Railway Industry

Theresa Villiers Excerpts

Tuesday 19th October 2010 Westminster Hall

[Katy Clark]

My hon. Friend makes some powerful points, to which I will return later in my contribution. The privatised rail companies propose to threaten the progress that has been made in the railways in recent years. They want their companies to take over the infrastructure, perhaps on leases that would coincide with the length of the franchises. There is talk of trialling such arrangements in Merseyside or Scotland. The train operating companies have promised that that will incentivise them to invest in the railways, but they have provided absolutely no evidence to support that submission. Indeed, the evidence of the past and of their tenure with the railway passenger services shows that they simply seek to maximise profit and boardroom pay, as I have already mentioned. In fact, the Government’s own consultation document, “Reforming Rail Franchising,” states:

“European procurement law makes clear that contracts over 15 years require significant investment to be provided by the franchisee. Therefore, our starting proposition is that 12 - 15 years should be the standard length of franchises”.

That seems to say that we should extend franchises to the maximum length at which franchise holders have no legal obligation to invest significantly and leave investment completely at the discretion of the franchise holder.

[The Minister of State, Department for Transport (Mrs Theresa Villiers)]

I assure the hon. Lady that, whatever the length of the franchise, we will be pressing for the best deal for the taxpayer, including investment with longer franchises—whether they are for 10, 15 or 22.5 years.

[Katy Clark]

I am very pleased to hear the Minister say that. However, if we are going for franchises of approximately 12 to 15 years, there will not be that legal obligation, which must have a consequence for the decision that companies make.

[Mrs Villiers]

I am sure that the hon. Lady will appreciate that franchise documents impose significant legal obligations, and we expect those to include investment in the railways, particularly where a longer franchise is granted.

[Katy Clark]

I am pleased to hear the Minister say that. If the Government decide to go down the path of franchises of such a length, we will be actively scrutinising the situation to ensure that the contracts in place not only are legally binding but are enforced and deliver for the taxpayer and those who use the railways.

We know that the train operating companies are demanding further fragmentation and privatisation of our national railway structure. The former Network Rail chief executive talked about simply sweating the assets of the railway infrastructure. If franchises were coming to an end and existing operators were either not going to bid again or were not shortlisted for replacement, there is a great deal of concern that there would be little pressure on them to invest.

I also ask the Minister to consider carefully concerns that breaking up Network Rail would have a negative impact on rail freight. There is a real fear that passenger operators will be tempted to fill any spaces in the timetable with their own revenue-raising services, which would push freight to one side. Freight trains are often heavier than their transport equivalents and can do much damage to the track, which raises the possibility that the private operator could limit free access or leverage high track access charges on the movement of freight. That would force freight from the railway to the road, which would have a series of unhelpful environmental consequences.

Many people in the industry and in the rail trade unions are also concerned about the arguments of those who are making the case for breaking up Network Rail. In particular, they are concerned about the report of the Office of Rail Regulation, which is quoted again and again as stating that, compared with other European railways, Network Rail is up to 40% less efficient. I say to the Minister that hon. Members may make such points today because they have read articles in the press, but many in the industry, the RMT and the other railway unions have a great deal of concern about that report’s methodology. They believe it is flawed and that it has cherry-picked different aspects of rail infrastructure efficiency from abroad to paint our railways in a more unfavourable light. The report does not seem to take into account factors that determine efficiency, such as adequate investment over long periods, the need for a unified command structure and, most importantly, the continued fragmentation of our infrastructure compared with European railways.

We need to consider the benefits of having an integrated, publicly owned railway. I therefore hope that the Minister will ensure that those conducting the rail review—and the Government themselves—do not just look at the issue on an ideological basis, but consider the comparisons with other European railways. There has been some concern about the ORR’s report and I suggest to the Minister that she should be willing to receive more detailed representation from those who are concerned about that issue. It is obviously vital that we make the right choices for our railways.

In June, the Secretary of State said:

“Passengers and taxpayers will rightly ask why it is that our railways in the UK are so much more expensive than those in the rest of Europe.”

I believe that the answer is already there for him to see. For example, the 2009 European Commission report into the rail market made it clear that the structure of UK railways is radically different from that of railways in the rest of Europe. In terms of passenger operation and infrastructure, most of the railways in Europe are publicly owned and accountable, whereas in the UK they are not.

Compared with other railways in Europe, the organisation and structure of our railways is horrifically complex—they are fragmented and have numerous interfaces. We have 24 operating companies, three freight operators, three rolling stock leasing companies, two infrastructure controllers—Network Rail and Eurotunnel —and seven major infrastructure renewal companies. That must lead to huge inefficiencies. There is a duplication of function and a loss of economy of scale. In addition, the fact that there are so many individual companies means that there are increased profit margins and transaction costs—even the legal and consultancy fees are duplicated again and again. Skilled personnel validate and monitor contracts instead of getting on with the job and, perhaps most damaging, there has been a loss of a rail culture that focused on getting the job done, with one company and one stakeholder blaming the other when things go wrong. I understand that the rail review has already indicated that the railways could save hundreds of millions of pounds a year by reducing that fragmentation and the number of different organisations involved with them.

I hope that the Minister will look at what is happening to railways across Europe, which are overwhelmingly publicly owned and far more integrated than those in the UK. I believe that that would provide a better service and cheaper fares for the public, that it would be better for the environment and that it would lead to more high-speed rail and more electrification. Will she give an undertaking that there will be a transparent consideration of an integrated and publicly owned railway and that the methodology used to consider those matters will be made public?

I pay tribute to those who work on the railways. My hon. Friend the Member for York Central (Hugh Bayley) mentioned the Jarvis workers who have already lost their jobs. Thousands of Network Rail workers have been asked to make efficiency savings and many have already lost their jobs. I hope that we are now moving towards a period of stability and consolidation. We know, as he indicated, that many of the Jarvis workers are still without work and have lost their pensions. Given his comments, I suggest that it would be helpful if the Minister met me, him and other interested colleagues to discuss the plight of those workers and whether the Government can do more to ensure that alternative employment is available for them in these difficult economic times. Thousands of jobs have already been lost on our railways, on both the passenger and freight sides, and we are also seeing a gradual attack on train guards as companies try to introduce driver-only operations, which will reduce staffing levels even further and, I believe, raise significant safety concerns.

In Scotland, the Scottish National party Administration have taken advantage of the clause included in all railway franchises that allows railway companies to ask the Government to make good the loss of revenue caused by strike action. The Labour party in Scotland says that it will remove that clause from ScotRail franchises if it is successful in next year’s elections. Does the Minister agree that the current review of railway franchises should look at that matter and remove that provision from all franchises?

Many people who work in ticket offices are losing their jobs, with implications not only for them but for safety. We know that there is some protection for ticket offices, as train operators are required to consult passengers and Passenger Focus if they wish to shut offices or change their opening hours. Does the Minister agree that those protections must remain in place and should not be removed as a result of the review? Thousands of jobs are under threat in London Underground, many in ticket offices, as a result of the Mayor’s decision to renege on his election promise on staffing levels. Cuts will also fall elsewhere, including safety-critical railway maintenance jobs. As a result, there has been strike action on the Underground, as the Minister is aware. Indeed, the workers who were hailed as heroes after the London bombings in 2005 are now often vilified in the press as enemies of the state. I hope that there is a negotiated settlement to the dispute, and I pay tribute to those members of the RMT and the Transport Salaried Staffs Association who are taking a stand on behalf of passengers and rail safety.

I have put several questions to the Minister and am most anxious that she respond to them either today or, if she is unable to do so, in writing at a later date. I will mention those questions again, because they can often be lost in Adjournment debates. Will she clarify whether the McNulty review will inform the transport decisions in the comprehensive spending review set out tomorrow? Will she write to the executives of the big transport companies and ask that they practise pay restraint in the boardroom? Will she agree to a levy on the profits of the privatised rail industry or, at the very least, tell the companies to freeze their profits and invest them back into the railways? Will she meet me and other interested parties to discuss the continuing plight of the former Jarvis workers? Will she ensure that the franchising review results in the removal of clauses that allow taxpayers’ money to be used to indemnify train operating companies against losses incurred during industrial action? Will she ensure that the Government transparently consider the benefits of an integrated and publicly owned railway network and publish the methodology that they will use to consider the matter?

--- Later in debate ---

[Mr Weir]

The hon. Lady makes a good point. Whether electrification is greener than its alternative depends on how the electricity is generated, but that is an associated issue. However, she is right that the faster train journeys can be made, the more likely it is that people will use the train rather than travel by air. That is my point. Flying to London from Manchester or Birmingham no longer makes sense, but it does make sense to travel from Aberdeen by air unless something is done to speed up the train line. I appreciate that that is not easy to do, but the Government must look at the issue seriously.

My other point is about the high-speed rail network. The Government have announced their proposal to go with the Y route, which would run up the centre of England to the north-east and the west coast. It will speed up journey times and, if I understand it correctly, link up with the east coast line and provide a slightly faster journey time at least as far as Edinburgh. As it stands, however, although the proposal will considerably speed up rail travel to the north of England, it does not address the central problem of taking the line further north into Scotland. If the Government are serious about the issue, we must look at an extension of the line to ensure faster travel times from Scotland and encourage people away from the longer domestic flight routes. Unless we do that—and the same argument goes for the east coast—we will not get the green benefits that we hope for. As it stands, if I were to use the high-speed line to get home, I would probably have to change train twice to get to Montrose, and that will not significantly reduce the journey time.

[Mrs Villiers]

The hon. Gentleman may recall from the coalition’s programme for government that we want a genuinely national network. Experience tells us that that must be delivered in phases as it takes some time. The ultimate goal, of course, is to take high-speed rail to Scotland. It would be interesting to hear whether the Scottish Government are willing to devote resources to that programme in the future. I have discussed the issue with them, and I hope that in the future they will consider whether they can devote some of their resources to aiding such a project.

[Mr Weir]

I am sure that the Scottish Government will do that. However, there is not much point in building a high-speed line if it does not link up with the rest of the network. At the moment, the high-speed line will run nowhere near Scotland. I understand that Network Rail had a proposal that would have taken the line into central Scotland. That would have made more sense, it would have linked central Scotland with the main high-speed network running south, and it would have provided the basis for an extension of the network further north. At the moment, as the Minister knows, the high-speed network comes nowhere near Scotland, and it will be many years before it gets as far as Edinburgh. The Government seem to take a London-centric view of the matter. If we were to tip things the other way so that the line ran south, the speed of journeys would increase faster and the green objectives of the Government and the Scottish Government would be met.

The Scottish Government have invested a lot in the railway in Scotland. I accept that that is their responsibility and that some of the work must be done in Scotland—there is no argument about that. For example, the Scottish Government opened a new station at Laurencekirk on the east coast line, although strangely enough the direct mainline services will not stop there, so people still have to get a train to another station to get on those direct services. ScotRail runs a good service to Edinburgh and Glasgow, but again, people have to change trains to get on to the direct line to travel further south. People going on business trips look for a direct service. New lines have been opened from Stirling and Alloa; there is a new line from the border and considerable improvements along the Paisley corridor. All those things have improved rail travel in Scotland, but we still need links to the lines that will take us to continental Europe through the Eurostar network. To do that, unfortunately we need to rely on the Government in this place taking action on the east coast line and the high-speed line.

My main point is to ask the Minister about the rolling stock for the east coast line, which is the responsibility of her Department. As the hon. Members for Newton Abbot (Anne Marie Morris) and for Hayes and Harlington (John McDonnell) pointed out, the new trains are vital to show that the Government are serious about investment in our railways and in the important economic asset of the east coast line. I appreciate that the comprehensive spending review is tomorrow, but I urge the Minister to ensure that the rolling stock is purchased and that a clear signal is given about the future of the line.

[Andrew Gwynne (Denton and Reddish) (Lab)]

I am pleased to contribute to this important debate about the future of the rail industry, particularly as this is my first official outing as a member of the Opposition Front-Bench transport team. I also congratulate my hon. Friend the Member for North Ayrshire and Arran (Katy Clark) on securing the debate today.

In recent years, a welcome consensus has developed around the importance of support for the railways, both the conventional and high-speed varieties. All parties recognise the important role that the rail industry must play in reducing the environmental impact of travel, and welcome the growth in passenger numbers that we have seen in recent years, to the point where more people travel by train today than at any point since the 1940s.

We need a system that works effectively and puts the needs of passengers, and indeed freight, at its core. We all want a clean, safe and efficient train network in the future, and one that is fit for purpose. The previous Labour Government were committed to providing that and, as my hon. Friend the Member for Hayes and Harlington (John McDonnell) said, we hope that the current Government recognise the need to continue the investment in the railways that our country so desperately needs. Given the comprehensive spending review tomorrow, we may well soon see how committed the Government are to the future of the railway industry. Like my hon. Friend the Member for North Ayrshire and Arran, I also welcome the lobby today by trade unionists and the TUC. We should remember that everyone is rightly concerned about the cuts that might be announced in the near future.

I would like to look at fares. The coalition’s programme for government stated that they were

“committed to fair pricing for rail travel.”

Will the Minister comment on reports from Channel 4 News over the weekend which speculated that we could face double-digit rises in train fares over each year of the spending review? It was reported that train fares are expected to be more than 30% higher by 2015, and industry sources pointed to a possible 40% hike in prices by 2015.

Media reports also suggested that the cost of a typical commuter season ticket between Brighton and London could increase from £3,104 a year to £4,260 by 2015, and between Swindon and London from £6,640 to £9,130. Does the Minister think that long-suffering train users will be willing to accept that?

[Mrs Villiers]

I would be grateful if the shadow Minister answered a question. Is he saying that if Labour had been re-elected, it would have cut rail fares?

[Andrew Gwynne]

I am very grateful to the Transport Minister for that, but of course it is my job to ask her questions. Labour is in opposition and I am asking whether she thinks that those kinds of speculative rail increases are fair on passengers.

[Mrs Villiers]

The hon. Gentleman should not believe all he reads in the papers. The coalition is committed to fairness on rail fares. The announcement on the fares formula for the next few years will be made on Wednesday in the comprehensive spending review.

[Andrew Gwynne]

I appreciate that, but it could well mean that some lines end up with a pricing of RPI—the retail prices index—plus 5%. That is particularly ironic, as the hon. Member for Lewes (Norman Baker), who is now a Transport Minister, was elected on a pledge in the Liberal Democrat manifesto on train fares for RPI minus 1%; and the Secretary of State, as the Minister has reiterated today, has previously said that he has made a commitment to fair fares.

Passengers will not pay more for less. If they see increasing fares alongside cuts to plans for new capacity and infrastructure, that could mean fewer people travelling by rail. What guarantees do we have that fare rises will be matched by infrastructure and capacity improvements? I appreciate that the Minister will be reluctant—perhaps unable—to add much today and we shall have to wait to see what the Chancellor of the Exchequer says in tomorrow’s comprehensive spending review.

Franchising was mentioned. The Government’s consultation includes an intention to impose a far more relaxed and flexible specification. Flexibility can be a good thing, but there is a worry that a hands-off approach could allow train companies to become too focused on short-term profit and cost cutting, rather than delivering the best service for passengers and encouraging greater use of the railway. Will the Minister give me assurances that that will not be the case and that sufficient specification to guarantee socially important services will remain?

It is encouraging that there is interest in rail franchise bids from not-for-profit, mutual or co-operative franchise enterprises. Indeed, I note that my hon. Friend the Member for Luton South (Gavin Shuker) has secured a debate on that topic in Westminster Hall tomorrow. However, there are still unfair barriers that prevent such bids from benefiting passengers and taxpayers, as we saw recently with the attempt by the Co-op through its Go! Co-operative initiative, which would have been the UK’s first co-operative train operating company.

I shall refer briefly to some recent investments in rail. It is important to acknowledge, as my hon. Friend the Member for Hayes and Harlington and others did, the significant progress that the previous Labour Government made in the past decade in rebuilding the country’s transport infrastructure after many decades of under-investment, which happened, to be fair, under Governments of all political persuasions.

We have completed the £9 billion programme to modernise the west coast main line, resulting in massive reductions in journey times, as I thankfully know from experience. It is now less than two hours from Stockport to London and, more importantly for me on a Thursday, from London back to Stockport.

Performance, capacity, reliability and safety levels throughout the rail network have improved significantly. High Speed 1 was up and running ahead of schedule, and the stunning redevelopment of St Pancras station proved to be a fitting terminal for high-speed trains to and from the continent. We delivered Britain’s first high-speed rail line and set out plans for a new north-south high-speed rail network—points made by my hon. Friend the Member for Hayes and Harlington and by the hon. Member for Angus (Mr Weir).

We more than doubled investment in local transport from 1997, improving accessibility and helping to tackle social exclusion in local communities. By May 2010, investment in transport had reached its highest level as a proportion of national income for 30 years. In addition, Labour finally achieved what previous Governments had tried but failed to do, in securing a funding deal for Crossrail. That is one of the most ambitious transport projects of recent years and will add 30,000 high-value jobs to London in the first 10 years and add an estimated £20 billion to the UK’s gross domestic product. We also set in place the £5.5 billion upgrading of Thameslink, which will introduce new cross-London routes and, with longer, more frequent trains, will allow for much-needed capacity, more seats and less crowding on key routes in the capital.

The northern hub made it an ambition over the next 20 years to increase the number of train services in the north, including cities such as Newcastle, Liverpool, Manchester, Leeds and Sheffield, by 40%—700 more trains a day—making it possible for 3.5 million more passengers to travel by train every year. Those innovative and challenging projects were either delivered or planned. We need to continue that long-term focus on infrastructure and service if we are to provide Britain with the transport system that it needs to compete in the new global economy.

I wish to raise some specific issues with the Government. Transport cuts so far have totalled £683 million. That includes £108 million coming from Transport for London and £50 million from the better stations programme. I declare an interest, as that had a particular effect on Stockport station, which affects some of my constituents. The plans for hundreds of extra carriages to ease overcrowding have been put on hold.

In opposition, the Conservatives criticised the Labour Government in their 2009 rail review document, which recognised the need for extra capacity but accused us of not taking the problem seriously. There is a need for more trains, and I ask the Minister to tell us what the Government will do to alleviate that problem.

Can the Minister give me an assurance on electrification—an issue mentioned by my hon. Friend the Member for Bolton West (Julie Hilling)—both of the north-west routes and the great western main line, which are important projects to both regions? Likewise, can the Minister confirm that the Thameslink replacement of rolling stock will go ahead, which would in turn lead to the cascading of trains to the great western main line and the north-west routes?

The Government owe it to London’s business community and the travelling public to be open about their plans for Crossrail. Will the Crossrail project be delivered in full, as proposed by the previous Labour Government? Will there be any cost cutting in areas such as engineering, which could lead to shorter platforms and less capacity? Will the number of stations on Crossrail remain unchanged?

May I ask also about the bonfire of the quangos that we saw last week? What plans does the Minister have for Passenger Focus and what will its functions be now? How will disabled passengers be heard effectively now that the present Government have abolished the Disabled Persons Transport Advisory Committee? The input of disabled passengers should be important, and that body provided a unique opportunity for both disabled people and industry to represent their case to Government.

The Government need to look beyond the period of the comprehensive spending review. We need a long-term vision for rail and we need to deliver these projects to build on our ambition for a world-class rail service in this country. The previous Labour Government left the rail network in a far better condition than we found it in. Rail passenger numbers increased by 40% in the past 10 years, and punctuality and quality of service improved steadily over that time, too. That is not an inheritance that the current Government should squander.

[The Minister of State, Department for Transport (Mrs Theresa Villiers)]

I congratulate the hon. Member for North Ayrshire and Arran (Katy Clark) on securing the debate, and congratulate the shadow Minister, the hon. Member for Denton and Reddish (Andrew Gwynne), on his recent appointment and his first address from the Front Bench.

I thought that it would be useful to consider the questions that the hon. Lady helpfully repeated at the end of her speech. First, she asked whether Sir Roy McNulty’s work is informing the comprehensive spending review. Neither his interim report nor his final report have yet been published or finalised, but I can assure the hon. Lady that Sir Roy has kept my right hon. Friend the Secretary of State and officials at the Department for Transport informed of his work, so that is feeding into the decisions being made on the comprehensive spending review. The early draft work, as it has been going ahead, has helped us to feed into the Treasury process and the CSR.

The hon. Lady also asked whether I would write to the executives of the rail operating companies about remuneration.

[John McDonnell]

Before the Minister moves on from the McNulty report, I point out that I asked whether she would meet the rail unions to discuss the McNulty report when the interim report is published in November.

[Mrs Villiers]

I was going to come on to that, but I am happy to answer it now. I have slight qualms about this while the industrial action is continuing on the London underground, because I am concerned about the huge inconvenience that that is causing passengers. As the hon. Gentleman is keen for me to meet the unions, I am happy to do that, but I would still urge them to find an alternative way to resolve their dispute on the London underground.

[John McDonnell]

The two issues are unconnected. We will make sure that the right hon. Lady can travel on a non-strike day.

[Mrs Villiers]

I suppose that I am particularly sensitive about the issue because the day on which I was due to meet the Transport Salaried Staffs Association coincided with a strike day so, for all sorts of reasons, it seemed inappropriate to go ahead with the meeting.

Turning to remuneration in the rail industry, the level of pay across the industry clearly needs looking at in the context of the McNulty review. I have discussed remuneration levels with the train operators, and I expect that dialogue to continue.

The hon. Lady’s third question was about introducing a windfall levy for the train operators. The Government have no plans to do that. Her fourth question was whether I would meet her and colleagues to discuss those who—tragically for them—were made redundant by Jarvis. Yes, I would be happy to do that.

On the franchising review, the hon. Lady asked specifically about a clause on ScotRail and she will appreciate that that is a matter for the Scottish Government, but she also asked a wider question about the approach that the UK Government will take in relation to the franchises for which we are responsible. I am not convinced that we should have a blanket withdrawal of that type of indemnity clause; there is a place for such clauses in appropriate circumstances. She then asked whether the McNulty review, and the Government considerations flowing from it, would look at an expanded role for the public sector and additional nationalisation. That is certainly one of the options that Sir Roy will consider.

The hon. Lady also asked about ticket offices and the loss of guards. In many cases those are matters for those operating services, but the overall approach in relation to the franchises is governed by the ticketing settlement agreement. We need to look at reforming that, to ensure that we get it right, but it is obviously important to consult properly with the communities affected by the decisions.

The hon. Lady also talked about the strike action on the London underground and the loss of guards. I am convinced that we need to modernise working practices in the rail industry. I am concerned, as I already said to the hon. Member for Hayes and Harlington (John McDonnell), about the damage to the London economy caused by the strike action that is taking place. We have to recognise that the way in which people buy tickets has changed, and that rightly will impact on London Underground’s decisions about the deployment of its staff.

[Julie Hilling]

Does the Minister consider important the feeling of safety of passengers travelling on the underground, and on the rail network generally? Stations can often be very lonely, scary places for all rail users but particularly for women travelling alone. The fact that we have staff in ticket offices and on platforms increases both the feeling of safety and the actual safety.

[Mrs Villiers]

Forgive me; I am probably trespassing on devolved matters because the relationship between London Underground and its employees is of course a matter for which the Mayor is politically accountable. I have to say, however, that of course I am concerned about security for women using public transport—I am a woman myself—but there is a real argument for saying that staff deployed on platforms are more valuable to passenger security than those stuck behind ticket office windows. I am not sure, therefore, that the security issue can justify the retention of ticket offices. Security focuses on whether people have access to staff in stations, which is not the same as whether a ticket office is open.

I shall go on to some of the wider issues addressed by the hon. Member for North Ayrshire and Arran. I would like to assure the House that the coalition has put rail at the heart of its strategy for transport, in terms of re-energising our economy, reducing carbon emissions and addressing congestion on our roads. I welcome the support shown today for taking into account the concerns of both passengers and rail freight—a point rightly made by the shadow Minister. Much will depend on the announcements made tomorrow in the spending review. It is clear that transport will not escape the pain that is the unfortunate consequence of the deficit that we have inherited from the previous Government, but I emphasise that the Chancellor has made it clear that he recognises the economic benefits of investment in infrastructure to support economic growth, and that he recognises in particular the importance of investment in transport infrastructure.

The shadow Minister asked me about Crossrail. I am sure that he welcomed, as I did, the support expressed by the Chancellor at the weekend for the Crossrail project. We have also expressed clear support for Birmingham New Street, we are taking forward plans on high-speed rail and we are working very hard on Thameslink. Our focus in all those projects is to ensure that we value-engineer costs down to keep the projects affordable and deliverable within the spending envelope that is now available.

[John McDonnell]

I emphasise that, although there is a commitment to the Crossrail project overall, people are concerned about the paring down of the project and the missed opportunities that might result from that. For example, in my own constituency, Hayes and Harlington station is to be redeveloped. If there is any paring down in the investment of such station projects, we will miss the chance to include modal transfer opportunities and to ensure the integration of our local transport network.

[Mrs Villiers]

Both the Secretary of State and I have repeatedly talked about our support for delivering the whole project, and it is worth bearing in mind the excellent work done by the team behind Crossrail to find lower-cost ways to deliver the same transport benefits, and to deliver the whole project.

It is true that there has been significant good news on the railways in recent years. Since privatisation there have been some striking successes, with train punctuality now at record levels and a significant increase in the number of passenger journeys. Also, the number of miles travelled on the railways has gone up by 75%. Since privatisation, therefore, a story of managed decline has been transformed into one of significant growth. Although the recession has subdued that trend to a degree, we expect it to resume once the economy recovers.

So, that is some of the good news about the UK’s railways. But the downside is that the cost of running the railways did rise dramatically under our Labour predecessors. If we are to deliver the improvements to services and capacity that hon. Members have called for today, and that passengers want, we have to find a way to get costs down. The disastrous deficit left for us by our predecessors makes it essential that we drive out cost inefficiencies on the railways, and we owe it to passengers to do our very best to get costs down.

[Andrew Gwynne]

Does the Minister not also recognise that it was the investment by the previous Labour Government that led to the very improvements that she has just championed as a cause of privatisation?

[Mrs Villiers]

I certainly recognise that the previous Government invested in the railways, and we would expect investment to continue under the current Government, given the huge importance of the railways to our economy and to our climate change ambitions. I covered the fares issue briefly in response to the shadow Minister, but I shall repeat my comments on it. The coalition is committed to fairness in rail fares, but the reality is that the crisis in the public finances means that we might have to take some difficult decisions on fares, as in other areas. As I have said, I am unable to give further details on the fares formula until it is announced for the coming years in the CSR on Wednesday.

There has been much discussion about the McNulty process, which is focused on trying to understand why the cost of the railways is higher in this country than in other parts of Europe, and I am sure that today’s discussion will contribute to and inform that process. It is important that a range of options be considered, and as part of our drive to deliver high-quality rail services at an affordable cost we need to consider how we reform Network Rail. Not even the levels of taxpayer support over recent years have succeeded in turning the company into the customer-oriented organisation that train and freight operators want. That fact was driven home when the rail regulator published the figures, to which the hon. Member for North Ayrshire and Arran referred: the potential 40% efficiency gap between Network Rail and European comparators. I acknowledge that there are always problems comparing Network Rail precisely with different railways in the rest of Europe, but these things should sound a warning bell that there is an issue to be addressed. If we are to be fair to passengers and the taxpayer, we need to find a way to make Network Rail more efficient.

[Katy Clark]

I think that it is accepted on all sides that there are issues to be addressed; indeed, that was why the previous Government set up the review in the first place. However, the Minister will have listened to what I said about the concern about the methodology used in the ORR report. Is she willing to hear further representations about that from those in the industry who have concerns? Given the publicity that the issue has had in the press, there is clearly a view that the Government will listen to the ORR report rather than taking a more forensic look at how other European railways operate.

[Mrs Villiers]

Of course I would be happy to accept further representations. One reason why we have continued with the McNulty study, which was set up by our predecessors, is precisely to find the true picture of the cost of Network Rail. The work done by the ORR is valuable, but it is just one point of view. Sir Roy is drawing on views and research from across the rail industry, including internationally, to find out what the facts really are.

Whatever reform we ultimately select, we will need to stress-test it in relation to the interests of freight operators. It is vital that we get the right balance between the interests of the railways’ passengers and freight customers.

In looking at the options for reforming Network Rail, it is interesting to look at what has been done north of the border. Network Rail has decentralised its Scottish operations, and accounting separation has been introduced. We need to look carefully at whether such decentralisation might improve Network Rail efficiency in other parts of the UK.

My officials are working with Merseytravel, the passenger transport executive for Merseyside, to explore whether to devolve the running of the track used by the Merseyrail franchise so that it is wholly governed by local decision making. That project could help to provide an important benchmark against which to measure Network Rail’s performance.

Another key issue is whether further contestability could be introduced for some of the work now carried out exclusively by Network Rail. Again, there is a Scottish example that is worth considering. In 2006, for example, Transport Scotland opened up about £20 million of rail funding for smaller-scale enhancements at stations and asked for offers from Network Rail and the train operators. By the end of the bidding process—if I recall correctly, this was under the Labour Administration— £19 million of the £20 million available was allocated directly to the passenger operators because their bids were judged to be better than Network Rail’s. A similar approach has been used for the national stations improvement plan in England.

The hon. Member for North Ayrshire and Arran talked at length about franchise reform, which is the second limb of our work to improve the railways’ performance for passengers and to get better value for money. The Department for Transport has recently concluded a consultation, and we are considering the responses. As I assured the hon. Lady during her speech, we want to encourage greater private sector investment in return for potentially longer franchises. We would continue to impose legally binding contractual obligations in franchises, including on the scale of the investment promised. We hope and believe that longer franchises will help us to deliver the investment and improvements that passengers want, including better stations. Longer franchises should also make it easier for train operators to invest in long-term relationships with Network Rail and their work force, which are crucial to running the railways efficiently.

We want to move to a system in which franchises are less heavily specified. In response to the shadow Minister’s questions, however, I can assure him that we will continue to set demanding outcomes for train operators to achieve in terms of the quality of service that they deliver. We will have demanding and legally binding requirements to protect the interests of the passenger and the taxpayer. The difference is that in setting those outcomes, we propose to give the people running the railway more flexibility over how they deliver them.

[Katy Clark]

The Minister will recall that, in my initial contribution, I quoted the Government’s consultation document, which said that European procurement law referred to 15 years and that that was why a starting point of 12 to 15 years should be the standard length of franchises. Does she not accept that that rings alarm bells? Will she explain why there is a link between European procurement law and her starting point?

[Mrs Villiers]

Obviously, the UK Government are bound by European procurement law to procure public contracts in a fair and objective way. In the context of rail franchises, it sets a top limit of 22 and a half years for contracts that involve investment. The reference to European procurement law was included in the consultation document because it governs the maximum that we can deliver in terms of rail franchises. Throughout the process of negotiating franchises, however, we will look to secure the best deal possible for the taxpayer, and we will ensure that we continue to protect the passenger interest. Train operators that do not comply with the obligations we impose on them will face sanctions, which, in extreme cases, could include removing the franchise.

In the few minutes that I have available, I want to talk a little about the inter-city express programme in response to the hon. Member for Angus (Mr Weir). I can assure him that we have no plans to scrap through services to destinations such as Aberdeen and Inverness, which he mentioned. As he said, the report produced by Sir Andrew Foster referred to one of the alternative strategies for the IEP, which involved ending those through services. As I said, however, we have no plans to do that. We recognise the economic value of such services, and we have certainly received strong representations from the Scottish Government and Scottish colleagues about the importance of retaining them.

[Mr Weir]

Will the Minister give way?

[Mrs Villiers]

I am sorry, but I have only two or three minutes, and I want to respond to an awful lot of points.

The hon. Gentleman and others talked about the electrification of the railways. We included our support for electrification in our programme for government and we recognise its benefits. It will support our sustainability objectives and improve services for passengers. It will become more and more of a greener option as we decarbonise the electricity-generating network. The pace at which we can deliver electrification will obviously depend on affordability and the priority of tackling the deficit. Much will depend on the comprehensive spending review announcement tomorrow. Of course, these decisions are also linked with the work on the high-level output specification rolling stock programme, Thameslink and the future of the IEP. An announcement will be made on those in due course.

Lastly, in the brief time that I have, I want to reiterate the Government’s support for high-speed rail, which is a vital upgrade for our transport network. We recently announced our support for a Y-shaped network, with a line to Manchester and trains running on from there to the west coast main line and Scotland, and another line splitting off at Birmingham and going through the east midlands and South Yorkshire to Leeds, with trains, again, running on to the existing network and destinations further north. We will consult on that shortly. We will also have regard to the communities affected by the line’s local impact before taking final decisions on whether to go ahead and what route to take. We appreciate that realistically these lines can be delivered only in phases, but our ultimate goal is to deliver the national network, for which I am sure there will be cross-party support.

Much has been achieved since privatisation, but we need a fresh focus on reducing costs in the railways that we already have. We need a drive to deliver high-speed rail because of the huge benefits that it can provide. The coalition is determined to meet both those challenges, and I welcome the representations that I have received on them today.