West Coast Main Line

Maria Eagle Excerpts

Monday 17th September 2012 Westminster Hall

[Daniel Kawczynski (Shrewsbury and Atcham) (Con)]

Thank you, Mr Davies. The Shropshire MPs have been campaigning on a cross-party basis, together with our Welsh neighbours, on trying to secure a direct rail service for Shrewsbury. That issue is extremely important for us, bearing in mind tourism and business investment, and that is why I was delighted by the announcement that FirstGroup had been selected and would provide the direct service for Shrewsbury.

My first reaction when I heard about Virgin’s judicial review was frustration and concern, and I felt a little as though it was a case of sour grapes. Subsequently, I met representatives of FirstGroup, who stand by their figures unequivocally. I also met representatives of Virgin and held a meeting in the House of Commons that was attended by 40 colleagues, who came to interact with Virgin’s senior managers and directors. They tried to explain to us why, in their view, and from a commercial procurement perspective they felt that FirstGroup’s figures did not stack up.

Interestingly, Virgin Trains claims that it has been raising concerns about the whole procurement process with various Ministers over an extended period. Indeed, it raised the fact that it had tried to lobby Lord Adonis on this issue. It is therefore rather difficult for me to accept the flavour of some of the comments from Labour MPs that this problem has somehow developed recently. According to Virgin Trains, it had concerns at the time when Lord Adonis was in charge and it raised them with him. As I said, I invited representatives of Virgin to meet me and fellow parliamentarians, and 35 or 40 MPs came to that meeting. I have sent my right hon. Friend the Secretary of State for Transport minutes of the meeting.

I believe that immediately after the announcement, the shadow Secretary of State for Transport, the hon. Member for Garston and Halewood (Maria Eagle), whom I was watching on television, was calling for an urgent inquiry because the decision had been made when Parliament was in recess. I think that she expressed a great deal of frustration about that. However, I have been trawling through all the questions that she has submitted to the Secretary of State for Transport and the Department for Transport, and the Library has also been checking them and—she may correct me on this—I cannot find any questions from her during the past six months about the timing of the decision or the procurement process. As I said, she may correct me if I am wrong, but I feel that this is the Labour party jumping on a bandwagon.

[Maria Eagle (Garston and Halewood) (Lab)]

The Government have chosen to delay the completion of the process by six months. They negotiated with Virgin an extension to the contract that it was running. Therefore, the timing has been a matter for the Government. Obviously, I was not aware that they would make the announcement in the middle of August, when Parliament was in recess. That would be a matter for the Government.

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[Mr Marcus Jones (Nuneaton) (Con)]

I am grateful for the opportunity to speak in this important debate. As a member of the Backbench Business Committee, I welcome the first of the Monday debates, which rely on the public’s response to e-petitions.

The west coast main line is vital to many of my constituents, who, I must say, are a little perplexed, to say the least, about the whole saga of the letting of the west coast main line franchise. In the debate today, it is important for our constituents to understand that we are here, as Members of this House, without the power or jurisdiction to change anything at this point. It is important to state that the only people who can change the decision, unless the will of the Government changes after the judicial review, are the judiciary. The judicial process must be followed and Members must respect that process.

That said, there are general principles that we should discuss, but as MPs it would be a grave error to delve into the minutiae of each bid, because we have not seen the information first hand, and so are second-guessing from the claims and counter-claims of the different companies involved. The issues come under two categories: first, the franchise process itself; and, secondly, how the various bids were applied to the franchise criteria. To take the franchise process first: Virgin Trains and others, particularly Opposition Members, contend that the tendering process was flawed. I have concerns and scepticism about that argument. If flaws had been identified at the outset, before the draft invitation to tender or when the Government released it, we should have seen a robust challenge from the Opposition at that point.

[Maria Eagle]

As far as I am concerned, nobody on the Opposition Benches has suggested that the tendering process as it was undertaken was unfair. We do not know the details, which is why it is important to have a debate, to ask the Minister what he can tell us.

[Mr Jones]

I thank the shadow Minister for that comment, because it illustrates the crux of the issue. There is a lot of second-guessing and a lot of assumptions are being made. The people making those assumptions do not necessarily know the full facts. As I will come on to later in my comments, it is dangerous in any such tendering process for an MP or a Government to move the goal posts once the process has begun.

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[Maria Eagle (Garston and Halewood) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Davies.

I congratulate my hon. Friend the Member for West Lancashire (Rosie Cooper) on securing the debate. As has been said, more than 172,000 members of the public have signed the e-petition on the west coast main line franchising decision. This debate, which is a result of that petition and of the good offices of the Backbench Business Committee, has enabled Members to put their points. Many of them represent constituencies that are served directly or indirectly by this important strategic route.

A lot of concerns and other points have been placed on the record. From my experience as an Under-Secretary, I know that the Minister—I welcome him to his place for his first debate in the role—probably will not have enough time, even if he has the inclination, to answer all the questions. However, I am sure that he will undertake to write to those Members he does not get around to answering with the fullest answers, so that we can read what he thinks about every point made.

We have had excellent contributions, first from my hon. Friend the Member for West Lancashire, but also from the hon. Member for Milton Keynes South (Iain Stewart), my hon. Friend the Member for Halton (Derek Twigg), the hon. Member for Rugby (Mark Pawsey), my hon. Friend the Member for Ynys Môn (Albert Owen), the hon. Member for Lancaster and Fleetwood (Eric Ollerenshaw), my hon. Friend the Member for Worsley and Eccles South (Barbara Keeley), the hon. Members for Shrewsbury and Atcham (Daniel Kawczynski), for Morecambe and Lunesdale (David Morris), for Nuneaton (Mr Jones) and, last but not least, for Stafford (Jeremy Lefroy)—I would have guessed that that was his constituency from what he said. Not surprisingly, that includes many railway towns and constituencies that very much depend on stations on the west coast main line.

Many of the points made are at the centre of the debate arising from the awarding of the franchise. If Virgin Trains had not begun the legal proceedings that are now under way, Ministers would have signed the west coast main line contract before Members had had any chance to debate the issue in the Chamber. The truth is that Ministers probably rather hoped that the issue could have been done and dusted towards the end of the summer recess, with the decision slipped out while Parliament was not sitting and attention was focused on recovering from the Olympics. That is not helpful when we are dealing with a 15-year franchise that will cover several Parliaments. It is right that parliamentarians have a chance to debate the issue, and in that respect I very much welcome this debate.

I am disappointed that the Secretary of State—I congratulate him, too, on his appointment, as I have told him in the Chamber—was so quick to rule out a review of the process that led to this contentious decision. As a new Secretary of State, he would have been perfectly entitled to take the time to read through all the documentation and to have all the meetings. Yet, last week, he told the Transport Committee:

“I am content with the way in which the Department exercised its review of that contract.”

Despite his long-standing experience as Aviation and Shipping Minister many years ago, it is difficult to envisage how he could have conducted anything but the most cursory assessment of his Department’s action in this case. He came to his conclusion very quickly after his appointment, which is a shame. When the Minister meets the Secretary of State, I urge them, notwithstanding the legal process currently under way, to reflect on whether a decision to proceed with the signing of this contract should at the very least await the report of the Transport Committee.

One of the main concerns about the decision is that it seems to be almost exclusively a bottom line one, driven as it is by a particularly high pledge of payments to Government—FirstGroup’s successful bid was £5.5 billion compared with £4.8 billion offered by the incumbent. Obviously, such payments are an important part of any decision; I do not suggest that they should not be taken into account. None the less, there have been reports of the Treasury putting pressure on the Department for Transport, which is not unheard of in my experience, to focus precisely on the headline figure offered. The Department has admitted that it has accepted the bid that offers the largest dividend payment but that also carries with it the greatest risk to deliverability.

Two specific concerns raised by hon. Members relate to the credibility of the predictions of passenger growth and the profiling of the promised revenue payments, which are back loaded towards the end of the franchise period. There is huge variance in the rival claims about the growth in passenger numbers that each company believes to be achievable during the lifetime of the franchise. Virgin’s claim of 49 million passengers compares with FirstGroup’s claim of 66 million. The growth that we have seen on the line during the past decade has been largely driven by the £9 billion upgrade of the west coast main line infrastructure and the introduction of the fleet of Pendolino trains. The investment in track and train has delivered faster and consequently more frequent services. What is likely to drive similar growth in the next period, given that we are not about to have another such upgrade?

The invitation to tender documents also set out significant challenges that will face the west coast operator during the latter period of the licence, all of which could impact on the potential to achieve significant growth in passenger numbers. The most significant is the start of work on High Speed 2 at Euston, which will see the number of platforms for services available at any one time cut from 17 to 14 in order to achieve the rebuilding of that station. Yet it is in the later years of the contract that much of the projected growth is expected to come.

If the growth in passenger numbers is not credible, the only other source of additional revenue is higher fares or a reduction in services, or at least in the quality of services. As one would expect, the successful bidder has given some welcome reassurances on all those issues. The reason that concerns remain is that the Government have included in these new franchises new flexibilities to reduce services, close ticket offices, cut passenger-facing staff and even axe CCTV from trains. Such flexibilities would not enhance service provision were they to be taken up by the successful bidder.

Passengers would welcome clarity from Government on the extent to which those new “freedoms” can be used. Only today, Ministers have announced that they have agreed to requests from London Midland to close ticket offices and reduce opening hours at others, despite months of denying our claims that such measures were being planned. Passengers are nervous about the future.

The invitation to tender also gives the successful bidder significant freedoms in respect of fares throughout the term of the contract. It promises that fares can rise by

“RPI+3%+5% in 2013 and 2014 and then by RPI+1%+5%”.

Consequently, it is possible that some routes could see ticket prices increase by up to 11% for each of the next two years and then up to 8% each year until 2026. If that is to be the only way of meeting the promised revenue payments in the event of the predicted growth not being reached, it is no wonder that many passengers are concerned.

FirstGroup rightly points out that its profile of predicted growth and revenue is very similar to Virgin’s in the first two thirds of the franchise. However, it is the fact that the much higher growth and payments to Government occur towards the end of the franchise that is the cause of the concern. The figures are stark. The profile of proposed payments to Government increases from just £26 million in 2014 to £739 million by 2026.

[Mark Pawsey]

I am listening carefully to the hon. Lady’s argument. What I do not understand is whether, given what we now know, she would have made a different decision from that made by the Government.

[Maria Eagle]

The hon. Gentleman is tempting me, but it is impossible for me to make such a decision on the very low level of information that is in the public domain. As a Minister—I was never a Minister in the DfT, though I was in many other Departments—I had to make decisions like this, but I had to hand significant information––all the documentation and all the lawyers and officials. I do not have sufficient information in this Chamber today to answer that question. I hope he will regard my answer not as evasive but as plain common sense.

It is only in the final three to four years of the 13-year contract that the premium payments promised by FirstGroup exceed those promised by Virgin. The profile of payments goes steeply upwards from £26 million in 2014 to £739 million in 2026. The fear is that that builds in a clear incentive for the bidder to walk away from the contract before the payments are due, not least if the predicted revenue that is to fund the process does not start to appear as expected over the course of the contract and if the predictions turn out to be optimistic. FirstGroup states:

“Any suggestion we may walk away from our West Coast bid is misplaced. We would face considerable damage to our reputation and credibility if we did—and doing so would significantly impact our ability to win further franchises.”

I welcome that reassurance and I am sure that it is made in good faith, but I do not believe that, under the current Government’s approach to franchising, the consequences are as obvious.

In the past year, FirstGroup has exercised a right not to complete the maximum possible length of the contract it holds to deliver services on the Great Western main line, thus avoiding more than £800 million in dividend payments to the Government. I appreciate that FirstGroup would robustly state that that is not the same as walking away from a contract, but what is the same is that it was possible because the promised premium payments were highest during the final three years of the contract. Yet FirstGroup has secured the west coast franchise and it has been shortlisted again for the Great Western contract, so there are no consequences there for what is in effect gaming the system.

I do not accept that it is obvious that FirstGroup has cause to feel that it will suffer any damage, let alone find it harder to win future contracts, from terminating a contract early. Indeed, under Governments of both persuasions—I perhaps need to say under Governments of all persuasions, given that we have a coalition Government at present—we have not seen consequences follow from gaming the system or from failing to meet obligations. Companies have routinely been shortlisted again for franchises and have won franchises even though they have handed back keys or gamed the system to avoid making payments back to the taxpayer.

It is also said that the penalty for handing back the keys early is significant; at £190 million in the case of FirstGroup, it certainly sounds significant. However, put in the context of just one year’s payment to Government being £739 million, walking away does not seem quite such a bad deal if one is focused purely on financial considerations.

If these concerns were just being raised by the losing bidder, we might put it down to sour grapes; indeed, I think that was a phrase that one Government Member used. Clearly there is an element of that driving the judicial review and the challenge that we are now seeing. However, the fact is that many respected people across the industry are dubious about whether the bid that FirstGroup has succeeded with is viable.

Perhaps the Minister would be willing to listen to George Muir, who was the director general of the Association of Train Operating Companies between 1999 and 2008. Writing in Passenger Transport magazine, which is on my reading list, he starkly sets out the reason why there is widespread incredulity in the industry about this contract. He says:

“A 10.4% growth rate produces, in the year 2025/26, revenue of £2,982m out of which is to be paid premium payments to the government £1,696m…and profit to FirstGroup of £149m. Put it this way, in 13 years’ time this fine franchise is to have a profit margin of 62%. Wow! Surreal.

Put it another way, the premium in year 2025/26 is £1,140m in today’s money…and this to be paid by a business with passenger revenue last year of just £824m.

Well, if you believe this, you will believe anything.”

He warns that the Department for Transport

“cannot possibly believe they will get over £1bn, in today’s money, for four years on the trot from FirstGroup. They don’t. It’s a farce.”

Those are not my words, but those of George Muir, who was the director general of ATOC for many years and understands the industry. He is clear where the blame lies—it is in the changes that the Government have explicitly made to franchising since the election. He says:

“The problem goes back to Theresa Villiers’ franchise reform white paper of a couple of years’ ago, which she had been scribbling away in opposition. It reminds me of Andrew Lansley’s NHS reform, crackpot ideas in opposition.”

I stress that those are not my words; I am quoting George Muir.

The Government are right to prepare contingency plans if the legal challenge is not settled by the 9 December deadline for transfer. It would be helpful if the Minister could confirm that the proposal is to transfer responsibility for running these services to Directly Operated Railways. He would have our support for that decision and we would agree that a more appropriate course of action than pursuing the offer from the incumbent to allow it to continue to run the service temporarily on a not-for-dividend basis.

Of course, the Government are also only days away from beginning the tendering process for the east coast main line. The taxpayer received a dividend of £187.7 million from the east coast line in the past year and £170.7 million in the year before that. From next year, that money will go either to private shareholders or to the state railway of Germany if it was to win the contract; it has made a bid for the Great Western contract. I do not believe that the east coast line has been given the stability and certainty to enable us to judge whether a not-for-dividend model could work in the longer term more widely across the rail system. Therefore, I hope that the Minister will be willing to consider our proposal that the east coast line continues to be run as a not-for-dividend publicly run comparator to some of the other companies that are running franchises.

In conclusion, let me be very clear that this issue is not about siding with any particular company, and I do not think that today’s debate has been about that. Having said that, I understand Virgin Trains’ frustration, which it frequently expresses, that it has been runner-up twice to successful bids on the east coast franchise and that the successful companies—Great North Eastern Railway and National Express—later failed to meet their contractual obligations. It is this unfortunate history of franchise contracts being brought to an early end, at least in part because of over-ambitious payment promises that later proved impossible to meet, that has sparked fears that history may be repeating itself. I hope that the Minister wants to ensure that lessons have been learned and I also hope that he will now agree that, even if it becomes legally permissible to do so, he will not proceed further with this contract until there is a chance for the House to receive and consider the forthcoming report of the Transport Committee on this issue.

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[Mr Hammond]

My hon. Friend is right to make that point. As I said, my right hon. Friend the Member for Runnymede and Weybridge had made the announcement in May 2011 and set out the timetable. It was apparent from that time when the announcement of the bids would be.

A thorough examination of the bids was carried out over nearly three months. As soon as the winning bidder was identified, in accordance with existing practice and the published timetable, the Department ensured that announcements were made to the London stock exchange that it intended to award the inter-city west coast franchise to First West Coast Ltd, a subsidiary of First.

A number of Members talked about parliamentary scrutiny today. It is not unusual that the announcement was made during a recess. On two occasions, the previous Government made announcements to the market, quite properly, on days when the House of Commons was not sitting. To suggest that that is a new way of doing something—

[Maria Eagle]

I did not suggest that.

[Mr Hammond]

The hon. Lady comments from a sedentary position. She is quite right; she did not suggest that, but a number of her colleagues did. It is not a new way of doing things, provided that as soon as Ministers return to the House, they make a written ministerial statement. Following the announcement on 15 August, on the first possible date thereafter—3 September—my right hon. Friend the Member for Chipping Barnet took the opportunity to make a written ministerial statement to the House.

After the announcement, the Department received a legal challenge to the procurement from Virgin Trains Ltd, which had bid unsuccessfully. I intend to try to answer as many questions as possible, but I do not need to be reminded—I am sure that hon. Members do not either—that in cases where there is a legal challenge, it is difficult to answer all the questions that may be asked. As I said earlier, if I appear reticent, it is not any wish not to be transparent, but simply that when matters are subject to the judicial process, it is impossible to make broader comment.

It is right and proper, and the Department believes so, that our choices regarding new franchises and value for money for the taxpayer are subject to scrutiny by Parliament. However, there is a right and proper time for that to take place.

Many hon. Members paid tributes, quite rightly, to Virgin Group. Sir Richard Branson and Virgin have made an undeniable and tremendous contribution to UK rail. Let me try to assure hon. Members that the winning bid offers significant benefits to passengers. First West Coast Ltd has contracted to introduce 11 new electric trains of six carriages from December 2016. That will mean an extra 12,000 seats a day for passengers. First has also committed to retaining and fully refurbishing the trains already in the fleet.

In the speech by the hon. Member for Halton, his colleague the hon. Member for St Helens North (Mr Watts), who is not currently in his place, made a point about the leasing of trains. The short answer to his question is that commitment to lease trains is in the franchise agreement. To remove any part of the train fleet, the Secretary of State’s consent is required. I hope that that clears up that issue.

Subject to the approval of the Office of Rail Regulation, First will take advantage of the increased flexibility in the contract to introduce a number of new services from London Euston to Blackpool, Bolton, Telford Central and Shrewsbury. It will also introduce ITSO-based smart ticketing, which will benefit users across the country, bringing the sort of freedom that we have already seen in London with the Oyster system. It will not have escaped the attention of hon. Members that in its bid, alongside that investment, First West Coast Ltd has committed to reduce standard anytime fares by on average about 15% over the first two years.

There have been a number of questions on staff and morale. I reassure hon. Members that, as with previous franchise transfers, existing employees, including drivers, guards and back-office staff assigned to the part of the organisation transferred to First West Coast Ltd, will be protected by TUPE regulations. FirstGroup has also given a commitment to continued investment in front-line staff.

I reassure the hon. Member for Ynys Môn that all bids were assessed independently for deliverability, and all bids were assessed as deliverable. The Department believes that the winning bid is deliverable, provides value for money for taxpayers and passengers, and capitalises on the £9 billion already invested in the west coast main line and the £18 billion the Government are continuing to invest.

None the less, as the hon. Member for Garston and Halewood said, the Government can learn lessons from the mistakes of previous Governments on handing back keys and the failure of certain people on the east coast main line to deliver. There have been several comments on the procurement process, and we are acutely aware that we need to ensure we learn lessons from past franchise failures. In designing the franchise, some of those comments and recommendations, particularly the Public Accounts Committee’s recommendations, following the failure of the east coast main line have been taken into account. We therefore required First West Coast Ltd to provide a third party-backed guarantee, the largest guarantee ever required.

We have also removed the cap and collar system that was in place for the east coast franchise and introduced a GDP support mechanism—a question was asked about that. Indeed, the mechanism supports the Government because there is protection whether GDP goes up or down. I will happily write to the hon. Member for Halton with the full details of that mechanism when I am able to do so.