West Coast Main Line

Mark Pawsey Excerpts

Monday 17th September 2012 Westminster Hall

[Derek Twigg]

I understand the hon. Gentleman making an important point about his constituency, but faster trains to London were part of the attractiveness of the changes that were made. Where most passengers got on was important in making those decisions, and I am sorry that that disappointed the hon. Gentleman. I was very pleased for my constituency. I have not seen the details of the new franchise, but I hope there will be no attempt by the winning bidder to reduce the number of trains that stop at Runcorn. Merseytravel has pushed strongly for trains to stop at Liverpool Parkway, but we do not want any reduction in the number of trains stopping at Runcorn because of the economic impact the excellent service has on my constituency.

There have been massive station improvements. Mick Noone, the transportation strategic director at Halton borough council, has said the line is

“extremely attractive and well used”.

He went on to say:

“The quality, frequency and reliability of the services have undoubtedly encouraged more people to use the train”.

After years of persistent lobbying by me and Halton borough council, we were able to secure investment for a £650,000 refurbishment programme in Runcorn station. Its tired old 1960s appearance has been upgraded with new cladding, improving the experience for passengers and for my constituents who work there and provide such brilliant service.

[Mark Pawsey (Rugby) (Con)]

The hon. Gentleman’s experience as a former Minister is valuable, and on many occasions he has referred to the substantial public investment in the west coast main line. Is it not that investment itself that makes it important for the Government to go for the bid that gives the maximum return?

[Derek Twigg]

If the Government go for a bid that says it will give the maximum return but it does not stack up, that is a problem. I am glad that the hon. Gentleman made the point about the massive amount of public investment that took place under a Labour Government; it has made a massive improvement.

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[Mark Pawsey (Rugby) (Con)]

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

I would like to speak about the importance of the rail connection to my constituency of Rugby. I am pleased to see the Minister in his place. He will recall, in his former role, standing on a drafty Rugby station platform months before the 2010 general election. The rail connection is of massive importance. We are in the centre of the UK and we benefit from the crossroads of the motorway network. We also benefit from the 50-minute journey time on the existing Virgin service from London Euston. That service has enabled us to attract businesses to our town, where we offer lower wages and lower premises costs than businesses based in the capital. It has also led to a large increase in the number of people who commute on a daily basis from Rugby to London. The quality of the service they receive is fundamental.

The recent history of the line has been one of substantial improvements in service from Virgin. I put on record my thanks, and that of my constituents, and congratulate it on the way it has improved. My predecessors as MP for Rugby would have had a far busier time dealing with constituents on rail issues than I have had. In fact, one of my predecessors, Andy King, the MP from 1997 to 2005, was instrumental in setting up the Rugby rail users group, a campaign body set up to deal with service problems. I often attend that group, but I am not told of significant problems or failures on the line. In fact, in the immediate aftermath of this decision being announced, I went on local radio and advised that there had been no complaints about the service provided by Virgin in the time that I had been Rugby’s Member of Parliament. Somebody got in touch with me to remind me that there was an issue, but it was a ticketing issue rather than a service issue.

We have gone through a very public tender process. We knew that the tender was coming up at around this time; it had been shadowed for a great deal of time, there had been lots of publicity and the requirement was known. When assessing this tender, the Department for Transport would have known that this decision would come under massive scrutiny. I am confident that such scrutiny will have led to the utmost probity in respect of its decision.

As hon. Members have mentioned, the Government have a duty to secure the best deal. They have invested £9 billion in the west coast main line. There is no use trumpeting big numbers if we do not get some benefit from that investment. It is important that we get the return not only to fare payers, as users of the line, but to the taxpayer more broadly.

[Mr Watts]

It is also the duty and responsibility of the Ministry of Defence to get value for money for contracts, but as we know that often does not occur. So what people want to achieve and what is actually achieved can be two different things. Does the hon. Gentleman agree that the GDP factor is crucial? If the GDP figure is halved, will First’s bid still be deliverable? If it is not, surely that may put at risk the whole analysis of this contract.

[Mark Pawsey]

I will come on to the First bid, including questions that other hon. Members and I have put to it about the accuracy of its bid and where its bid stands. I am not sure that making comparisons with other Departments in this debate is helpful, Mr Bone. We need to ensure that the Government get the maximum value for money for every item of expenditure.

[John Hemming (Birmingham, Yardley) (LD)]

As a Birmingham MP I use that train, although, to make a declaration of interest, I came down on the Chiltern line. Does my hon. Friend agree that consideration should be given to whether closing down one competitor may reduce the competitive nature of tendering in future and increase aggregate costs?

[Mark Pawsey]

I am about to talk about my own business experience in tendering. Clearly, the more tenderers available in the tender process, the greater the competition and the better chance of getting the best deal.

The First bid is worth more. I have run a business and, on occasions, have missed out on a contract, so I understand Virgin’s concern. In my business, from time to time we lost contracts, which was particularly frustrating when we were confident in a bid and had given exceptional customer service in recent years. It is appropriate and shrewd business for Virgin to encourage their satisfied customers to make representation through the petition. That activity has stimulated this debate.

It is estimated that 2,000 service users from my constituency are among those who signed the petition. I have received many letters and e-mails from constituents asking me to participate in this debate and drawing attention to the substantial improvements in service that they have experienced over the years. I am happy to do that. There are, of course, those who have not had such a good experience and I have in front of me an e-mail from one of those.

In addition to the increase in revenue to the Government, FirstGroup’s offer contains other positives. My hon. Friend the Member for Milton Keynes South (Iain Stewart) drew hon. Members’ attention to the additional seats and services that would be made available. I can, perhaps, support my hon. Friend the Member for Nuneaton (Mr Jones), because I met the managing director of FirstGroup only last week and he told me that he hoped that additional services might be available between Rugby and London early in the morning, and that access from Rugby to the north-west might be improved through Nuneaton, using Nuneaton as a hub station for the north-west. Innovation and proposals are coming from FirstGroup that were not available through Virgin.

The issue distils down to whether First has got its sums wrong. Did it get something about the maths wrong when preparing its bid—something that it did not take into account? I put that to First’s managing director last week and suggested that, if there were anything about his tender that in the clear light of day—in the light of discussions or ideas coming from Virgin and Opposition Members—he is not sure about, right now, before the new contract is awarded, First has the opportunity to withdraw. It might choose to say, “Yes, there are some points that people have drawn to our attention. We did not quite get our maths right. Our projections in the back end are just a little bit ambitious.” There is a window of opportunity for it to say, “Yes, we got it wrong,” and to leave. It does not wish to take that opportunity.

I have looked the managing director of First in the eye and asked “Are you able to deliver what’s proposed?”, and I am confident that he understands the significance of what he has done. Ultimately, he is part of a management team responsible to shareholders within FirstGroup. If First has got anything about the tender wrong, it needs to be called to account through the courts and be held to the commitment that it has made. It happens in plenty of other businesses; I do not see why that should not happen in this instance.

The delays in the process are unfortunate. Certainly, there is no benefit to anybody, whether the companies, the staff or rail users, if there is a short-term nationalisation, such as has been suggested if First is not able to receive its contract before the judicial process is concluded.

I advise the Minister to please get on with the process. I call on Virgin to withdraw its application for a judicial review. A decision has been taken. Let us get on with it and ensure that we get the right service for rail users in our constituencies.

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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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[Stephen Hammond]

I am sure the hon. Lady has listened to my contribution, and I am sure she has taken notes, but I have made it clear that, where I am able to answer questions because of the ongoing judicial process, I have answered them. Equally, I have given a guarantee that after the judicial process, where the Department is able to answer those questions, we will provide a written answer. As I am sure she knows, I cannot make a statement that would prejudice the judicial process.

[Mark Pawsey]

Given all that we have heard in this effective debate, does the Minister agree with the majority of Government Members that the interests of rail users, taxpayers and railway staff will be served by the contract going ahead?

[Stephen Hammond]

The Department is confident that we have taken the right decision in the interests of taxpayers and passengers. We expect to sign the contract soon, but we intend to defend the judicial process robustly. Of course, as I said at the outset, it is right that Parliament should scrutinise the franchising process, but there is a right time.

I make it clear that this is not a political decision; it is a commercial decision taken in line with the franchise and procurement processes set out in the reforms of the then Secretary of State, my right hon. Friend the Member for Runnymede and Weybridge. There may be a desire for more extensive parliamentary scrutiny of the process and the bids, but commenting too deeply and changing our decision now could fundamentally undermine any future Government competition, and it would be wholly inappropriate for me to do so.

I guarantee that my ministerial colleagues and I will continue to keep the House and the Transport Committee updated on developments, subject to any constraints of legal or commercial privilege.