Network Rail

Norman Baker Excerpts

Thursday 2nd February 2012 Westminster Hall

[John Woodcock]

I thank my hon. Friend for his intervention. He is right to say that we need to look across the board at all options for improving efficiency. Avoiding inefficient procurement decisions, without returning to the days of the railway system that existed before the botched changes were made, which was not in itself operating efficiently, is the challenge and would be the challenge for any Government seeking to produce real, lasting and effective reform.

The deficit of accountability and transparency has rightly dominated speeches today. They have been powerful and well directed, but before I say more about where we share concerns in that respect, it is important to stress how far we have come since the days of Hatfield. Network Rail’s unusual structure was forged in response to the failure of its predecessor, Railtrack. The Labour Government were right to take action to bring the management of our rail infrastructure back under control, but the simple fact that we are in a relatively better place today does not mean that we can or should ignore the problems and shortcomings that beset the organisation a decade on.

The unusual nature of Network Rail has created a deficit of accountability. It does not have shareholders and does not respond directly to elected politicians, as has been demonstrated today. Most importantly, it is not properly responsive to the passengers who use the railway system. That can leave it unable properly to serve businesses, passengers and communities alike, and allow inefficient practices to continue. It has given rise to the alarming allegations that hon. Members have aired today and on which I hope the Minister will comment in his winding-up speech. [Interruption.] He still has 20 minutes.

[The Parliamentary Under-Secretary of State for Transport (Norman Baker)]

My hon. Friend the Member for St Albans (Mrs Main) has to speak again.

[John Woodcock]

I will be brief. We want a railway that provides value for money for and is accountable to the taxpayer and the travelling public, a railway where passengers and freight customers can rely on the timetables and a railway that can plan strategically for the long term. That is why we are listening, as part of our policy review, to a wide range of ideas for improving the accountability of Network Rail, such as the Co-operative party’s proposals for mutualisation of the company. I therefore hope that the Minister will tell us where his plans to review the ownership and accountability structures of Network Rail to make it better able to serve the public have got to and whether they will include improvements to transparency.

Finally, I come to the issue of bonuses. Network Rail’s accountability has been brought into focus today by the news that Network Rail’s senior management will next week seek to award themselves a new bonus and incentive scheme. We understand that that will include an annual bonus of 60% of salary and, in addition, a five-year reward scheme worth up to 500% of salary. The public will be staggered by such proposals. Network Rail is currently in breach of its licence. It must recognise that times have changed and that bonuses on top of salaries need to be for exceptional performance and not the rule.

There is a responsibility for Ministers here, too. Network Rail’s articles of association make it plain that the Secretary of State has a clear remit over pay and bonuses. She has a right to attend the remuneration committee and the board meeting that decides these schemes, or to appoint a special member to represent her. Despite the coalition’s pledge to make Network Rail more accountable, the Secretary of State has failed to take up that right. She still has the opportunity to do so. The Minister will be keen to know that Downing street seems to take a relaxed view on this matter judging by the lobby briefing this afternoon. The Prime Minister’s official spokesman agreed that there was a vote, but said that the decision rested with the Secretary of State. In his winding up, will the Minister say if his boss or he will attend the board meeting on 10 February to make it clear that such a package is unacceptable? Warm words about accountability are not enough—

--- Later in debate ---

[The Parliamentary Under-Secretary of State for Transport (Norman Baker)]

I shall have to give a high-speed reply to get through the various points that have been raised by Members this afternoon. It has been a very good debate, and I am grateful to my hon. Friend the Member for St Albans (Mrs Main) for introducing it.

The coalition Government are delivering the biggest and most ambitious rail upgrade programme since the Victorian era. I would go so far as to say, without hyperbole, that this is the most pro-rail Government that we have had for decades. Despite pressure on budgets, we have made a strategic choice to increase capital investment in those parts of the infrastructure that best deliver sustained and sustainable economic growth, including rail. That is why £18 billion was allocated in the 2010 spending review to deliver an ambitious programme of investment in rail infrastructure and rolling stock.

Our problem now is success: there are more people on the railway now than at any time since 1929, with a network about half the size. My hon. Friend the Member for Northampton South (Mr Binley) is absolutely right; this is all about capacity, which is why we must get on with High Speed 2. We will try to deliver it as soon as we possibly can, and if we can, we will bring it forward, but we will not over-promise on what we can do on that or on anything else.

Many projects are going ahead, including Thameslink and Crossrail. I will not bother listing them all. Suffice it to say that we have a progressive programme of electrification that involves not simply one or two schemes. We want progressively to electrify the entire network and have already announced schemes that were not envisaged by the previous Government.

As Sir Roy McNulty found in his independent analysis of the value for money of the industry, our railway is the most expensive to run in Europe. It is up to 40% more expensive than some on the continent. Taxpayers and fare payers have shared the burden of inefficiency through some of the highest fares in Europe and some of the highest public subsidies, but this high-cost status quo is no longer an option. It is bad for passengers and bad for taxpayers, and we intend to deal with it.

Alongside our commitment to modernise and improve the network comes an equally crucial commitment to drive down costs and improve the efficiency of the railway, which was the third choice to which my hon. Friend the Member for Northampton South referred in his contribution. In large part, that involves addressing the concerns that my hon. Friend the Member for St Albans and others have raised about Network Rail’s accountability and performance.

Sir Roy concluded that efficiency savings of up to £1 billion a year could be achieved by 2018, without radically restructuring the industry, cutting services or compromising quality or safety. However, that will require all parts of the industry to focus attention on driving out waste and driving up efficiency. If they do that, we can have the long-term growth future for the railway that I for one want to see. We also want to end the era of above-inflation fare rises and the RPI plus 1% formula that was introduced and happened year on year under the previous Government.

Hon. Members have asked about the Command Paper. It will be published shortly—I think that “shortly” is an official word in civil service speak—and will build on the findings made by Sir Roy and set out a blueprint for rail reform. Developing the role of Network Rail will be at the heart of the Command Paper. Although Network Rail is not perfect, it is not Railtrack, and Sir David Higgins is not Iain Coucher, so I hope that hon. Members can take some comfort from that.

The railway needs an infrastructure operator that is responsive, accountable and able to deliver the best possible results for operators, fare payers and the wider population who fund it through the public purse. Equally, Network Rail must be better incentivised. Reform of Network Rail’s structures and governance is therefore a key part of the Government’s rail agenda. Let me give this absolute assurance to the hon. Member for Hayes and Harlington (John McDonnell): we are determined that no changes should be made that would jeopardise the impressive improvements in safety and punctuality made by Network Rail and the rail industry in recent years.

We know about the tragedy of Grayrigg in February 2007. I am not being complacent when I say that that was the last tragic event in which a passenger died. It is worth pointing out that there were four deaths at level crossings in 2010-11. That is four too many, but it is the fewest such deaths that we have had for a decade. Efficiency does not mean compromising safety.

[John McDonnell]

On Grayrigg, the ORR said:

“the company’s failure to provide and implement suitable and sufficient standards, procedures, guidance, training, tools and resources for the inspection and maintenance of fixed stretcher bar points”

was a key issue that caused that death. The same depot responsible for that stretch of line has just had a 15% cut in its budget.

[Norman Baker]

The fact that efficiency savings or reductions in numbers take place does not necessarily mean that safety is affected. Obviously, the hon. Gentleman’s point has been well made, and I will take it back with me. Network Rail today is a significantly improved body from what it was in February 2007. None the less, we share the Office of Rail Regulation’s concerns about certain aspects of the company’s recent performance, such as punctuality over the past 12 months, some weaknesses in safety culture and poor implementation of integrated train planning under certain conditions.

The Government look to the Office of Rail Regulation to hold Network Rail to account and to continue to drive improved value for money from the company. As part of that process, the ORR has set Network Rail a requirement to make efficiency savings of 21% in its 2009 baseline by 2014. It will continue to produce annual reports benchmarking Network Rail’s efficiency against its international peers.

The Office of Rail Regulation’s latest annual report states that Network Rail has made progress against its efficiency targets, but that it has more work to do to justify all of its claimed savings. When Network Rail delivers on its current commitments, the ORR expects it to have closed around two-thirds of this efficiency gap by 2014 and the rest by 2019.

A key part of the McNulty review is to see much closer working and alignment of incentives between Network Rail and the train operators. A number of Members raised that, and it is something that the Government are focused on and it will feature in the Command Paper.

We welcome Network Rail’s regional devolution initiative to focus its business down to the route level and to work closely with train operators. David Higgins is taking forward work on structural reform to form closer alliances with the train operators. Moves towards asset management concessions and improved supplier engagement are vital.

We recognise concerns that Network Rail’s governance has not, so far, provided adequate mechanisms for holding the company’s board to account. That has been particularly apparent in respect of bonuses. The Secretary of State for Transport has been rightly firm on that matter, as indeed has No.10, despite what we have heard this afternoon. We expect bonuses to be dealt with in a responsible and a sensible manner by Network Rail, as we do by others. However, the Government’s powers, which we inherited from the previous Administration, to deal with those bonuses are extremely limited. Let me remind the hon. Member for Barrow and Furness (John Woodcock) that in 2009-10, under the previous Government, Iain Coucher received a bonus of £348,184, and the top seven directors together clocked up £1,347,000.

[John Woodcock]

The Minister will be aware that the previous chief executive waived his bonus in the 2008-09 period when he was asked to do so by the then Secretary of State, Lord Adonis. When the former Secretary of State for Transport, the now Secretary of State for Defence, raised the issue of those bonuses to Iain Coucher, he was completely ignored.

[Norman Baker]

The fact of the matter is that we have not inherited powers to deal with those bonuses. This is the Network Rail structure that we inherited, and we are now trying to sort it out.

Let me deal with Network Rail’s performance, which comes within my portfolio. It is not as good as it should have been, and passengers are rightly unhappy when their train is delayed or cancelled, especially when that happens regularly. To be fair to Network Rail, we must put that performance in context. In 1997-98, the annual public performance measure was 89.3%. After the accident at Hatfield in 2000, it fell to 74.2%. Since then, it has risen progressively, and punctuality today stands at 91.7%. I am not saying that that is good enough, but it is not the catastrophic case that is sometimes presented. It is certainly not true that, as the Labour party spokesman said, performance has been declining at an alarming rate. It has not; it has been improving. It has not met the targets, but it has been on an upward trend.

The current high level output specification for the railways specifies a further improvement to 92.6% during the period to 2014, and that is what the Department is focused on, as is the ORR. There is still a lot to do. I am concerned that performance over the last year has been iffy for various reasons, including the previous two exceptionally severe winters and an increase in the number of external events, such as cable theft. What is happening about cable theft is not the full range of the Government’s response, and it is inaccurate to present it in that way. We are simply using existing legislation to do what we can. Further measures will emerge as and when we can take them. In addition to cable theft, other issues have affected Network Rail’s performance that I am told were within its control.

Remedial plans have been put in place to enable improvements by the end of the current year, and plans are being developed for the remaining two years of the current rail control period. I am happy to tell my hon. Friend the Member for St Albans that a great deal of work has gone into much better winter resilience, including third-rail heating to prevent the sort of problems that occurred in previous winters, to which she rightly referred. I hope that she will be reassured by the fact that I meet Network Rail and the train companies monthly to examine performance with a specific analysis to ensure that they are keeping up to scratch with their plans.

As has been said, the ORR has published enforcement orders requiring Network Rail to take further steps to improve performance, particularly for long-distance passenger services and freight services. Hon. Members will know of the letter written by the ORR to Network Rail—it is fair to say that the train companies also have responsibility to do their best to ensure that punctuality and performance are maintained—and I simultaneously wrote to the train companies about their responsibilities to ensure that they are doing what they can to maintain performance at their end.

My hon. Friend the Member for St Albans referred to the National Audit Office. Network Rail is officially a private sector company. That classification is determined not by the Government, but by the independent Office for National Statistics, and that is what it has decided. I am not aware of any precedent for the National Audit Office having jurisdiction over private sector companies.

Under the terms of the Railways Act 1993, as subsequently amended, Network Rail is subject to scrutiny and regulation by the ORR, which has access to information that it needs from Network Rail, properly to assess the company’s performance and efficiency. The ORR is part of the public sector, so it is subject to National Audit Office scrutiny. The National Audit Office and the Public Accounts Committee have recently undertaken audits of the Office of Rail Regulation, taken evidence from Network Rail and others and produced reports on the regulator’s effectiveness.

We note and endorse the conclusions that the ORR must take steps to ensure that it has the capability that it needs properly to hold Network Rail to account and to drive it to close the efficiency gap with leading European comparators. I have sought assurances from the ORR that it will take such steps. Hon. Members have referred to the consultation that is taking place on the ORR’s powers. Any plans to expand the ORR’s role take account of its performance to date and its future capability, as well as comments that are received as part of the consultation process.

As a private sector company, Network Rail is not subject to the Freedom of Information Act, nor could it be without primary legislation. However, Network Rail has promised that it is in the process of developing a voluntary information rights code, which will mirror many of the provisions in the Freedom of Information Act. We welcome that initiative and believe that, if properly implemented, it will provide an alternative to legislation. We expect the company to introduce the code alongside a broader package of Government reforms later this year.

My colleagues and I in the Department for Transport, including the Minister of State, Department for Transport, my right hon. Friend the Member for Chipping Barnet (Mrs Villiers)—I am grateful for the comments about her accident, and I am happy to say that she is recovering well—will keep the matter under close scrutiny.

Hon. Members raised a number of specific points, but I must give my hon. Friend the Member for St Albans time to respond properly. If there are any points that I have not dealt with, I will write to the relevant hon. Members.