 1 and will speak to Amendment 14 in my name. My noble friend very kindly referred to our debate on the same amendment in Committee. I note the reference in the Railways Act 1993 and that I see two merits in my noble friend’s amendment.

First, it is always a good thing for Bills to be clear about their purpose. Unless I am mistaking something, this amendment accurately reflects the Government’s purpose in this legislation. We may debate whether it will be successful or otherwise, but the purpose seems to be straightforward, and to have that in legislation is always helpful.

Secondly, because this Bill is essentially about amending parts of the Railways Act 1993 and nothing else, it is clearly subsidiary to the existing provisions of that Act, as amended. There are 10 general duties in that Act. The first is in Section 4(1)(zb),

“to promote improvements in railway service performance”.

My noble friend has accurately reflected the first of those 10 general duties, one of which we will come to debate in a subsequent group in relation to my amendment.

It seems to me that one of the abiding issues for public agencies, often including government departments, is the multiplicity of duties that are imposed upon them and the risk of conflict between those duties. Here, for these purposes, that would be clarified if it were made very clear that this important change to the way in which the provisions of the Railways Act are structured and to be used is to improve railway service performance. To raise that general duty in importance above the others would be helpful in clarifying the balance which the Government and the other agencies should take. I support Amendment 1 for that reason.

Amendment 14 refers to the new subsection of Section 30 of the Railways Act, inserted by the Bill, which provides that the provision of railway services can be made only via

“a direct award of a public service contract to a public sector company in accordance with regulation 17 … of the 2023 Regulations”.

Noble Lords will be aware of those regulations. Subsequently, the requirement for pre-award publication is disapplied by this legislation. However, paragraph (2) of Regulation 17 states:

“Where a competent authority makes a direct award of a public service contract under this regulation, the competent authority must, within one year of granting the award, and while ensuring the protection of commercially sensitive information and commercial interests, publish a notice on its website”.


The information required about the contract and the contractor is then listed in the regulation. Is one year right? Is it desirable that we should, in any circumstances, wait so long to be given information about the direct award of these contracts, given that they are instrumental to an understanding of whose responsibility it is to provide passenger railway services?

I have discussed my amendments with the Minister, and I am grateful for his time and that of his officials. I hope he has had a chance to think about my amendment and that, if he will not accept it, he will at least be able to tell us that it will be the Government’s intention to make new regulations quite soon, and in those new regulations to reduce to as little as three months after the granting of an award of a contract of this kind the publication of the notice and details. To assist later consideration, I say that it is certainly not my intention to press Amendment 14 when it is reached.

[Lord Berkeley (Lab)]

My Lords, I will speak briefly to my Amendment 16, which is in this group. I am, as ever, grateful to my noble friend for sparing the time to talk about this. My amendment is designed to be helpful. It is designed from experience of previous railway legislation, in which we got bogged down in massive detail, with hundreds of amendments; we may get somewhere, but it takes longer.

Given the discussion that we had on a large number of subjects in Committee, and will probably have today on Report, I thought it would be useful to probe the Minister’s view of how long it will be before what I call the definitive Bill is published. If that is going to take until spring, as some of us have been told, it might be useful to publish a draft Bill or a draft Command Paper that we could read several months before and have the opportunity to debate. That might help us resolve what the real problems are and how to deal with them, rather than on the Floor of the House for many days in Committee and on Report.

That is the purpose of my amendment, and I look forward to my noble friend’s response. I am not going to press this amendment, but it will be interesting to hear what he has to say.

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Moved by

[Lord Lansley]

3: Clause 2, page 2, line 6, at end insert—
“(1A) In section 4 (general duties of the Secretary of State and the Office of Rail and Road) omit paragraph (1)(d).”Member’s explanatory statement
This amendment probes when - and in relation to which services - Ministers expect to meet their duty to promote competition.

[Lord Lansley (Con)]

My Lords, the purpose of Amendment 3 in my name is to explore the question of when and under what circumstances it is the Government’s intention to meet their duty in Section 4(1)(d) of the Railways Act

“to promote competition in the provision of railway services for the benefit of users of railway services”.

It was prompted by a very brief exchange that took place in Committee, where the Minister confirmed that it is not the Government’s intention to remove that duty. However, it is clearly their intention, in relation to passenger railway services, very substantially to reduce competition and perhaps to exclude it altogether. There may well be other areas of activity in the provision of railway services which are open to competition, and I want to examine where those should be. Of course, I approach this not with the intention that the duty to promote competition should be removed from the Act, but with the view that it should be exercised.

I am in favour of competition. I might say, in this context, going back many years, that where privatisation is concerned, we have found that competition between private organisations yields benefits. In the railways, in some circumstances, we have found that the absence of competition has been at the heart of the problem: that the performance has not been exposed to competition and therefore has not improved in the way we would have wished it to. So, competition works, privatisation does not necessarily work, but the combination of privatisation and competition, in my view, has worked in the past. However, we are not here to discuss privatisation; we are here to discuss competition, and there is a continuing role for competition, in my view.

I am not planning to talk at length about Amendments 13 and 17 in this group, I will leave that to my noble friend on the Front Bench, but Amendment 17 is directly relevant. One of the principal opportunities for competition would be with open-access operators. In Committee, we touched upon but did not find out whether, and to what extent, it was the Government’s intention to continue to permit open-access operators or indeed to promote them. In my view, promoting them can be a very effective way of stimulating competition and innovation, which are often—as Schumpeter would have said—very intimately linked together.

My contention in this amendment is very simple: to explore where competition will be available. Clearly, it can be done with things such as the provision of rolling stock and services to railways, and maybe, to some extent, in relation to rail freight. As far as passenger railway services are concerned—and we are dealing with that here—the Government’s intention appears to be that every aspect of the passenger railway services should be subject to the “directing mind”—as the Explanatory Notes sets out. Therefore, it will be very difficult for there to be any substantial competition, except if that can be achieved by the role of open-access operators. I hope, when he responds to this debate, the Minister will be able to say they will have a continuing role, or even that they might be encouraged to bring the innovation and competition that would enable us to avoid the downside of a dominant provider.

We have seen this in other circumstances. For example, in France, the dominance of SNCF has led to abuse such as anti-competitive pricing or the overbooking of train paths to restrict competition from other providers. We do not want to see the dominance of public sector providers, on passenger railway services, to lead to that kind of abuse. Still less do we want to see monopoly activity on the part of public sector companies in passenger railway services lead to an elevation of the interests of the companies themselves over the interests of the users of railway services. The general duty to promote competition is for the benefit of the users of railway services because, very often, they are the ones who most see the benefit of that.

I will just tease the Minister, finally, by saying that in this legislation he has the opportunity to move in the opposite direction to the fourth railway package under the EU’s transport legislation. Here is an uncovenanted Brexit bonus for the Government, in being able to move in the opposite direction to the thrust of legislation in the European Union. With that teasing moment, I beg leave to move Amendment 3.

[Lord Moylan (Con)]

My Lords, I rise to speak to Amendments 13 and 17 in my name, but also to respond to my noble friend Lord Lansley in relation to Amendment 3. We come now to the heart of a considerable confusion that exists in the Bill, one that the Government have done their very best to avoid and that needs to be flushed out.

My noble friend Lord Lansley refers to competition. In fact, he refers to the abusive practice by monopoly railways in France. That, of course, is in response to European Union legislation, which has had to mandate access to competition in order for it to flourish in the European Union. It is going in the direction that we went in, somewhat later than us. We are now going back to the Attlee Government, basically, and moving away from that. It is a Brexit bonus, as I think I said in an earlier debate.

The matter is made worse because the Government have not been clear about their view on competition. It has been made much worse by the Government’s confusion and blank refusal to address the question: who is going to make the decisions about competition? Who is going to decide, in relation to open access, which providers will have access to the service? I refer, as I was encouraged to do by the Minister, to the Labour Party document Getting Britain Moving. In its section 7 on “The role of open access”, beginning on page 22, it says clearly:

“The ORR will continue to make approval decisions on open access applications”,


but that is not confirmed by the Minister. Instead, we have the spectre of Great British Railways making open access decisions. That appears to be part of the great controlling brain: one of its functions is that it would make those decisions about open access. But in doing so, it will be making decisions directly about competition with itself.

We are very concerned that the sort of abusive monopoly activity seen in France, which my noble friend has referred to, is exactly what we would be exposing ourselves to if we allowed this measure to go through without having appropriate safeguards in place in advance. That is the thrust of Amendment 17, which simply calls for a report. In Committee the Minister made fun of me for calling for so many reports, but he should understand that we are doing this as a way of drawing attention to an issue of serious concern without trying to hobble or wreck the Bill. He has not given us any assurance in response. He has taken no notice of our very genuine and serious concerns.

Amendment 13 relates to a similar topic, in relation not to open access for passenger railway services but rather to access for freight services. They too compete, so to speak, for paths on the railway; they need access to the railway if they are to operate. The previous Government had an informal and non-statutory target of seeing the volume of freight on the railways increase by 75% by 2050 from a base of, I think, two years ago. This amendment would effectively put that target into the Bill.

Nobody in the Labour Party, either in opposition or in government, has resiled from or rejected that target. If anything, I think they want a more exacting target. The Minister, if pressed, would probably say that it was a perfectly respectable target, one that he would want to sign up to, so there should be no objection to seeing it in the Bill. It would give some assurance that Great British Railways, in its operations, would not simply favour its own activities at the expense of freight operators. Ideally, we would also want some sort of assurance that it would not favour its own passenger activities at the expense of open access operators.

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[Lord Hendy of Richmond Hill (Lab)]

I thank noble Lords for their amendments in this group. In response to Amendment 3, from the noble Lord, Lord Lansley—and I thank him for our discussion a few days ago— I will highlight two important ways in which this Bill promotes competition.

First, there will continue to be huge opportunities for competition between businesses in the supply chain which publicly owned operators and Network Rail will continue to depend on. I was speaking this morning at the Railway Industry Association’s conference and it welcomed clarity about the Government’s intentions with enthusiasm, because it knows as well as we do that the railway, after six years of being promised reform, needs to understand what reform might look like in order for its businesses to prosper. Public ownership and our plans for GBR to provide long-term strategic direction for the whole railway will give greater clarity and certainty to businesses in the supply chain and so will support healthy competition.

Secondly, in relation to competition between train operators, the Bill preserves the existing arrangements for open-access operators. Open-access services are the only source of meaningful competition between operators on today’s railway, and this Bill makes no changes to the way in which open-access applications are treated by either Network Rail or the independent regulator, the Office of Rail and Road.

Having set out how the Government’s approach is consistent with a duty to promote competition, I also note for completeness, referring to the propositions of the noble Lord, Lord Lansley, that the Section 4 duty applies to the Secretary of State only when she is exercising certain functions under the 1993 Act. It does not apply to the exercise of her functions under Sections 23 to 31, which are the franchising functions that are amended by the Bill. As such, there can be no question of this Bill impairing the Secretary of State’s ability to comply with the Section 4 competition duty.

Turning to Amendment 17, tabled by the noble Lord, Lord Moylan, open-access operators are a valuable part of the system and will remain so following this short Bill. Looking ahead to the wider railways Bill, we see a continuing role for open-access services where they add value and capacity to the network. I will say more in a moment about how their interests will be protected. In the meantime, I reiterate that the current short Bill has no impact on open-access operators, the services they provide or the process by which they can secure rights to operate on the rail network. For this reason, the report required by this amendment would serve absolutely no purpose; the Bill plainly has no impact.

Requiring this report—not just once but every single year in perpetuity—would simply place an additional reporting burden on Network Rail and the Office of Rail and Road, and potentially also on open-access operators themselves if they were each required to provide information about their services to inform each report.

Finally in this group, Amendment 13 deals with freight. My noble friend Lord Berkeley is a staunch advocate of the rail freight sector and I hope that I can reassure him and the noble Lord, Lord Moylan, about the Government’s intentions. The Government hugely value the rail freight sector and recognise the importance of its contribution in reducing congestion on our roads and in helping our transport system move towards net zero.

I entirely agree that the Government’s plans for reform under the railways Bill must ensure that Great British Railways promotes growth in the freight sector and must provide suitable protections for freight operators. We will set out our detailed plans in the consultation I have already referred to as soon as we are able to.

In the meantime, I am very happy to reassure noble Lords on three fronts. First, our proposals for the railways Bill will include a statutory duty on Great British Railways. I have reflected carefully on the remarks of the noble Baroness, Lady Randerson, in Committee, and the remarks just made by my noble friend Lord Snape, and as a result I now confirm that this duty will be not merely to enable the growth of rail freight but to promote it. My noble friend Lord Snape referred to variable access charges. I very much agree that we would seek more of that in the future to encourage more freight traffic.

Secondly, the Secretary of State will set a specific freight growth target for Great British Railways. I cannot confirm today the specific detail of what that target will be, but we will set out our plans for that in due course.

Thirdly, I thank my noble friend Lord Berkeley in particular for his comments on the importance of a fair system for the allocation of access. As discussed with my noble friend last week, I have confirmed today that there will be consultation on the Government’s reform proposals, and that the consultation will set out the proposed role for the Office of Rail and Road in the access decision-making process. Any changes will then be set out in the railways Bill itself, so noble Lords will have ample chance to debate these matters before changes are implemented.

I also reassure noble Lords that our proposals for allocating capacity and granting access to the network will include safeguards to ensure that both freight and open-access operators continue to be treated fairly. As I have already said, I would be delighted to meet with my noble friend and other noble Lords with an interest once the consultation has been published, so that we can discuss the details and continue the very helpful conversations we have started here.

Turning to the specifics of the noble Lords’ Amendment 13, the statement required by this amendment would be very short and sweet. There is no need to wait six months after Royal Assent for me to provide this statement; I can give it to the noble Lords now. The Bill is narrow in scope. Its purpose is simply to allow the Government to transfer the operation of franchised passenger services to the public sector. It does not make any changes to the arrangements under which freight services operate. This means that the Bill will not, and cannot, have any adverse impacts on the freight sector or on freight growth.

I have clarified the impacts of the Bill on competition, open access and freight, I have confirmed that we will soon publish a consultation document setting out our proposals for the railways Bill, and I have reaffirmed that these proposals will consider appropriate protections for freight and open-access operators. In light of what I have said, I hope that noble Lords will agree that there is no need to pursue their amendments further today.

[Lord Lansley (Con)]

My Lords, I am very grateful to all noble Lords who have taken part in this short debate. It has raised a number of important issues, and I am grateful to the Minister for the clarity that he brought to the subject—partly from my own point of view, in understanding how the legislative provisions work, which is always helpful. I have to confess that I know much less about railways than the noble Lord, but I try to find out how legislation works, since that is part of our job, and what he said was very helpful.

What he had to say about there being no changes to the legislative provisions and the arrangements in relation to open access was important and I will come back to that in a minute.

I do not think there is any merit in pressing the amendment now, because when we come to look at the role of Great British Railways in the major Bill to follow, we will look at issues such as the one my noble friend raised—the relationship between Great British Railways and the control of train paths. That is exactly the problem that occurred in France, and I think my noble friend Lord Moylan also discussed the abuse of a dominant position. We will need to look at how that kind of scrutiny and competition can be sustained, notwithstanding the monopoly aspects of Great British Railways. However, in light of all those helpful points, I beg leave to withdraw Amendment 3.

Amendment 3 withdrawn.

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Moved by

[Lord Lansley]

4: Clause 2, page 2, line 12, leave out “only”
Member's explanatory statement
This probing amendment seeks to understand the circumstances where Ministers may provide services other than by direct award of a public service contract to a public sector company.

[Lord Lansley (Con)]

My Lords, this is the last group on which I plan to speak. My amendment was prompted by a debate in Committee that gave rise to the question of how the new legislation would work. We have established, including during the previous group, a number of things that do not change, including the licensing of railway services and the prohibition on operating without a licence. The relationship with open- access providers therefore does not change, since they can make applications to the Office of Rail and Road for that purpose—I am paraphrasing, but that is, broadly speaking, how it works.

Where we have a change is in the process for franchising, which is to be removed. The Government have chosen to change the franchising provisions in the Railways Act, in Section 30 et cetera, and to replace that text with what we see in the Bill. I really want to explore this question: to what extent will all designated railway services be brought under Section 30, from new Sections 30A to 30C? I want to explore the consequence of the use of the word “only” in that provision. It says that a service must “only” be provided by

“a direct award of a public service contract to a”

wholly owned public sector company. In effect, it will be wholly owned by the Secretary of State—not, as we have discovered, other public sector companies.

The removal of the word “only” would, in the way in which the text works, as far as I can see, create an opportunity for the Secretary of State to provide or secure the provision of services by routes other than the direct award under Regulation 17. Clearly, that is not the Government’s intention. I will not return to the debate I promoted in Committee, but it would be good legislation to leave that option open to the Secretary of State, even if it were not the Government’s present intention to use it, because they may find it valuable to be able to do so in future.

Let us look at a practical example. Imagine that the Government thought it desirable to say that a service such as the one from Fenchurch Street to Southend and Shoeburyness should form part of the Overground services under the operating control of Transport for London. As far as I can see, as things stand, if that service is designated under Section 23 of the Railways Act—the designation requirements—it will have to be run by a public sector company wholly owned by the Secretary of State, unless it is the subject of an exemption under Section 24. In Committee, I think we heard the Minister say that the Government have no plans to extend the exemptions under Section 24. That raises another question for the Minister. Would he entertain that there may be circumstances in which it would be desirable to extend Section 24 exemptions? While London is a straightforward example, will the Government be open to that possibility, if it were a practical mechanism of securing the best operation of those services?

To what extent is the language of the Bill very deliberate, in that it requires that the Secretary of State may secure the provision of these services only through a direct award, but it does not say that the Secretary of State may provide or secure the provision of these services only by this route? I am making the distinction between “provide” and “securing the provision of”. This is customarily seen in legislation as a distinction between a government department doing it itself and doing it by means of a contract.

Where in this does the Department for Transport’s operator of last resort holdings company sit? Does giving an award of a contract to OLR Holdings Ltd constitute securing the provision of a service, or does it constitute providing the service? Is it regarded as part of the department for these purposes, or is it part of a wholly owned public sector company? There would be something rather odd now about treating it as part of a franchise agreement, since these franchises have already ended. Bringing it under a regime that is about the ending of franchise agreements seems odd.

My second example concerns East West Rail. We are not far away from the point when East West Rail will be running services itself on its new rail services. That will be very welcome—not least from my point of view, living in Cambridgeshire—when it reaches, as the Budget told us, all the way into Cambridge in due course. It will be running services quite soon in Oxford and Bletchley. It has not had a franchise; clearly, it will not now be given a franchise. It is a wholly owned public sector company. Is it the Government’s intention that it will be brought within the scope of Section 30? If so, this is odd, as this is an arrangement for franchises, but it has never had a franchise.

Of course, on the face of it, the Government will continue to designate railway services. Presumably—and here is a question to the Minister—there will be a comprehensive designation of railway services under Section 23, and that will, as a consequence, bring them all under Section 30 because of the way the legislation is now to be phrased. Therefore, is the intention, in effect, to bring all designated railway services under the scope of Section 30 et cetera, other than those exempted under Section 24?

I am sorry for asking a range of questions to explore how this works. We did, as the Minister has kindly mentioned, have the opportunity to discuss this a few days ago, so I hope he will have had the opportunity to think about explaining precisely how these interactions in the legislation will work. I beg to move.

[Lord Moylan (Con)]

My Lords, I am very grateful to my noble friend Lord Lansley for posing those very interesting questions. I am sure that the Government have answers to them, but they illustrate that this legislation is essentially very rushed and that they have not properly considered it.

I promise not to repeat what I said in Committee, but I cannot resist referring back to the final impact assessment, produced by the Department for Transport. It said that the purpose of the Bill is to meet a manifesto commitment, so it has not undertaken the normal practice of looking at alternative methods by which the same objectives might be achieved, because they are all in a terrible rush as the Government want to have a headline, essentially, and want to get ahead of the franchises as they expire. Therefore, I appreciate what my noble friend Lord Lansley has said, and I look forward to the Government’s reply.

Amendments 5 and 6, standing in my name, are linked. If Amendment 5 were to pass, I understand that there has been discussion with the Government Front Bench that Amendment 6 would pass without a Division in order to avoid having two votes on the same topic.

In Committee, I referred to two different models by which the private sector might be involved in the running of railways. One is the franchise system that we are currently discussing, which is the main subject of this Bill, but the other, generally dubbed the concession system, is the one used by Transport for London for the operation of all its services other than the London Underground, which is directly provided by Transport for London. All the other services—the buses, London Overground, the DLR, the tram and so forth—are provided under a concession system; that is, they are run by private companies on a contract.

The key difference between the franchise system and the concession system is that under the franchise system, as envisaged at privatisation, the fares risk rests with the operator. That was the model that was set up back when privatisation was introduced. If the fares went up and the companies generated more fares income, they would keep it; if they lost money on fares, it would be their problem that they did not make money because the fares were not good enough. Companies had the incentive to generate more fares, principally by generating more passengers, through all the clever things that they would do.

I was frank and straightforward in saying at Second Reading that that aspect of privatisation has never worked well because, essentially, private operators are not in control of fares income, which is closely correlated with the economic cycle—which of course they cannot control, manage or in any serious way mitigate. That aspect has never worked well, and Covid put an end to it in any meaningful sense. It has never recovered from that, nor, given this legislation, is it ever going to have the chance to recover.

The concession system is different, in that the fares risk remains with the franchisor. In the case of Transport for London, it is the franchisor of the services I referred to and it retains the fares risk. The obligation of the private sector operator is simply to have the trains and equipment in the right place, pointing in the right direction first thing in the morning, properly staffed, cleaned to a certain standard and so forth. If it fails to do those things, it will suffer financial penalties. The important point is that all those things are within its control. It receives a fee for that, but, in practice, because of competition, it is a modest fee given that risk is very limited. The risks are all things that are just a matter of it doing its job properly; if it does it properly, it will get that modest fee without penalty.

The purpose of Amendment 5 is to open up an option. It makes no obligation on the Secretary of State. When a franchise is terminated, the Secretary of State would have the option of awarding it not only, as the Bill is currently drafted, to a public sector company that is a subsidiary of the Department for Transport but to a private sector entity on a concession basis. The reason for it is simply that we know that it works. We know from Transport for London that the system can be made to work very effectively. We know that some of the best services on the Transport for London network—some of the best modes—are provided under this system. Why should it be that the Government would want to rule that out? Of course there could be a role for the private sector operating on that concessionary basis.

My noble friend Lord Lansley’s amendment gives the Government more options than mine does. My amendment gives the Government one extra option, but he would give the Government effectively limitless options by deleting the word “only”, whatever options might be available. It would give the Government more flexibility in dealing with circumstances that they may not have foreseen when they drafted this Bill.

Amendment 6 goes with Amendment 5 simply by defining in a separate clause what I mean by concession. Amendment 5 opens up the choice to do something on a concession basis and Amendment 6 says what a concession is. Despite every effort on my part and that of the Public Bill Office, we could not quite combine these into one amendment, so they stand on the Marshalled List as two amendments which, in practice, are closely linked, as one amplifies and clarifies the other.

I would very much like to hear from the Minister why Amendment 5 would not be acceptable, except to a control freak. That appears to be perhaps the Government’s vision for the railways.

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[Lord Hendy of Richmond Hill (Lab)]

I thank the noble Lords, Lord Lansley and Lord Moylan, for their amendments in this group. I will speak first to Amendment 4. Following enactment of the Bill, there would be just two routes by which the Secretary of State could secure the operation of passenger services. The first option, and this is the option we plan to use, would be to make a direct award to a public sector company under the amended Section 30 of the Railways Act 1993 and in accordance with the Public Service Obligations in Transport Regulations 2023.

The second option, which is a very limited option, would be to use the power to continue an existing private sector franchise temporarily under new Section 30A. This power is deliberately limited only to circumstances where the Secretary of State is satisfied that a transfer to a public sector company is not reasonably practicable. This means the Government would expect to use it only as a last resort, for a short period, to avoid a transfer causing disruption to passengers or staff. Apart from this very limited power in new Section 30A, the Bill leaves no other route by which the Secretary of State could contract with a private sector operator to run either existing services or new ones. This is entirely consistent with the Government’s very clear policy in favour of public ownership of services that form part of the national railway network.

On the point from the noble Lord, Lord Lansley, about DfT OLR Holdings Ltd, I confirm that award to it is securing the provision. All services currently designated under Section 27 will be provided under Section 30 by a public sector operator as existing contracts expire. The noble Lord also asked about the Secretary of State’s power to secure the provision of new services through a public sector company if those services had never been provided under a franchise agreement. Regulation 21 of the Public Service Obligations in Transport Regulations 2023 allows the Secretary of State to vary the terms of a public service contract to include additional services, and so would provide the necessary statutory basis for her to secure the provision of new services from a public sector operator.

The noble Lord asked whether the Bill will leave an option for the Secretary of State to procure East West Rail services from a new private sector operator, and the simple answer is that it will not. The Government have no plans for long-term private sector operation of the new East West Rail services, which will commence operation next year, nor any other services that the Secretary of State is responsible for procuring.

There are—and, after this Bill, there will remain—two ways in which other parties might operate or secure the provision of services on the rail network. One possibility is that a third party might operate them as an open access operator, as is the case with Hull Trains, for example. Another possibility is that a mayoral or combined authority or other local authority might secure the operation of services either by running them itself or by procuring a third party to do so. As I will explain in relation to the next group of amendments, the Secretary of State can facilitate this by granting an exemption under Section 24 of the 1993 Act, which takes the relevant services out of the scope of the surrounding provisions of that Act.

I noted with interest that my noble friend Lord Liddle remarked about involvement of developers, for example. I echo his sentiment that there will be ways of getting private capital in, particularly through development, that have not really been explored so far.

I hope that my explanation reassures the noble Lord, Lord Lansley, that the Government have carefully considered the implications of the Bill and the options it will and will not leave open, and I hope he will feel able to withdraw this amendment.

Amendments 5 and 6 from the noble Lord, Lord Moylan, deal with competed concession contracts. As I set out to the noble Lord in Committee, these amendments would remove the opportunity to deliver the benefits of public ownership, which a clear majority of the public support and which was a specific commitment in the manifesto on which this Government were elected. For the following reasons, I cannot agree to the amendments.

First, a concession model would mean the taxpayer continuing to fund substantial profits for private sector operators. A concession model along the lines of Transport for London’s contracts would expose operators to more financial risk than today’s contracts, where government bears virtually all the financial risk. Under such a model, train operators would price their bids to generate even more profit than the £110 million to £150 million per annum that they can earn under the current contracts. Our plans for public ownership will eliminate those fees and profits entirely—in the Government’s view, continuing to line the pockets of private shareholders is not a good use of taxpayers’ money.

Secondly, TfL concessions are a relatively inflexible form of contract which is not well suited to the needs of the national railway network. For a concession contract, the procuring authority has to define the service levels and standards at the start of the procurement process, and those levels and standards then endure for the life- time of the contract. Changes to the service specification can be achieved only through costly negotiation and agreement with the operator which already holds the contract.

That is very different from the London bus market, for example, which we discussed in Committee, where the concession model is much more suitable because there is a large number of small individual contracts. For the London Overground, much of which is heavily constrained by the geography of the railway network and the other services that run on it, it might be satisfactory, but the whole of the national railway network requires greater flexibility to adapt to changing patterns of demand. Finally, and most importantly, a concession model would not resolve the fragmentation of the current system, nor would it deliver on the Government’s commitment that rail services should be run by and for the public.

The noble Baroness, Lady Randerson, referred to devolved Administrations and local mayoral authorities. We will come to devolution further in the next amendments.

I urge noble Lords not to press their amendments.

[Lord Lansley (Con)]

My Lords, I am very grateful to all noble Lords who participated in this shortish debate, particularly to the Minister for the additional clarity sought by my Amendment 4.

My noble friend raised the issue of concessions, which I suspect we will come back to. It is one of those occasions where one looks at the interesting examples of what is happening in the French railway system, which is using concessions to a greater extent and is perhaps not encountering the objections that the Minister cited in relation to TfL’s concessions. That is a comparison that I am not qualified to make, but I know my noble friend on the Front Bench might pursue it.

I thoroughly agree with the point made by the noble Baroness, Lady Randerson, about the desirability of maintaining devolution models or perhaps extending them. The use of the exemptions under Section 24 should be considered. The Minister said that, in addition to the two routes the Secretary of State might use for securing the provision of services, that is the additional route, as it were, alongside open access, which we discussed in the previous group.