Rail 2020

Louise Ellman Excerpts

Wednesday 3rd July 2013 Commons Chamber

[Mrs Louise Ellman (Liverpool, Riverside) (Lab/Co-op)]

I am pleased to have this opportunity to debate the Transport Committee’s “Rail 2020” report, which we published in January. The report sets out our vision for the railway to the end of the decade. Our main focus was considering the Government’s plan to achieve efficiency savings of £3.5 billion by 2019, and its implications for passengers and taxpayers. Currently, the railway costs the taxpayer around £4 billion each year. These issues are highly relevant to today’s consideration of the departmental estimates.

It is important to put today’s debate into context. In many ways, the railway has been a success. The number of passenger journeys has almost doubled since privatisation from 735 million in 1994-95 to 1.6 billion in 2011-12; passenger miles travelled have doubled over the same period to 35.4 billion; and rail freight has expanded by over 60%, with 11.5% of freight now conveyed by rail. There has been investment in major projects such as Crossrail and Thameslink in London, with more ongoing or planned work to electrify 800 miles of track and improve rail services in the north with the northern hub.

[Caroline Lucas (Brighton, Pavilion) (Green)]

Can the hon. Lady tell me whether she or her Committee have made any assessment of the “Rebuilding Rail” report, which says that we could reduce fares if we could reduce the fragmentation of the rail system by bringing the rail back into public ownership?

[Mrs Ellman]

Addressing fares is an important matter, which I shall refer to later, although we have not specifically considered the report that the hon. Lady mentions.

An important aspect of our inquiry examined Government policy on franchising, particularly in relation to securing value for money. During our inquiry, franchising policy was thrown into disarray when the competition for the inter-city west coast franchise was cancelled as a result of major errors made by the Department for Transport. We published a report on that issue earlier in the year.

A number of serious mistakes were made by officials, but there were also policy failings for which past Ministers were ultimately responsible. The review of franchising that Richard Brown undertook at the request of the Department concluded that it was not sensible to let a 15-year contract for the west coast franchise without a break clause. He also drew attention to the difficulties caused by cutting back on resources while attempting to meet an ambitious timetable. The Department has now published a new timetable. The postponement in tendering for new franchises means a delay of 26 years, with consequential uncertainty for the industry and potential financial implications. I will return to that issue later.

Rail poses a number of policy challenges. Increasing numbers of passengers have led to overcrowding on some routes, and capacity constraints can rarely be resolved quickly or cheaply. It is also important to remember that rail investment is vital for regeneration as well as for relieving overcrowding. The provision of rolling stock is complicated and expensive. Fares are often too high and difficult to understand, and a wide variety of fares are often available for the same journey, from heavily discounted “advance purchase” tickets to very expensive “anytime” walk-on fares. The structure of the industry is complex, and there is suspicion that it creates opportunities for money to leak out of the system, some of it in the form of unjustified profits.

The rail subsidy peaked at £7 billion in 2007-08, and the previous Government asked Sir Roy McNulty to consider how to secure value for money. His report was published in 2011. His most striking conclusion was that there is a 40% efficiency gap between the UK railway and four European comparators: France, the Netherlands, Sweden and Switzerland. Reasons given for that disparity include the fragmentation of the rail industry, poor management, problems with franchising, and cultural factors. He made a wide range of recommendations aimed at achieving a 30% cost reduction in the industry by 2019.

Although the rail subsidy has fallen in recent years, it is higher now than in the years before privatisation. In real terms, the passenger railway costs 50% more than in the early 1990s, and there are a number of reasons for that. Increased demand has led to new capital projects and rolling stock.

[Kelvin Hopkins (Luton North) (Lab)]

My hon. Friend may be interested to remember a report by Catalyst which found that productivity under British Rail was, at that time, the highest in Europe. Since then, things have changed dramatically.

[Mrs Ellman]

My hon. Friend makes a relevant comment.

As Network Rail’s debt has grown, more money is being spent on servicing that debt than ever before, and train operating costs have increased. Rail subsidy is necessary. Few rail lines would be profitable on a commercial basis, and even potentially profitable lines would lose passengers if the national network was cut back. There are good environmental and social reasons to subsidise the railway, and we were pleased to hear that the Government share that view.

Although the Government want to cut the subsidy, it is not clear what level of reduction they seek and under what time scale. Neither is it clear exactly where the subsidy goes at present. The Department should articulate more clearly why it subsidises rail and what taxpayers get for their money. We recommended that the Government consult on and publish a clear statement of what the rail subsidy is for and where it should be targeted. The Department’s reply was disappointing and focused on practical difficulties because of current funding arrangements. There is scope for much more work in that area.

This issue illustrates the lack of transparency in the rail industry. That has now started to change with recent work by the Office of Rail Regulation and the disclosure of wide variations in the financial performance of different routes and operators. Establishing why those variations occur will be crucial to ensuring that the rail subsidy is well spent.

Securing the efficiency savings indentified by McNulty will be challenging, particularly as they require different parts of the industry to work together in new ways. More than £1 billion is expected to be saved from train operating costs. I am concerned, however, that the savings have been put at risk by the Department’s problems with franchising. In many cases, existing franchisees will be awarded new contracts to run services for as long as four years. The Department will struggle to drive a hard bargain with existing operators without going to the market. I ask the Minister whether the Department’s decision to prioritise the re-tendering by 2015 of the east coast main line, currently operated by the Department’s company, Directly Operated Railways, will weaken the Department’s bargaining power as it seeks to extend franchises. It is clear that the Department does not want trains to be run by the public sector.

[Graham Stringer (Blackley and Broughton) (Lab)]

My hon. Friend is making a powerful point. Does she agree that the Government are trying to privatise the east coast main line for completely ideological reasons, and not for reasons of financial benefit? The east coast main line gives £563.4 million back to the Exchequer, which is almost twice as much as Virgin gave back over a two-year period. It also gets only one seventh of the subsidy per passenger mile, so there can be no other reason than ideology. The plan is undermining the Government’s negotiating position as they extend the other franchises by nearly 26 years.

[Mrs Ellman]

I thank my hon. Friend for his comment. The Minister was questioned in the Select Committee and it became apparent that the Government’s decision was to do with Government policy. I, for one, did not hear a compelling value-for-money reason for the decision.

There are a number of ways of assessing whether a franchise delivers value for money. The letter that the Minister sent to the Committee on 4 June stated that, over the three years 2009-10 to 2011-12, the inter-city east coast franchise produced a net return to the Department of £563 million. The letter also stated that, over the same period, the west coast main line made a net return of £290 million. The Minister certainly did not accept that that meant that the east coast franchise produced better value for money, but I am simply presenting the facts in the letter as a contribution to the debate. One consequence of the decision has been the postponing of the re-letting of the west coast franchise by 29 months, to April 2017. The previous timetable had been announced as recently as November. It is a matter of concern that such constant change is unsettling for the industry.

We have already seen two direct awards to current operators, and neither has demonstrated how the Government can secure a better deal for passengers or taxpayers. In the case of the west coast franchise, we were told that there might be new services to Blackpool and Shrewsbury, but they have not materialised. The old Essex Thameside franchise paid money into the Department. The new one, a directly awarded contract to run until September 2014, will cost the taxpayer money. Will the Minister acknowledge that there will be problems in achieving the McNulty savings in the light of the franchising fiasco and its aftermath?

The Committee recommended that the Department should strengthen its commercial capability in relation to assessing franchises, that it should consider franchises being let and managed by a Department agency or arm’s length body, and that it should consider spreading premium payments over the full length of the franchise. We suggested that franchise periods of seven to 10 years would be appropriate while the situation was being reviewed. Indeed, a review is now taking place, and we hope to hear the Government’s conclusions shortly.

During our inquiry, the rail unions argued that the privatised structure was the main cause of inefficiency in the industry, and that renationalisation would bring costs down. McNulty rejected that argument, saying that renationalisation would

“take years to complete, cause major diversion of effort, incur massive costs, and delay progress on improvements”

that were under way.

[Kelvin Hopkins]

It has been said many times that all that is needed to solve the problem is for the franchises to be awarded to Network Rail.

[Mrs Ellman]

Having considered all the evidence before it, the Committee decided that McNulty’s proposed methods of achieving efficiencies should be given a chance, although some concerns were expressed. We felt that if the McNulty savings did not materialise, the arguments for more far-reaching structural changes would be compelling.

We have identified a number of issues that the Government must get right if the railway is to continue to grow and become more efficient. The McNulty recommendations include calls for ticket office hours to be reduced, for driver-only operating to be the norm, and for salary restraint. The Committee considers that any changes in staffing, terms and conditions and salaries should be made in the context of a wider programme of changes made throughout the industry and after full consultation with trades unions. Any changes in the numbers and duties of station staff should not be pursued solely to reduce costs, but should reflect changes in passenger ticket-buying behaviour, and should be designed to improve passengers’ experience at stations, including their perception of safety. We were very concerned about the possibility that reducing staffing at stations and on trains would make the railway less safe, particularly at night, and would deter women and vulnerable users from travelling by train.

[Caroline Lucas]

Given that the train operating companies depend on public subsidies, does the hon. Lady agree that it is entirely wrong for those same companies to hand over an estimated 90% of their operating profits to shareholders, rather than reinvesting them in the staff and safety provisions to which she has referred?

--- Later in debate ---

[Mrs Ellman]

That is a very interesting point. The thrust of our inquiry concerned how efficiencies could be achieved without jeopardising passenger safety. As I have said, the Committee felt that the McNulty changes should have a chance to succeed, but that if they did not, other measures should be considered. We intend to return to the issue of safety in the inquiry on policing the railway that we recently announced.

We have no objection in principle to the development of joint working between Network Rail and train operators through, for example, the Rail Development Group and rail industry alliances, but new arrangements must not compromise safety. We will consider that in more detail in our proposed new inquiry on safety at level crossings. The interests of the travelling public must be protected throughout the partnerships, and so must the interests of freight, which, by its very nature, cannot be involved in a partnership in the same way as passenger rail.

I have discussed financial aspects of franchising, but other aspects are also important. One question that remains unresolved is how the Government will fulfil their promise to put passengers’ interests at the heart of franchising. We have raised that in the Committee, but we have not yet heard a full explanation of how it is to be achieved.

The outcome of the Government’s long-awaited fares and ticketing review is also crucial. We were pleased to learn that the Department had ruled out the introduction of “super-peak” fares to reduce demand for the busiest peak-time services, but it remains committed to managing demand to reduce overcrowding. It is not clear how that will be achieved. We also welcomed the Government’s decision not to proceed with RPI+3% fare increases, but recognised that that left them without a clear policy on fares. Smart ticketing is another issue mentioned in our report on which progress has been slow. Can the Minister tell us when he will publish the report of the outcome of the Department’s review, which is already overdue?

The Committee’s vision for rail included the following: a clear link between policy on rail and other aspects of transport policy; a strategic approach to policy making by the Department that does not sacrifice democratic accountability, assisted by a strong industry regulator and an effective industry leadership; clarity about the objectives of subsidising rail and how these can be achieved; more transparency about the costs of rail; passenger interests to be more clearly taken into account in deciding questions of rail policy; more modern, flexible fare and ticketing options and a clear long-term policy on regulated fares; and no diminution in existing safety standards.

The Government have struggled so far to set out their own vision for rail or to link rail policy to other transport priorities. The west coast main line franchising fiasco has knocked the Department off course and threatens to challenge efforts to achieve better value for money across the industry. Strong leadership is required.

Rail is increasingly popular. It is important that the Government’s investment in rail, as part of our transport network, secures value for money for both taxpayer and passenger.

--- Later in debate ---

[Mrs Ellman]

I thank hon. Members for their varied contributions in this constructive debate. Underlying all the contributions was support for the continued expansion of the railway. Privatisation separated both ownership and operation of train and track, and it is ironic that the solution being put forward now to deal with some of the problems that rail services face is to enable them to work more closely together.

I listened carefully to the Minister’s reply to the questions I put, but I have a couple of other points to put to him. In relation to franchises and securing passengers’ interests, we need to know more about what weighting will be given to securing those interests when assessing the award of franchises in the future. I asked the Minister to say what the financial implications would be of the cumulative 26-year delay in awarding franchises, but I did not hear a response. I hope that we will be able to get one, as it has implications for the industry as well as for the Department. I am pleased to hear that the fares and ticketing review will be published shortly. I note that it will be “during the summer”: I hope that will be sooner rather than later.

Those are all important issues and it is essential that they are resolved to enable the railway to continue to expand and grow. We need proper franchises that reflect value for money for passengers and the taxpayer, and we need to ensure that fares are fair and not unaffordable. We must not price people off the railway.

I know that the Government will produce more information about how the franchise system will develop in the future, and we look forward to that. The Committee will continue to consider all these issues, which are all ongoing and extremely important. Strong leadership is required to resolve them, from both the industry and the Department. The aim of the Committee’s work in this area will be to produce a more effective and efficient rail service. Rail is already popular, but it can be more efficient and fares can be brought down—at least, the rate of fare increases can be stopped.

I hope that this debate, and the range of views we have heard, will help Ministers to address those issues, and I hope that we will secure more effective leadership from both the Department and the industry.

Question deferred (Standing Order No. 54).