Network Rail

Roger Gale Excerpts

Thursday 2nd February 2012 Westminster Hall

[Mrs Anne Main (St Albans) (Con)]

It is a delight to serve under your chairmanship this afternoon, Mr Amess, for what I am sure will be a lively and engaging debate. I thank the Backbench Business Committee for providing the time and all colleagues who added their support to the proposal for the debate when it went before the Committee, in particular my hon. Friends the Members for Suffolk Coastal (Dr Coffey) and for Ipswich (Ben Gummer), the vice-chair of the all-party parliamentary rail group the hon. Member for Luton North (Kelvin Hopkins), the Chair of the Public Accounts Committee the right hon. Member for Barking (Margaret Hodge) and many others.

The debate is timely and much needed. Many colleagues have expressed concern that Network Rail has been failing on so many levels. It has failed to deliver a successful, well-run system that is value for money, transparent, accountable, open to scrutiny and fit for purpose. Network Rail has been subjected to serious criticisms in a recent Select Committee on Transport report and in the media. The White Paper expected in 2011 has been delayed, the McNulty report in 2011 raised major issues about Network Rail and I, too, have expressed concerns over failing performances on dozens of occasions in the House. As I said, the debate is topical and, indeed, overdue.

It is a simple premise that to deliver an efficient, mobile work force, we need a decent, well-run and affordable rail transport service. People of all ages expect a rail service fit for the 21st century. The travelling public are being asked to pay ever more for their rail fares, and we must ask serious questions about the services they are experiencing up and down the country. In my constituency of St Albans, passengers are heartily fed up, because commuters pay the highest fares in the country and routinely experience a dismal, erratic service with regular delays. In January 2010 the service was appalling, prompting me to call for an urgent question in the House. Without notice, overnight and at a stroke, the timetable was cut by 50% because the rail company could not deliver a full service schedule. Much of the problem was directly attributable to Network Rail which was leaving trains stranded south of the river and not investing in dealing with frozen rails and overruns. My constituents were angry, and it was a miserable time. Things have improved since, but they still receive a service that falls far short of what they deserve. Commuters tell me that, at a rail cost of 30p per mile, they are seriously considering going back to their cars, and who can blame them?

Sixty-four per cent. of delays to my service over the past year were directly attributable to Network Rail and its failings, with a massive impact on the passenger experience. According to recent data, the overall customer satisfaction on my First Capital Connect line, FCC, was the lowest in the country, including value for money, punctuality, sufficient room on trains, satisfaction with the stations and how the train operating companies, or TOCs, dealt with the delays. As I am sure many other right hon. and hon. Members present do, I monitor the rail service and its failings in my constituency, and I am in close contact with my train operator, FCC. I get updates, which do not always make good reading. Almost weekly, I get e-mails from FCC and from my constituents about signal failures and other problems associated with Network Rail once again causing severe delays to the line. The train operators are not without blame but it is impossible to improve a service substantially if Network Rail is at the root of so many delays and overruns—as I said, 64% in my case alone.

On a related issue, rail freight company HelioSlough is trying to cram a strategic rail freight terminal on to my green belt, in a highly contentious proposal. Numerous concerns were expressed about whether the east midlands line could cope and had the capacity. At the inquiry, my TOC asserted that the proposal would decimate passenger services; FCC illustrated its point with comprehensive data, showing that it was highly questionable whether the freight paths would truly be available, in particular after the implementation of the high-speed Thameslink project. FCC chose to attend the inquiry for several days to outline its engineering and logistical concerns, and its representatives were cross-examined by the inspector, who was extremely knowledgeable about rail. Network Rail, however, did not bother to send anyone to the inquiry or subject itself to any cross-examination of data, but just blithely asserted in a short letter—only one side of A4 paper, I think—that everything would be fine. The inspector said that he and indeed FCC must take those at Network Rail’s word for it—as “the experts”.

I wish to put on record that if the decision that currently rests with the Secretary of State is for a rail freight terminal to go ahead, the project will devastate my constituency with all the heavy good vehicles accessing the site through village roads. Network Rail did not even have the confidence to appear at the inquiry and to defend its views with the back-up of data, which I suspect would not have stood up to rigorous scrutiny or to the questioning of the inspector as experienced by my TOC. Network Rail presides over a shambolic railway, misses most of its targets for both passenger and freight and yet is still regarded as “the experts”. As the Member of Parliament for St Albans, I urge the Secretary of State, even at this late hour, to reject the unsubstantiated assertions of Network Rail on the project. They are not to be trusted. Network Rail has told me that, if enough paths for freight cannot be found, it will of course prioritise passenger services, so I should not worry. That would still leave St Albans with a massive road-to-road freight depot in my green belt, and my constituents deserve better from a body funded with taxpayers’ money.

We must ask whether there is a better way to run the railways. The debate has the simple title of “Network Rail”, and colleagues may focus on different aspects of Network Rail and its impact in their own constituencies. The areas of concern that the debate should cover, however, include costs, executive pay, the total lack of accountability, the role of the Office of Rail Regulation, and service failures and their impact on the TOCs. I hope we will then hear from the Minister about a way forward for our railways.

Network Rail accounts for 28% of the Department for Transport’s budget until 2013-14. Network Rail is a chimera, basking in the notion that it is a private company, but it is dependent on massive handouts from the British taxpayer. It was described by my hon. Friend the Member for Spelthorne (Kwasi Kwarteng) in the Select Committee as

“neither fish nor fowl...neither a private business...nor…a public business.”

Network Rail has a financial indemnity in place, so its debt is entirely supported by the Government. As of 2009-10, that debt was £23.8 billion, and it is set to rise to £31.5 billion by 2013-14. Network Rail’s debts, however, do not appear on the Government’s balance sheet. Somehow, it is classified as a fully private company, a private firm simply backed by Government, but many would question that classification. It has no shareholders and pays no dividends, but it pays itself very well. The Government seem relaxed about that debt, and the Secretary of State for Transport said in July that it was a matter of “complete indifference” to the Government whether Network Rail’s debt came on to or off the Government’s balance sheet. The taxpayer might beg to differ.

The structure is highly questionable; it was, sadly, devised under the previous Government, and it has allowed a culture of high pay and large bonuses to prevail for many years. Network Rail is reliant on the public purse but lavish with executive remuneration. One has to ask why the previous Government did not choose to tackle the issue since it created the monster. Network Rail was apparently set up with no mechanism in place to control the level of financial rewards or bonuses, which is topical, because there was a question today for the Leader of the House on that very matter. The situation is a disgrace and should be rectified.

We must now look to the future and ask for changes to be made. If we are to be seen as a Government wishing to tackle fat cats, their bonuses and lavish pay in what I believe to be the public sector, Network Rail must come under scrutiny. Until this year, the chief executive of Network Rail was the highest paid public sector employee, earning over 10 times more than the Prime Minister. In 2009-10, Iain Coucher, the chief executive at the time, had a salary of £613,000, a bonus of £641,000 and a pension payment of £178,000. I believe that he was extremely overpaid, despite delivery of poor performance; I cannot think of a bigger reward for failure.

The new chief executive of Network Rail, David Higgins, receives, according to an article in the Evening Standard—it has been hard to track down the exact figure—a salary of £560,000. However, only three days after publicly apologising for the failings of Network Rail that contributed to the deaths of two teenagers, Mr Higgins and other top executives appear to be going to their board to ask for a six-figure bonus. For Mr Higgins alone, that will be £336,000. For 2010-11, board members were all receiving salaries above £300,000 and up to £440,000, with what are deemed incentives ranging from £62,000 to £91,000. In light of such poor—indeed, abysmal—performances, one may ask what those incentives were for.

Network Rail presides over a shambolic, poorly delivering system. Top executives appear to be comfortable in the knowledge that they will collect annual bonuses regardless of poor performance. Does the Minister think it appropriate, in light of their performance, that Network Rail should pay large bonuses to top executives? If not, what mechanisms can we put in place to stop that happening?

Given the amount of taxpayer support, it would be reasonable to assume that we could know how the money is being spent, whether we are getting value for money, what the project costs are and whether they are reasonable. However, Network Rail is currently not subject to the National Audit Office, freedom of information requests or even market forces. It has been asked whether it will endure such scrutiny. The new Network Rail chief executive, David Higgins, said that he would welcome freedom of information requests. However, he also said:

“That is a decision for Ministers, and I think it is on hold until after the value for money and the White Paper…it is not a decision of Network Rail, but it is a decision that the Government and Ministers need to make. If they…do it, I welcome it. I have operated under FOI for years and I don’t have any problem with it at all.”

I am so pleased to hear that. I hope that the Government are considering taking the decision to subject Network Rail to freedom of information requests if it is in their ownership to do so. Will the Minister tell us at the end of the this debate whether he intends that Network Rail will be subject to freedom of information requests?

[Sir Roger Gale (North Thanet) (Con)]

On that issue, when Network Rail fails a train operating company, it has to pay compensation to the train operating company. The train operating company does not pass that compensation on to the passengers who are in turn being failed. When we ask Network Rail for the figure, we are told that we cannot have it because it is in confidence. My hon. Friend is absolutely right in her request.

[Mrs Main]

I thank my hon. Friend for his intervention. The passengers are compensated to an extent, but it is a very limited form of compensation. Believe me: First Capital Connect was paying out tons of it as of 2010. As my hon. Friend will hear me go on to say, it is our money paying the fines. That is ridiculous. I hope that freedom of information requests will be allowed. It seems that that is within the Minister’s gift.

Network Rail is not audited by the National Audit Office. It is audited by PricewaterhouseCoopers, but that is simply to check whether the accounts are in order. It is not audited on the basis of value for money. The National Audit Office remarked that the Department’s

“understanding of the relationship between cost and value was weakest in rail”.

It also says that a

“lack of transparency on Network Rail’s costs is consistent with our past reports on the Department and the Office of Rail Regulation.”

That has been highlighted for a significant period; there is a long-standing concern about a lack of transparency on costs. Can the Minister tell us today whether we can expect Network Rail to be subject to auditing by the National Audit Office? I ask that because I would like clarification. The National Audit Office is saying that it cannot gain an understanding of the position because Network Rail’s own figures are vague. Will the Minister clarify that we can strengthen the role of the National Audit Office?

The Public Accounts Committee has been especially damning of Network Rail’s accountability. In a 2011 report, it said:

“Network Rail has no accountability to shareholders, nor does the National Audit Office have full access, so Network Rail is not directly accountable to Parliament.”

It went on to say that it

“unfortunately won’t be able to give a clear opinion on the whole-of-Government accounts

until Network Rail’s status changes. That could well be the crux of the debate: how we change the status of Network Rail. Does the Minister accept the need to change the status of Network Rail? Does he share the concerns of the Committee that Network Rail is not accountable to anyone, particularly its paymasters in Parliament?

The Office of Rail Regulation is not holding Network Rail to account in any meaningful way. Anyone who watched the “Panorama” documentary last month will have seen Cathryn Ross, director of railway markets and economics for ORR, giving her responses. She confirmed that ORR has to be given the information by Network Rail in order to regulate it. However, as we have seen with the National Audit Office, getting any detailed information out of Network Rail is well nigh impossible. When pressed, she appeared totally unable to detail in any meaningful way any scrutiny that had been carried out on behalf of the regulator. Does the Minister find it unsatisfactory that ORR must rely on information supplied by Network Rail in order to act?

Only this week, Network Rail has been found guilty of serious failings that led to the tragic deaths of two teenagers—Olivia Bazlinton and Charlotte Thompson. There were not only failings in health and safety, but suggestions of a cover-up within Network Rail at the highest levels, aimed at concealing its mistakes. The families said in the media that they felt “lied to”, so can we really rely on Network Rail to give accurate information to anyone, even ORR?

The rail regulator is looking to expand its role. Given its mixed record on regulating Network Rail alone, its expansion is highly questionable. Michael Roberts, chief executive of the Association of Train Operating Companies, said in December:

“Train companies recognise they need to be held to account but plans to expand the ORR’s role to include more oversight of operators must be rigorously tested. The regulator needs to continue focusing on doing a better job of holding Network Rail to account, particularly on performance and cost-efficiency, before taking on new responsibilities.”

The Public Accounts Committee said in relation to ORR’s performance that

“we do not believe that the Regulator exerted sufficient pressure on Network Rail to improve its efficiency, and that there is an absence of effective sanctions for under-performance in the system...We doubt whether the Regulator is able to exert sufficient pressure on Network Rail’s performance”.

It has also said:

“The Office of Rail Regulation does not have a grip on Network Rail’s efficiency and appeared remarkably relaxed about the continuing gap in performance between Network Rail and international comparators.”

Those are hugely damning observations; they are damning in so many different areas. They question the ability of ORR to deliver on any meaningful level. Should the Government be allowing ORR to expand its role when it so obviously cannot do the role that it already has? Does the Minster share those concerns? Will he consider ways to improve the rigour of ORR’s role?

Network Rail can be financially punished by ORR through fines. However, Network Rail is financially supported by the Government. As my hon. Friend the Member for North Thanet (Sir Roger Gale) pointed out, fines go to the Government from Network Rail, which receives Government money. That is a ludicrous circle. Highly paid executives are paying for failures with public money.

ORR can also impose enforcement orders on Network Rail if it misses its targets, which it does on numerous occasions. That may sound impressive, but it amounts to Network Rail having simply to suggest plans to meet targets. We have spoken about the current targets. There is already an admission that Network Rail is highly unlikely to meet the new targets. That is disgraceful. The organisation is a toothless tiger. That has to change.

The “members” of Network Rail, the stakeholders, are also meant to hold Network Rail to account, but they, too, rely on Network Rail’s own disclosure of the figures to do that. We keep coming back to the fact that no one can hold Network Rail to account unless Network Rail wishes to hang itself with its own figures. It simply chooses not to do so, or puts them in such a way that it is impossible for anyone to hold it to account.

The question that must be asked, and the real point of the debate, is this. What incentive is there for Network Rail to improve? I argue that, under the current system, there is none. Does the Minister believe that he can put in place mechanisms to oblige Network Rail to deliver significant improvements? I hope that today he will be able to outline some of those for us.

We have the highest track-access charges in Europe. Those costs are inevitably passed on to the travelling public. Sir Roy McNulty said in his report that running the rail network here was 30% more expensive than in comparable European countries. I admit that I do not know how that figure was arrived at, but I have not noticed anyone saying that it is inaccurate or giving a different figure. Does the Minister agree with the 30% figure, and what can his Department do to make Network Rail bring down its track access costs and other costs? On reading the details surrounding that figure, it could as easily be higher as well as lower.

The scale of the problem that faces Network Rail, which it recognises but chooses not to deal with, is illustrated by the fact that it employs 600 delay attribution staff. If anyone has talked to their own train operating company, they know how important it is to be able to attribute blame for a fault because it makes a difference as to who pays the bill. If the delay in operations is Network Rail’s fault, the fines are paid by Network Rail. If it is the fault of the train operating company, it goes on the performance data of the TOC and it has to pay the fine. As Members can imagine, the squabble can be pretty unedifying. Network Rail spends its entire time, and our taxpayers’ money, divvying up the blame and fee penalties among the train operating companies, and then using taxpayers’ money to pay the fines for any delays.

You could not make this up, Mr Amess. I am amazed that we have all decided to accept this appalling situation for such a long period of time. Network Rail has presided over a litany of high-profile failures. Some have resulted in criminal prosecutions. I do not wish to go into too much detail here, because the hon. Members representing those areas may be present in the Chamber. However, the Virgin train derailment near the Cumbrian village of Grayrigg was one such incident. Such failures are causing deaths and significant injuries, and Network Rail’s declining performance has put it in breach of its licence. Despite being “the experts”—as I said earlier, Network Rail’s expert opinion is heavily relied on—Network Rail has presided over a system in which rail freight delays are 32% worse than the end-of-target year. Long distance punctuality stands at 87%, which is well below the target of the Office of Rail Regulation. Delays have risen, which proves that the network has become less resilient to disruptions. That is important. Some workers have said to me, “I don’t want to lose my job, but I have serious concerns about the work that is being done by Network Rail on maintenance and oversight of engineers.” That is a serious issue. People within the industry feel that they must keep their mouths shut about the things that they can see not being done correctly. Network Rail does not give the travelling public any confidence that its rail service is as safe as it should be.