West Coast Main Line

Rosie Cooper Excerpts

Monday 17th September 2012 Westminster Hall

[Rosie Cooper (West Lancashire) (Lab)]

I beg to move,

That this House has considered the e-petition from Ross McKillop and others relating to the West Coast Mainline franchise decision.

The motion reflects the concerns of more than 170,000 people who have signed the e-petition and it calls on the Government to reconsider the decision to award the west coast main line franchise to FirstGroup.

It is a pleasure to serve under your chairmanship today, Mr Bone. I understand that this is the first Backbench Business Committee debate to take place in Westminster Hall on a Monday. I wish to thank the Committee for accepting the application for this debate and for granting us time before the conference recess. I congratulate the Minister on his new role at the Department for Transport. I am sure that he would have welcomed a less contentious issue so early in his post.

Due to Committee business, members of the Transport Committee are unable to join us today. My hon. Friend the Member for Liverpool, Riverside (Mrs Ellman) and her Committee colleagues are already interrogating people over this matter.

[Iain Stewart (Milton Keynes South) (Con)]

I am a member of the Transport Committee and I am here.

[Rosie Cooper]

I am glad that the hon. Gentleman is here and is able to contribute to the debate. His colleagues, I believe, are away on business.

The Transport Committee is considering this matter through the work of its Rail 2020 inquiry. Several hon. Members from Lancashire, who are currently attending a meeting with Ministers on employment matters in their constituencies, wish, with your permission, Mr Bone, to speak later in the debate.

More than 170,000 people put their name to an e-petition, which was started by Ross McKillop, calling on the Government to reconsider their decision on the west coast main line franchise. That huge number of signatures, which was collected over a short period of time, reflects strong feelings and shows that the subject deserves to be debated in the House.

On the west coast main line, we are talking about 31 million passenger journeys a year and a £5.5 billion contract that will last for 15 years—that is this Parliament and the two that follow it. Hon. Members from all parts of the House have called on Transport Ministers to give Members an opportunity to scrutinise in more detail the actual process through which the decision was made. In August, my hon. Friend the Member for Garston and Halewood (Maria Eagle) wrote to the then Secretary of State for Transport, asking her to make a statement to the House. This will be the first opportunity for Members from all parts of the House, apart from the Transport Committee, to ask questions of the Minister, to begin to scrutinise the decision and to put their views and those of their constituents directly to the Minister.

A considerable amount of press coverage and opinion seeks to make the issue one of FirstGroup versus Virgin. Personally, I do not care much about the name of the company that provides the service. My priority is to ensure that the final decision, taken by the Department for Transport, is the best deal for taxpayers and fare payers. I hope to get from the Minister today the guarantees and reassurances necessary to be satisfied that the decision-making process is robust, so that the right decision is made with taxpayers’ money.

Given the determined efforts of Transport Ministers to avoid answering questions on this franchise decision, I do not begin this debate from a position of resounding confidence. We are told over and over that the process is rigorous, detailed and fair. It is as if by repeating that mantra we will all believe it. Yet there have been many complaints that the process does not even deliver against its own objectives.

The basis of the judicial review is that the Department for Transport broke its own rules when evaluating the bids, and we need to get to the bottom of that. There are those who argue that the entire franchise bidding process is flawed, and driven solely by the promise of large sums of money no matter what the cost, and irrespective of the stated objectives.

[Mr Dave Watts (St Helens North) (Lab)]

Does my hon. Friend share my concern that the Department for Transport officials, who looked at the Virgin contract when it was let, underestimated the amount of money that would be made by Virgin? Given that there is that lack of credibility, how much credibility does she place on the assessment of the First bid?

[Rosie Cooper]

I was not a Member of this House when that decision was taken, so was not in a position rigorously to examine it. Overall, though, I do not have great confidence in the various projections of the Department.

To continue, let us take, for example, the objective to achieve sustainable value for money. That is a stated objective, yet the process encourages risky bids because companies know that if their bid is £250 million more than any other bid their competitors’ bids do not go forward for further evaluation. I have deep reservations about a system that does not attempt to answer why one bid is so much higher than all the rest, and then does not quantify the difference.

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

The hon. Lady intimates that she has concerns about the way in which matters are carried out at the Department for Transport. Like me, she was at a meeting when Virgin Trains, which had been invited to talk to MPs, said very clearly that it had discussed its concerns with Lord Adonis. What did the previous Labour Administration do to allay Virgin’s fears at the time?

[Rosie Cooper]

I did not clearly hear that part of the meeting. Perhaps it happened before I arrived. I was there when the hon. Gentleman said that he called the meeting so that Virgin and FirstGroup could say how they had arrived at their current situation—of one being awarded the contract and the other having started a judicial review. I pointed out that nobody from the Government had bothered to turn up to answer MPs’ questions and that democracy had been short-changed.

I understand that the Government use a computer programme to test the assumptions within the bid, which the Minister will no doubt tell me is a robust approach. My response would be to ask whether this was the same modelling package that was used by the consultants who said that the west coast main line should be carrying an extra £15 million of fares during the period of the Olympics and Paralympics? It was never physically possible to get that volume of passengers within that time frame to deliver £15 million of sales. In the end, the additional revenues amounted to between £1 million and £2 million. Such projections were for a single event over a short period of time and they were way, way off. How much confidence does that instil in us over projections that are supposed to last 15 years?

[Tim Farron (Westmorland and Lonsdale) (LD)]

The hon. Lady points out that it is very easy for all of us to be experts after the fact. Does that not demonstrate that the real problem here is that this decision was taken maybe completely appropriately, but it was announced during the summer recess so that Parliament had no chance to discuss or interrogate this issue? Moreover, perhaps one criterion that ought to be added to the process is what the public and the users of the service think about it.

[Rosie Cooper]

The hon. Gentleman raises several of the points that I am about to discuss in more detail, but I absolutely agree with him.

Surely projections about the contract should score highly on the basis of value for money for the taxpayer and the commuter. There is a belief that passenger growth could continue to be 10% per annum. However, such growth figures were achieved at the top of the economy. Even for a non-economist such as me, it does not take a great leap of faith to think that such growth rates are not sustainable in an economy that is in the doldrums and with fears of a double-dip recession not having gone away.

[David Mowat (Warrington South) (Con)]

The hon. Lady is quite right to say that all these projections for the future are estimates and guesses, that they may be too low or too high and that FirstGroup made very aggressive ones. However, is not the key point of a procurement process to ensure that the risk in respect of those projections is with FirstGroup’s shareholders and not with the passengers? The issue is how we manage that risk and not what the estimates were.

--- Later in debate ---

[Rosie Cooper]

Absolutely, and I will come on to that point later in my remarks, because it is absolutely clear that the risk here, with such a small guaranteed sum, is with the taxpayer.

[Joan Walley (Stoke-on-Trent North) (Lab)]

I congratulate my hon. Friend on securing this debate, because it is important that this matter is debated in Parliament. However, the particular issue that we are considering here needs to relate to the deliverability of the process by which the contract has been offered, and there is no real way that we can assess, all those years into the future, whether the winning bidder can produce what is meant to be there. Therefore it is a matter of great concern that there does not seem to be a proper assessment process about how the bid is actually given out.

[Rosie Cooper]

I agree, and again my hon. Friend raises points that I will return to later in my remarks.

It is absolutely for sure that we are dealing with risk—risk in the assumptions and economic risk. However, the only bidder for the contract that does not seem to have put up a lot of money is the company that has been awarded the contract. Again, I will return to that point later.

Economic assumptions are central to franchise bids. Governments expect rail companies to predict GDP trends over the lifetime of a franchise. As the Government cannot manage to predict GDP over the short term, how can we have confidence that any bids based on long-term projections have credibility? If an economist can tell me that those projections are credible, I suggest that the Government employ that economist as the current lot of economists cannot manage to.

[Mr Watts]

Is not the point that the Department for Transport has a long record of getting everything wrong? It gets it wrong on roads, on airports and on rail. The only thing that it seems will protect the Minister is that some penalties will be imposed if the contract is not delivered in the way that his officials propose. Should not we be transparent and absolutely clear about how this contract was let, know how any penalties are going to work and be quite clear that there will be no payment by the taxpayer if things go wrong?

[Rosie Cooper]

I absolutely agree with those comments, and those points are central to why I asked the Backbench Business Committee to allow a debate on this subject today. It is clear that there should be an open and transparent process. Perhaps we should be at the point now of comparing bids.

Let me return to my train of thought. There are other anomalies. For instance, the Virgin bid offers £133 million more in the period of the franchise up to March 2020. After that point, FirstGroup says that it will pay £1.23 billion more between March 2020 and March 2026. It does so based on a forecast of huge growth in passenger numbers, which comes at a time when there is no planned investment and when there will be huge disruption from the High Speed 2 rail project. So I ask again: how is sustainability at the heart of this decision?

Besides the computer modelling, there is also the anonymised scoring system, which I hope would prioritise sustainable value for money over high-value promises.

[Mr William Cash (Stone) (Con)]

We know that the Transport Committee is looking at this issue. Has the hon. Lady asked whether the Public Accounts Committee should look at it? As we are dealing with public money and value for money, is not what she is referring to today an ideal issue for the PAC to consider? Perhaps later, after the debate, she could address that question to the right hon. Member for Barking (Margaret Hodge), who is the Chairman of the PAC.

[Rosie Cooper]

I will indeed do that. I had not considered the idea of asking the PAC to look at this issue, but I undertake now to ensure that I send a letter to that effect to the Chairman of the PAC before I leave Parliament today.

[Joan Walley]

When my hon. Friend does so, will she ensure that she asks for the recommendations of an earlier PAC report on procurement to be considered within the context that has just been described by the hon. Member for Stone (Mr Cash)?

[Rosie Cooper]

Indeed I will, and I will seek further advice from my right hon. Friend on that point as well.

There is considerable difference in value when one bidder offers £800 million worth of investment and the other bidder offers £350 million. Unbelievably, there are reports that FirstGroup scored higher in the bidding process on customer service than Virgin did. Can the Minister tell me how the scoring system squares that with the results from various customer satisfaction surveys of FirstGroup’s current users—in other words, FirstGroup’s passengers—that show that those users rated the Great Western service as the second worst service around? It is not unfair or illogical to assume that, if a company offers a certain service on one line, it may offer something similar on another line. So can he explain how an anonymised scoring system is better informed than the passengers who actually use the railway system and FirstGroup in particular?

Sustainability is one of the watchwords in every aspect of public expenditure. Ensuring that the bids that are submitted can be sustained over the life of a franchise is essential. One of the reasons why hon. Members asked for the debate is that recent franchise experiences have shown that the highest bids—the riskiest bids—are not necessarily sustainable bids. The Government have even admitted that the successful bid for the west coast main line is indeed the riskier bid.

I was intrigued to hear that, during the tendering process, the Department for Transport informed one bidder that it did not view a 5% margin as sustainable. In the light of that information, that bidder reworked its bid and achieved a 7% margin. That leaves me perplexed, when I read that the successful bid is based on a 5% margin. If that is true—I assume that it is—given the lack of information and transparency, a whole series of questions are raised. Does the DFT believe that a 5% margin is sustainable? Did DFT officials give each of the bidders the same information? If they did offer the same view on sustainability to each bidder, why was a bid accepted with a figure that they believed to be unsustainable? That is an important question because it relates to risk and, in turn, how that relates to the guarantees being sought by the Government.

There is considerable contention about the guarantee that the successful bidder was asked to put against the bid. In the first case, my understanding of the guarantee is that it is based on the assessment of risk using a set formula. It is argued that if the Department had applied that formula uniformly, FirstGroup would expect, reasonably, to have been asked to put up a guarantee of around £600 million, not just the £215 million asked of it initially, which was finally reduced to £200 million. Secondly, did any negotiation take place with FirstGroup on the level of guarantee? If so, what were the circumstances? How did we reach the very small guarantee figure of £200 million, if the Department had been applying the same formula across all bids? If there was no provision within the invitation to tender for the guarantee to be negotiated, how does the Minister explain the variation in the figures from potentially £600 million down to £215 million, and finally to £200 million? Those figures are relevant to mitigating taxpayer risk.

We must not forget that in recent years a number of train operators have handed the keys back to the Government on franchises such as the east coast main line. I believe that Members want to be assured that that will not happen again and that taxpayers have an assurance that they will not be held to ransom by Dick Turpin train operators asking them to stand and deliver, having secured the contract on a bogus premise, taking their profits and scarpering when it is time to deliver the promised high return.

[Daniel Kawczynski]

I hope that the hon. Lady is not referring to any train operators as Dick Turpin-type figures.

[Rosie Cooper]

Oh, I think there are a lot of Dick Turpin-type figures about.

I would very much like to hear from the Minister on this precise point: has the Department applied its own rules or not? Given the whole handling of the process, a judicial review has been applied for, which has left us in a position where re-nationalising the line is being considered. The new Secretary of State for Transport has stated that he would seek to re-nationalise the west coast main line if there is a failure to reach an agreement before 9 December.

[David Mowat]

The hon. Lady suggests that an operator might walk away from a franchise having made the money in the early years of the contract. Is it not key for the Government to make it clear at this point that if the operator did that—giving the keys back, as she said—it would do no further work with the Government in any other contract? Therefore, for all intents and purposes, they would be barred from any further procurement processes in the future. If the Government made that clear, they would be acting in a much more private sector-type mentality, in a way that Governments often do not do. Does she agree?

[Rosie Cooper]

I would agree that, initially, we need a proper figure to mitigate taxpayer risk, to ensure that taxpayer costs are covered in the eventuality. However, if we have any more shenanigans, those operators should be barred from Government contracts.

[Mr Watts]

One of the problems that we see daily is that companies can go out of business and then start again under a new name. If First did that, could it not overcome that problem by reorganising itself, developing a new company and then bidding for future contracts? I do not see how we could legally stop it from doing so.

[Rosie Cooper]

I think that is a real option. I understand from the grapevine that First does not intend to brand the west coast main line “FirstGroup”, but that there is a great possibility that it will be called Horizon. We might be in that kind of territory; I am not sure.

If there is a failure to reach an agreement before 9 December, it would mean instituting a directly operated railway service on the west coast, matching the current system on the east coast. The Government’s own guidance says that 120 days are required to get that kind of operation in place, and here we are 90 days away from the end of the current west coast franchise. Will the Minister enlighten us on how that will be achieved to ensure the smooth transfer of services to the DOR, if necessary? There is much to consider and address: safety matters; employment and contracting issues; even the simple thing of setting up a website to sell tickets. What would be the associated costs of the DOR in the initial set-up and the monthly costs thereafter? Those costs would be incurred by the taxpayer because of the Government’s failure to handle the situation adequately.

We must consider the staff. Come 9 December, they will have no idea for whom they will be working—FirstGroup, the DOR, or perhaps even Virgin. As part of any transfer of a franchise, there is a responsibility for the incumbent to work with the new operator.

[The Parliamentary Under-Secretary of State for Transport (Stephen Hammond)]

The hon. Lady has been speculating quite a lot about the steps that the Secretary of State may or may not take as a result of a comment that he made yesterday. Let us be clear: he has a statutory duty under section 30 of the Railways Act 1993 to provide or secure the provision of services. As he made clear, that would be a temporary measure should the franchising arrangements not come into place.

[Rosie Cooper]

Is the Minister saying that any offer from Virgin to run the service at no cost and the best-value operation will affect his decision? I will ask him some questions about the associated costs should we set up a DOR.

I understand that two mobilisation processes are running side by side. Will the Minister tell us how that is working in practice? What are the associated risks and costs that arise from the lack of clarity? What assurances can he offer staff that their positions will be secure and the situation resolved?

The Minister has partially intimated the answer to the question that I am going to ask. If a DOR is to run the service, will it have the contract for a defined period, or will another mobilisation process be undertaken where an operator is awarded the contract? What will be the cost of that process?

One of the reasons for securing this debate is the manner in which the Department has handled the entire process, from the timing of the announcement to the consistent reluctance to answer hon. Members’ questions. We keep being told that this Government are open and transparent, and I want to believe that. We are told by the Department that it is confident in its decision on the west coast franchise. If I accept that both those statements are true, why have Transport Ministers not had the courage of their convictions and been willing to come to the House to make a statement to allow scrutiny of the process and the decision? There is a claim that one of the bidders had submitted questions to the Department seeking clarification on certain matters, but it has yet to receive a response. We are basically being told by the Department, “Trust us. Trust what we are telling you.”

[Daniel Kawczynski]

Before the announcement was made before the recess, I asked the Prime Minister a question about the process at Prime Minister’s Question Time. I do not recall hearing any questions from shadow Ministers or Labour Members challenging the process or the timing of when the decision would be made. Is that not the Labour party jumping on the bandwagon after concerns were generated in the media?

[Rosie Cooper]

Protecting taxpayers’ interests is a great bandwagon to jump on. We will protect their interests. The Department says, “Trust us. Trust us. Trust us,” and the hon. Gentleman is inferring that we should trust it. In the week that we had the Hillsborough revelations, “Trust us” is a very hollow call; I am not simply being cynical.

If the Government believe the decision is right, they should open the books and allow the bids to be compared. They should be open and transparent. To be honest, within the context of the east coast main line and the Great Western line, sadly I do not think we can put our faith in the Department.

During my comments, I have raised questions on the risk assessment, the funnelling of bids, the application of the rules and the soundness of growth projections. I ask the Department to try putting its faith in the democratic process and the parliamentary system so that, through debate, questioning and scrutiny, we can be assured that we have arrived at the best outcome for all parties.

Those who fail to learn the lessons of history are doomed to repeat them. The Government will not be forgiven if they allow history to repeat itself with any company taking profits from running our railways and then walking away from the contract without paying a huge penalty to cover taxpayers’ costs and, as the hon. Member for Warrington South (David Mowat) said, being barred from future Government contracts. Unless the Government can evidentially support their case, I, as one of the 170,000 people who signed the e-petition, call for them to reconsider their position.

--- Later in debate ---

[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.

[Rosie Cooper]

rose—

[Mr Jones]

I will not give way at the moment, because other Members want to get in, but I will give the hon. Lady an opportunity in a few minutes.

There are a few questions about why Virgin or any other party did not raise such a high profile campaign at the outset. Why did we receive letters and ice lollies—I am not sure whether they were connected to this or were part of the Olympics—from Virgin Group on the train platform only once the bid was lost and Virgin had come in second? Why are Labour Members only now coming up with these concerns? They are not even giving their position on the matter. To me, it is a little like someone going to a restaurant and ordering liver, knowing that they do not like liver, and sending it back once it comes to the table and is put down in front of them. In the same way, we need to be careful what we wish for here.

For the Government’s part, it is important that once they have set a franchising process, it should be the benchmark against which the bids are judged. As I said in response to the intervention from the hon. Member for Garston and Halewood (Maria Eagle), it sets a dangerous precedent if, after the bids have come in and a tender has been let, we try to shift the goal posts to get the outcome that we were looking for. Not only would that completely undermine the tendering process, but there are obviously potential legal ramifications.

The critical question is whether the process was followed properly. If Department for Transport officials have not properly applied their own criteria to the bids, then yes, we have to acknowledge the concerns of Virgin Trains, and yes, the Government have to address any subsequent issues that might arise. At this point, that decision is a matter for the courts. It is dangerous as an MP to call for the franchise to be re-let on the basis of a petition, rather than an independent judgment to ensure that the correct procedure and process has been followed.

We should wait to see what the judicial review says, and if it is accepted by the court, the Government should deal with it appropriately at that point. If not, I will fully support the Government in signing the contract, on the basis of retaining the integrity of the tendering processes that they follow. For my constituents, the winning bidder at this point, FirstGroup, notwithstanding the legal case, is on the face of it offering the taxpayer a better deal and far better services to Nuneaton, which is what my constituents are looking for.

--- Later in debate ---

[Stephen Hammond]

My understanding of the GDP process currently in place is that there would be either payments back to the Government or payments from the Government. I will write to the hon. Gentleman about that.

I make it clear that GDP was only one of the external factors; it was not the only external factor. To ensure that the Government are further protected, a profit share mechanism has also been introduced. The mechanism will enable the taxpayer to benefit from a share in any super profits that the franchise generates while continuing to provide an incentive for the franchisee to outperform.

The hon. Member for West Lancashire asked a number of questions about the Government’s preparations, should the franchise end without a new franchisee being in place. I make it clear that the existing contractor has a contractual obligation to support handover activities. On the 120 days to which she referred, a departmental mobilisation manual is being used by both parties in every franchise to ensure that a franchise handover process is in place, and the activities and time scales required to effect a transfer are set out. The Government are confident that the Department is putting in place the right contingencies in the time scale, should the process not be completed. We expect the legal issues to be resolved so that contingency plans will not be necessary.

[Rosie Cooper]

We have very little time, and I implore the Minister to answer my questions on the detail of the guarantee and on the contract negotiations. I also implore him to answer the question asked by my hon. Friend the Member for Halton (Derek Twigg). They are important and pertinent questions that go to the heart of protecting taxpayers’ money, and, sadly, the Minister has not answered any of them. I know we have gone round the houses, but the Minister has not answered the questions at the heart of the debate.

[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.

--- Later in debate ---

[Rosie Cooper]

Very quickly, I thank you for your stewardship of the second part of the debate, Mr Davies.

I hoped to be able to respond more extensively, but in the half a minute that is left to me, I sum up by telling the Minister that I believe a bird in the hand is worth two in the bush. For the record, I do not believe in the tooth fairy, either.

Question put and agreed to.

Resolved,

That this House has considered the e-petition from Ross McKillop and others relating to the West Coast Mainline franchise decision.