Passenger Railway Services (Public Ownership) Bill

Lord Moylan Excerpts

Committee stage
Wednesday 23rd October 2024 Lords Chamber

Moved by

[Lord Moylan]

19: Clause 2, page 2, line 23, at end insert—
“30ZA Independent financial monitoring of public sector companies(1) The Secretary of State must, within three months of the day on which the Passenger Railway Services (Public Ownership) Act 2024 comes into force, instruct an independent body to conduct monitoring of the financial management of any public sector company with whom a direct award of a public service contract is made under section 30(1A).(2) For the purposes of subsection (1), “monitoring of the financial management” includes the auditing of accounts, the review of spending efficiency, and the making of recommendations to improve cost-effectiveness.”Member’s explanatory statement
This amendment requires that the Secretary of State instructs an independent body to conduct financial monitoring of the public sector companies.

[Lord Moylan (Con)]

My Lords, I suspect that this will be one of the shorter debates in our consideration of this Bill in Committee, but it is one of the most important. It will be short, I suspect, because this group is rather technical, but it has very great significance, not only for the operation of the railways but for the passenger experience.

There are four amendments in this group, all of them in my name. The first two, Amendments 19 and 20, are closely related. They relate to the very peculiar situation in which we are now going to see the railways operated in this country: that is, that they are going to be practically unmonitored independently as far as their finance is concerned. Compare the railway sector to the water sector or to electricity. These sectors have economic monitoring to ensure that best value is being delivered to the customer. Nothing of the sort is envisaged in relation to our new nationalised railway. There is to be no economic monitoring and no supervision of the setting of fares, and that is what these amendments relate to. One is to do with charges to customers—that is Amendment 19—and the other is to do with the costs incurred by the utility. The railways are a utility, and that is how they are going to be run.

Of course, if they were run by the private sector—as they would be if they were water or electricity—that economic monitoring would cover both the costs charged to the customer and the costs incurred by the operator, because their efficiency would be monitored. As I say, none of that is envisaged here. We are asked to assume that, in public ownership—I am not now talking about a Bill that is going to come to us in 18 months; I am talking about the direct consequences of this Bill as soon as it starts to come into effect and as these franchises move over—the Government are going to set fares in a reasonable way that is not exploitative of customers.

It could be said that that can be assumed because it is not going to be run by the private sector—that the Government are not going to gouge our eyes out, because Governments do not do things like that. But they do. Tell somebody who is applying for an urgent passport at a cost of £1,000 that they are not having their eyes gouged out. Tell someone applying for a statement of their nationality that recognises an existing British nationality who is charged well over £1,000, including each time for their children on top, that they are not having their eyes gouged out—that is several thousand pounds for a family that are already British and simply want to have it recognised, as they are allowed to do, and register as British because they are already British.

We know from experience that Governments are perfectly willing to charge very high fees for their services in order to make a profit. Sometimes, this profit has been complained about—for example, in relation to nationality, not least by the noble Baroness, Lady Lister of Burtersett, and others on the Labour Benches when we have debated matters such as that.

Who will decide how fares are set, what the logic is, and what the railways’ aim is in setting those fares? This is particularly true in the case of railways, because they inevitably have variable fares. It is part of the nature of a railway that they aim for the highest return they can get from particular passengers; they are then willing, because of the nature of the structure of the business, to take marginal fares to cover marginal costs from other passengers who might pay very little for the same journey because they are willing to go at a certain time or book a certain distance in advance, and things of that sort. Those who do not have that advantage may find themselves being gouged because they need to travel at the last minute or because they are captive customers. Do not forget how many captive customers the railways have. There are not necessarily a lot of captive customers on the long-distance railways, but on the commuter network, especially around London, they are, in effect, captive customers. How attractive to the Treasury to turn the railways into a mill for generating money for the Government, if that is what it wants to do.

I am not saying what the fares policy should be. What I am saying is that there should be some independent monitoring of how it is done so that customers—or passengers, as I must remember to call them, remembering what I said to the noble Lord, Lord Snape, the other day—do not find themselves trapped in a system and exploited. No independent monitor is proposed, so we have to trust either the Department for Transport or Great British Railways. I am not sure which it will be in the long term, but in the short term, over the next few years, we have to trust the Department for Transport to set fares in a way that is not designed to maximise revenues from those who cannot resist paying them.

Similarly, if this were in the private sector, through the setting of charges there would be economic regulation—as there is in the water industry, at Heathrow Airport and so forth—of the efficiency of the costs with which the railways conduct themselves. There is no sign of that either in the Bill. Again, we are asked to trust the Department for Transport to ensure efficiency. Considering how many staff the Department for Transport employed to monitor and shadow the staff employed by HS2 Ltd, I do not regard it as a great guarantor of the efficiency of delivery and the control of costs. There ought to be an independent body to do that.

That deals, as far as I am concerned, with Amendments 19 and 20. We then come to Amendment 23, which is rather different but again relates to something the public should be entitled to know about: the great transfer of pension liabilities that will occur as a result of moving pension responsibilities from the train operating companies to the Department for Transport. I want to be clear about this: I completely understand that the staff are largely currently members of the national rail pension fund and that they will remain members of the same pension fund. The contributions and so forth should not in themselves change simply because of the Bill—I perfectly follow that. The costs will not increase as a result, but the purpose of this amendment is to probe where they will lie in balance sheet terms. Will they be a liability fully on the Government’s balance sheet? What consequence will that have for the national debt? This is something that we should know, because the railway pension scheme is, obviously, one of the largest pension schemes in the country. These are not trivial sums; they are very significant sums in terms of pension funds.

Finally, I have Amendment 25 on lease payments. I will not trespass into this very deeply because a similar amendment in the name of my noble friend Lord Young of Cookham is due to be debated later, and I know that he is much more knowledgeable about these matters than I am, but it is certainly the case that the lease arrangements that exist for the rolling stock are between the train operating companies and the roscos, the rolling stock finance companies. That is where the lease liability exists. Are these to be transferred to the Government? If they are, where will they sit in balance sheet terms? What balance sheet effect would that have? Therefore, there is the question of public debt.

There are two separate strands to these four amendments. One strand relates to balance sheet liabilities and the effect on the Government’s balance sheet of the measures proposed. We are told that this Bill has no cost implications, but is that true? The other relates to how we ensure that the railways are properly and independently monitored to make sure that the fares they charge are not exploitative in circumstances where exploitation is open to them, that their costs are efficient and that they are efficiently delivered. Simply saying that we should trust the Government or the Department for Transport on this is, I suggest, not a satisfactory answer.

[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.

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[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.

Amendment 19 withdrawn.

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Moved by

[Lord Moylan]

24: Clause 2, page 2, line 23, at end insert—
“30ZA Impact on open access operatorsThe Secretary of State must, within twelve months of the day on which the Passenger Railway Services (Public Ownership) Act 2024 comes into force, and annually thereafter, lay before Parliament a report on the impact of the awarding of public service contracts to public sector companies under subsection 30(1A) on open access operators in the United Kingdom.”

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[Lord Moylan (Con)]

My Lords, earlier in Committee we had a debate on the value of open access and I am not proposing to repeat that. But now that the noble Lord has drawn my attention to the biblical text Getting Britain Moving—which I understand is now the Government’s plan for the railways in the country, the Williams review having been set to one side—I will draw attention to what that document has to say about open access.

It too is full of praise. It says:

“Open access has a proven track record in driving competition”—


competition in this context, at least when the Labour Party was thinking about it before the election, was seen as an attractive thing—

“and better passenger outcomes in countries whose services are run predominantly by public operators”.

We will have a service

“run predominantly by public operators”,

and the implication here is that:

“Open access has a proven track record in driving competition”


and has “better passenger outcomes”, so it must be a very good thing.

That is not the impression I get from the debate so far. I have the impression that there is a degree of resistance to open access on the part of the Government. Indeed, there is a qualification, even in this document, on that. It has to add “value and capacity” to the rail network. Who has to be persuaded that it adds value? Here the document says something that rather confuses me. It says:

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


My understanding was that Great British Railways, not the Office of Rail and Road, was going to make decisions about who could run passenger rail services on the network. Clarity from the Minister on what the intention is in that regard would be very helpful.

If it is Great British Railways, we run into the problem that allowing this to happen will result in competition. The whole purpose of Great British Railways —like that of Lord Ashfield, to whom I referred earlier —is to eliminate what could be regarded as wasteful competition.

This contradiction that lies at the heart of the proposition causes me considerable concern. At the root of it is a rather technical question concerning what is referred to as abstraction. The assumption on the part of those who run the railways—and this has been true of the Department for Transport as well; it is not something new, but I have every reason to think it will continue—is that if somebody provides a railway service in competition with the Government, it is abstracting fares income that otherwise would accrue to the Government. So there is a cost to the Government or Great British Railways, depending on where we are in this process, in allowing open access to operate.

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[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.

Amendment 24 withdrawn.

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[Baroness Randerson (LD)]

My Lords, the amendment and the speech of the noble Lord, Lord Young, indicate the obvious advantages of nationalisation in terms of greater access to information and transparency; it has disadvantages, which the noble Lord set out, but it also has advantages. The speech by the noble Lord, Lord Sikka, was compelling: the evidence and information he gave us illustrated much better than I have heard before the issues that have been referred to—I referred to them on Second Reading and on Monday—regarding the imbalance between the attitude of the Government towards the speed of taking over the train operators and the fact that they are prepared to leave well alone the roscos, which can quite clearly be seen to be exploiting their situation and therefore getting excess profits as a result. I will be very interested to listen to the Minister’s explanation of why that is happening.

[Lord Moylan (Con)]

My Lords, at this hour I would like to expand considerably on my noble friend Lord Young of Cookham’s remarks on his amendment, but I find there is nothing I can add, given how well expressed his argument was technically. I shall say only that I hope the Minister, by contrast to his response to the previous group, will recognise the serious balance sheet issues that arise in relation to lease obligations. I understand that, while the department currently recognises its obligations to the end of the current contracts, most of which are a matter of months or very few years away, when the responsibility transfers to the Government, they will be responsible for the lease payments for the whole of the life of the remaining contracts for the lease of the trains and these will therefore represent a balance sheet liability, not simply an ongoing cost, that may well need to be recognised. I am not, as I say, as proficient in these matters as my noble friend, but I hope very much that the Minister treats that seriously and gives us a proper and robust answer about how this is to be treated.

I shall save the bulk of my remarks for the amendment moved by the noble Lord, Lord Sikka, with which, it may surprise noble Lords, I have a great deal more sympathy than they might expect, certainly as far as his analysis is concerned, though not necessarily with his solution of total nationalisation and so forth.

The fact is that there is a very large amount of capital in the world, and a capital is seeking a return. However, this capital is not buccaneering 19th-century capital of the sort that built the railways in the first place; this is not capital that is looking for investments at risk; and this is not capital that sees that it might win a large prize on one investment in its portfolio but is willing to tolerate the total loss of another investment in its portfolio. This is capital that is looking for risk-free returns—or returns that are close to being risk free—but at a rate of return that is considerably higher than it would achieve if it invested in government bonds.

Such capital is to be found throughout our economy—this is a criticism not of the current Government but of the previous Government and of the Labour Government as managed by Gordon Brown—because it is the basis on which funding is now provided to most of our utilities. That is why they all belong to large, foreign—although they are not necessarily foreign, and I do not object to the fact that they are foreign, so I will drop that word—investors who are looking for super returns and are achieving them because the Government are so accommodating towards them.

The noble Lord, Lord Sikka, asked why the Government do not do something about this and why they do not nationalise the roscos as well. That would be a true nationalisation. As I said at Second Reading, this Bill is not really a nationalisation of the railways; as I said in Committee on Monday, it is more like dismissing your chauffeur at the end of his contract. That is all that is really happening. If you are nationalising something, you normally have to pay for it and you normally acquire assets. That is not what is happening here, because the assets are all left in the private sector. The Bill’s headline claim of nationalising the railways—after all, that is the main purpose of this Bill: to get a headline out there quickly—is largely bogus. The main reason that the Government are not acquiring the roscos is that they cannot afford to do so.

There is a second reason that the Government are not acquiring the roscos or going even further—as I suspect the noble Lord, Lord Sikka, would—by seizing their super profits and acquiring them at a price that would reflect a reasonable rate of return closer to the risk-free rate of return for the rest of the period of their leases. That reason is that this Government, rather like the previous one, are wholly dependent on that source of funding for nearly every infrastructure project that they want to carry out, be it railways, environmental stuff, net zero and so forth.

In fact, there was a great conclave of these investors only a week or so ago, at which the Government told them what wonderful prospects they would have with their super, close-to-risk-free returns if only they would invest in Britain. It is not that we will get less of this sort of finance that is so objectionable to the noble Lord, Lord Sikka, under this Government; we will get a great deal more of it. That is the simple explanation, whatever the Government say, as to why they will not do what the noble Lord would like them to do, and which anybody who values true competitive capitalism would also consider to be moving towards terminating an outrage.

[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.

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[Lord Kennedy of Southwark (Lab Co-op)]

It is now 10.18 pm. I am unable to get agreement from the usual channels to finish the last amendment, which is a bit disappointing. If I cannot get agreement then we will have to adjourn. In all my years as Opposition Chief Whip, I have never been in a situation where one amendment cannot be finished off.

[Lord Moylan (Con)]

My Lords, I understand that there has been agreement with the usual channels. I do not think that the matter is in my hands.

[Lord Kennedy of Southwark (Lab Co-op)]

In this situation, the House will resume. It is very disappointing. Never in my time as Opposition Chief Whip would I have acted like that.