National Express East Coast Franchise — Statement
3:32 pm

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Lord Adonis (Secretary of State, Department for Transport; Labour)

My Lords, with the leave of the House, I shall make a Statement about rail services on the east coast main line. The House will understand that because of the imperative for the Government to respond immediately to the trading statement made by National Express when the markets opened this morning, it was also essential for me to make a Written Ministerial Statement earlier.

For some months now, National Express has been seeking to renegotiate the terms of the franchise agreement to operate services on the east coast main line between London, West Yorkshire, the north-east and Scotland which it signed in 2007. My position has been consistently clear—that the Government do not renegotiate rail franchises. That remains the position today. This morning, National Express Group announced that it will not provide the further financial support necessary to ensure that its subsidiary, National Express East Coast, remains solvent. As a consequence, National Express East Coast is no longer able to continue operations to the full term of its franchise, and expects to become insolvent later this year.

The decision of National Express to break its contract is regrettable and disappointing. All other rail companies are fulfilling their contracts, despite the economic downturn. It is simply unacceptable to reap the benefits of contracts when times are good, only to walk away from them when times become more challenging.

My first and overriding obligation in this situation is to ensure continuity of service to passengers, with no disruption or diminution of service standards. When the Government have had to step in to protect rail services in the past, there has been no such impact on passengers. I have therefore established a publicly owned company, which will take over this franchise from the point at which National Express East Coast ceases to operate.

We will agree an orderly handover with National Express. Until that date, National Express will operate services on the current basis. After that date, the new public company will do so. There will be no interruption of services. Existing operational staff—who continue to provide a good service—will transfer to the new east coast main line company, so will the assets necessary for the continuation of the service. I can assure the travelling public that services will continue without disruption and all tickets will be honoured. I have today appointed Elaine Holt, until recently managing director of First Capital Connect, a major train operating company, as chief executive designate of the new east coast main line company.

The failure of National Express East Coast obviously entails the loss of some future premium payments to which the company was contractually committed. However, while the franchise is under public control, the Government will receive the full revenues of a business which continues to make an operating profit. We will also gain the benefit of any premium payments from the new franchise once it is re-let. This represents a far better deal for the taxpayer than the only alternative course of action, which was to renegotiate the franchise in an exclusive manner with National Express, with no recourse to what is a highly competitive market for rail franchises. The cost of re-letting the franchise will be met from the performance bond of £32 million, to which the company is contractually bound in the event of termination.

National Express also operates rail services on the East Anglia main line and associated commuter routes. The company has said that it does not intend to default on its obligations in respect of these franchises. Notwithstanding that, the Government believe they may have grounds to terminate these franchises, and we are exploring all options in the light of the group's statement this morning. In the mean time, we expect National Express to meet its obligations on these franchises in full.

The department's procurement procedures test a company's track record and their ability to deliver a franchise and to demonstrate value for money in so doing. It would clearly be reasonable not to invite a company to bid for future franchises in circumstances where it had recently failed to deliver on a previous franchise. A company which had defaulted in the way National Express now intends would not have pre-qualified for any previous franchises let by the department. I note that the parent groups of previous franchise failures are no longer in the UK rail business.

The Government intend to tender for a new east coast franchise operator from the end of 2010. The specification of the new franchise will reflect my concern to secure better passenger services and facilities. In particular, I will be seeking to secure significant further improvements to service quality, including to station security, bike and car parking facilities at stations, bus interchange facilities and train catering. This will ensure a step-change improvement for passengers from a new east coast franchise. I intend to consult fully on the new franchise specification, including with passenger groups, parliamentarians and the Scottish Executive.

I have explained the action I have taken to ensure that passengers are not affected by the decision of National Express Group, and the consequences for that group of their decision.

Let me also put these events in a wider context. No other train operator has defaulted on its franchise or indicated to us any intention to do so. Nor has any other company sought to renegotiate its franchise. Today's events do not represent the failure of the system, but the failure of one company. The rail franchising system was examined by the National Audit Office last year. It was found to deliver good value for money. The National Audit Office also concluded, and I quote:

"The Department's arrangements for identifying and managing risks, including handling the failure of a train operator, are well planned and follow good practice".

We are following that good practice in today's announcement, and I would welcome a further examination by the National Audit Office once the franchise is re-let.

In respect of rail services at large, they are steadily improving. Passenger numbers are at their highest levels since the 1940s, punctuality is over 90 per cent and overall passenger satisfaction is rising, as shown in the latest independent National Passenger Survey, published yesterday. Moreover, the revenue from rail franchising is enabling us to make record investments in upgrading the network and services on it.

We saw this as recently as last month in the award of the new South Central franchise for services on lines through south London, Surrey and Sussex. This was conducted during the recession yet yielded a winning franchise bidder—the existing operator—committed to paying a premium of £534 million to the taxpayer over nearly six years, in place of the previous contract under which the operator was subsidised by the taxpayer. This bodes well for future franchise awards, including for services on the east coast main line.

3:40 pm
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Earl Attlee (Shadow Minister, Transport; Conservative)

My Lords, I am grateful to the Secretary of State for making his Statement today. He has explained some of the background and I am sure that noble Lords will be grateful to him.

During the Secretary of State's interview with Adam Shaw on the "Today" programme today, he said:

"We have tried-and-tested procedures in place for taking over train operations when existing operators are unable to meet their commitments".

He certainly does. In 2006 the east coast franchise was then known as GNER and it failed in far more favourable economic circumstances. The Government appear to have learnt nothing from the collapse of GNER and have continued to press train operators to make wildly optimistic bids. However, I accept that no one in 2007 expected to see such a big reduction in GDP.

In the same programme, the Secretary of State said:

"What we are dealing with here is a set of financial problems in the owning group, National Express, which have led to the departure of the Chief Executive today".

However, is it not the case that the franchise agreement and the bid were based on a fixed and capped amount of parental support from National Express of about £70 million? If the DfT wanted more parental support then could it not have asked for it in the relevant tender documents? But, of course, any increase in parental support obligations would be reflected in a lower premium bid for the franchise. This is a profitable franchise route, so the operator generally pays the DfT for the right to run it.

There has been much use of the word "default". What precisely is the default? What is its nature? NXEC has stated that it will run out of parental support provided in the franchise sometime later this year unless the economy picks up to an extraordinary extent. Has the Secretary of State detected any failure of operating performance by NXEC, the actual franchise, not National Express? Is NXEC meeting all its contractual obligations, and what part of the contract has been broken by National Express at this point?

The key point is that taxpayers and rail users around the country will want to know whether Ministers appreciated when the DfT let this franchise that the operator's liability was capped; and is this desirable or not?

I note that all tickets, including season tickets, will be honoured. That is extremely welcome, and the passengers have no need to worry on that score.

In a previous exchange, the Secretary of State told us that there were cross-default provisions in the franchise agreements with National Express. But is it not the case that they only apply when the default on one franchise will have a material impact on other franchises within that group, and is there any evidence of this?

In his Statement, the Secretary of State said that no other company has sought to renegotiate its franchise. What are the negotiations with Brian Souter and Stagecoach about?

My final question is this. Does the Secretary of State really expect to be able to let a franchise on this route with another operator but at substantially the same terms as those obtained in 2007 when the economy was so very different?

This is a very difficult problem for the Secretary of State to solve. He is in a Catch-22 situation. The fact of the matter is that less money is coming into the rail industry and he will have to work out what to do about it. If he renegotiates—which he does not want to do—he will open the floodgates; if he does not, he will face extra costs and loss of morale among the operating staff on the east coast line.

3:45 pm
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Lord Bradshaw (Liberal Democrat)

My Lords, I thank the Minister for making the Statement to us. I should chasten him on one or two points. The National Audit Office, from which he drew comfort, in its report on the franchising process ticked the boxes and said that the procedures had been followed. However, when I raised the policy issues behind the franchising process with the NAO, it said that policy issues were not a matter for it. What you have is an auditor's report with a lot of ticks in boxes; you do not have a fundamental review.

Secondly, the south central franchise has new rolling stock, more rolling stock on order and is in a part of the country which is less affected by the recession. I am not surprised that there were reasonable bids for that franchise. However, it is time that we paused for reflection on the franchising service. This is not another Northern Rock situation whereby we will get the franchise back into the private sector and get some money in as quickly as we can. Nor is it a job licence for officials who now have no franchises to let, so they can spend a couple of years playing around with this one.

Also, I take issue with the idea that there is the prospect of a highly competitive market. It will not be a highly competitive market. National Express's debt is £1.5 billion; First Group, which has been talking about bidding for the franchise, has a debt of £2.5 billion. Do we really want to let franchises to people who are basically without money behind them?

For half the money that we invested in privatisation, we could have had the best railway in Europe. What we have is much more expensive compared with British Rail. I suggest that the Minister draws some professional experienced railwaymen into a debate about the future of the franchising process. I congratulate him on obtaining the services of Elaine Holt as chief executive and I can assure him that I can give him the names of a few more people who would do a damn sight better job than is being done now.

I am sure that Her Majesty's Opposition as well as supporters of the Government would join in such a review. They must by now acknowledge the fact that privatisation was a tremendous mistake based on running down the railways. The focus, however, must be on what the passenger wants. I suggest that he wants clean trains with clean lavatories, sufficient accommodation and proper catering. These are very simple things which are often provided by very few well trained, low-paid extra staff—probably not the sort of people who are employed by lawyers, merchant bankers and consultants.

What we need is a cheaper, less confrontational railway. The franchising system is not fit for purpose and a review is necessary. Network Rail has just appointed a new chairman and is reviewing the structure of that company. What could be a better time than to review the future of franchising at the same time and take out of the railway a lot of the internal and expensive disputes with which it is plagued?

3:49 pm
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Lord Adonis (Secretary of State, Department for Transport; Labour)

My Lords, the noble Lord, Lord Bradshaw, is a distinguished former rail manager and I thought that he was going to volunteer himself to run the east coast main line. But for the fear of conflicts of interest, in this highly charged parliamentary atmosphere, he appeared to me to be a very well qualified candidate for the post.

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Lord Bradshaw (Liberal Democrat)

My Lords, I thank the Minister for his compliment. I would do it for free.

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Lord Adonis (Secretary of State, Department for Transport; Labour)

My Lords, the appeal grows with every passing moment and I will certainly put him in touch with Elaine Holt. I share his high opinion of her; I got to know her when she was managing director of First Capital Connect, and she of course did a very good job there.

The noble Lord asked me to reflect on the lessons of this experience, and I intend to do that. As the great Mr Gladstone said at the age of 82 as he was forming his fourth Administration, "I have been a learner all my life". At my very young age, I am certainly a learner. It is very important that we continue to learn from the experience of events such as the collapse of the National Express east coast franchise, and I will be learning. I am also very mindful of the noble Lord's point about seeing that we get a better contract specification. That is precisely why I do not intend to rush into re-letting the franchise. I could have simply re-let the existing franchise in a much shorter period than from now to September 2010, as indicated in my Statement. The reason why I want to take longer is to reflect on the experience, as the noble Lord recommended, and to improve the contract specification.

I entirely share the noble Lord's concern to see that many of the nuts and bolts issues are addressed. I refer to better facilities at stations and better services on trains. I also know that among your Lordships the issue of catering on the east coast main line has been—how shall I put it?—a live issue over many months, and I intend to see that we have proper contract specifications in respect of catering. In addition, as part of my campaign to see that stations are much more amenable to cyclists, I want a great deal more bicycle parking at stations. I believe that this could be a very big growth market for the railways in the future. Therefore, I will be reflecting; I will not be rushing into a new franchise; and I hope that the next franchise that we let will be better than the previous one.

The noble Earl, Lord Attlee, made a number of points with which I agree. I think that for the future we need to reflect further on the relationship between parent groups and special purpose vehicles. However, his fundamental point, which I know his party has been making during the day, is that the system is fundamentally broken. Perhaps I may say in parenthesis that this is a system that his party began. It involves the private sector, which I thought was a great cause of the Conservative Party, and it involves people bidding in market conditions for franchises. Therefore, I think that the noble Earl and his party need to be quite careful before they seek what many of my noble friends would like, which is to move back much more dramatically in favour of a publicly controlled and managed railway. I have sought, as I do on many of these issues, to see that we get the best of the private sector but ensure that it is properly regulated, as it must be when serving the public interest.

I must address the suggestion which has been put out during the morning and which I regard as comical: that Ministers and my predecessors—presumably the noble Earl means predecessors on his side of the House too—press train operators to make, in his words, "wildly optimistic bids". He had the grace to concede that GDP had fallen significantly since. We are talking about people such as Brian Souter and Sir Moir Lockhead. Does he believe that they would respond to suggestions from me that they should raise their bids a bit and put aside their own commercial interests? I have never met anyone with a sharper sense of his own commercial interest than Brian Souter, and I respect him for that. That is why he is such a successful businessman and why he runs such a successful business. I know that there have been contractual issues, to which the noble Earl referred, in respect of South West Trains, but let us be clear why there are such issues. It is because Brian Souter knows exactly what his own commercial interest is, and of course he pursues it as relentlessly and as vigorously as he can. My job is to pursue the public interest as relentlessly and as vigorously as I can, and I hope that the House can rely on me to do that.

This contract, which the noble Earl says was wildly optimistic in its bidding, was bid for by Richard Bowker, who was then the chief executive of National Express. Richard Bowker is a former chairman of the Strategic Rail Authority, so the idea that we had some ingénue who did not understand the rail market and was responding to a Minister of the day who was pressing him to bid higher than he wished to do comes from fantasy-land and does not help us through this issue at all. The reality is that we had 16 rail franchises and only one of them is in financial difficulty. None of the other operating groups has indicated to me either any intention to default or any likelihood of defaulting. Let us be clear that National Express will pay a financial penalty for leaving the franchise in the way in which it has indicated, and we will ensure that it meets its contractual commitments in full. National Express will pay a massive penalty in reputation for breaching its contracts with the Government.

I said that we had previous experience, which I shall put in context. Since the process of rail franchising started, we have let a large number of contracts—41 to be precise. Of those 41, only two have failed until now. The franchise that we are discussing today might well fail, but of the two that have, neither of the owning groups responsible is now in the UK rail business. That is a sobering lesson to any other operator, including National Express, that chooses to go down the same path. It is a massive penalty.

I shall end my remarks by referring to the National Audit Office. I am always guided by a proper and thorough analysis of public policy in the decisions that I take. The NAO, as the noble Lord, Lord Bradshaw, indicated, carried out a thorough review of the franchising system. I do not think that it is fair to say that it simply looked at procedural issues. It looked at substantive issues, and reached substantive judgments. It said:

"The Department's approach to rail franchising produces generally well thought through service specifications and generates keen bidding competition. This approach has resulted in better value for money for the taxpayer on the eight franchises let since the Department took over from the SRA".

It continues:

"The Department's arrangements for identifying and managing risks, including handling the failure of a train operator, are well planned and follow good practice".

I fully accept my public responsibilities to see that the train service is not interrupted and that we learn the lessons from previous experience in re-letting the franchise, but I do not accept that the fundamental policy is flawed. Never in the past 50 years have railways been in a better state in this country than they are today. They have an optimistic future. I am an optimist and I believe that we could construct the best railway system in Europe. We just have to have a mind to do so.

3:57 pm
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Lord Palmer (Crossbench)

My Lords, I have three quick questions for clarification. The first concerns pensions for existing National Express staff, many of whom were ex-British Rail and then became staff of GNER. What will happen to their pension arrangements? I feel very strongly as I have known many of the employees quite well for the past 20 years.

Secondly, how confident in reality is the Minister about re-letting the franchise? I have serious worries and doubts. Thirdly and finally, does he have any idea about, or will he look into what plans there might be, for those of us who have loyalty programmes with National Express? I have a serious amount of credits, and should be interested to know what will happen to them in the long term.

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Lord Adonis (Secretary of State, Department for Transport; Labour)

My Lords, I confess that in the hurly-burly of today, I have been unable to turn my mind to the issue of loyalty payments that the company makes, but I shall be glad to look into it.

On pensions, I undertake that the terms and conditions of staff working for National Express East Coast will be fully protected as it transfers into the new public company. The staff will not lose out by the transfer. On the question of re-letting, as I said in my Statement, we have recently re-let an important contract—the South Central contract—for services from south London, Sussex and Surrey into central London. The noble Lord, Lord Bradshaw, said that this was somehow a special case. In fact, the range of bids for that contract was very wide indeed. As a result, we have moved from a franchise that was being subsidised by the taxpayer to a franchise operator agreeing to pay £534 million to the Government over five years and 10 months. It is not a new, fly-by-night merchant, but a solid, reliable and well established operator. Recent experience of rail franchising has been positive and gives us comfort for believing that we can have competition for the east coast main line, which is highly prestigious, and that we can get good value for the taxpayer. Experience of what happened to GNER after Sea Containers withdrew, and what happened with Connex, the south-eastern train operator, which could not continue in the rail business, shows that we had keen competition for the franchise thereafter.

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Lord Clinton-Davis (Labour)

My Lords, does my noble friend appreciate the possibility of the new publicly owned company proving a great success in running the railway line? Will he give an assurance that that situation can continue indefinitely?

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Lord Adonis (Secretary of State, Department for Transport; Labour)

My Lords, I do not believe that it would be in the public interest for us to have a nationalised train operating company indefinitely, as my noble friend suggests, because of our recent experience of rail franchising, which has, as the National Audit Office said, delivered good value to the taxpayer and keen competition from established, successful train operators. As I said, I see the situation in respect of National Express as exceptional. I do not see the system as flawed; we have had a problem with one operator that we have had to deal with. I believe that the public interest is best served by, in an orderly way, having learnt lessons from recent experience and, having improved the franchise specification, proceeding to re-let the franchise in due course.

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Baroness Harris of Richmond (Liberal Democrat)

My Lords, the Secretary of State referred to the folding of the NXEC franchise as regrettable and disappointing. I would add, but not surprising. I have been a long-time critic of the way that that franchise has been run on the railway. I am very pleased to hear the Secretary of State say that the jobs of the onboard staff will be assured and safe. I suggest that one way to get a bit of money back would be to look at the senior management structure of National Express East Coast, because I can assure him that a great deal of money could be saved by getting rid of a lot of them.

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Lord Adonis (Secretary of State, Department for Transport; Labour)

My Lords, now that the noble Lord, Lord Bradshaw, will be working for free, we will be saving a great deal of money on the senior management structure. The noble Baroness's point is well taken. We will ensure that we have a lean management structure in the new company, that we do not pay beyond the going rate and that we get the best possible deal we can for the taxpayer.

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Baroness O'Cathain (Conservative)

My Lords, first, it is very reassuring that the Government have been able to take such swift action without a whole lot of messing around and speculation in the press about what is going to happen. Did the Minister have any idea, or did anybody have any idea, that this was going to happen? Only yesterday, there was quite a large article about Mr Richard Bowker in the Times. I know that only because I was reading it at six o'clock this morning when I heard on the news that he had resigned. I thought, "Gosh, this is a great man, what has he done? He has resigned". Did that come completely out of the blue, or was a situation building up that no one took any notice of?

Secondly, I am delighted that the South London franchise will yield £534 million over five years and 10 months, or whatever, but I say to the noble Lord, Lord Bradshaw, that the economic situation in the south-east and south London is no better than anywhere else in the country.

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Lord Adonis (Secretary of State, Department for Transport; Labour)

My Lords, I think that the noble Baroness's last point is well taken. In respect of prior warning, it is fair to say that National Express had made its concerns about the viability of its east coast operation clear to us over a number of months, but it was only in the immediate run-up to today and the trading statement that the company felt that it had to make on its half-year results that it told us firmly that it intended later in the year to default on its franchise commitments. By the way, the noble Earl asked me: what is the default? The default will be a failure to pay the premium payments to which the company is committed.

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Lord Morris of Handsworth (Labour)

My Lords, the Minister will be aware that National Express Group came into existence as a coaching company and employed a lot of drivers and other professionals. In the light of that, can he say what impact there will be on the coaching side of the business from the company's statement?

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Lord Adonis (Secretary of State, Department for Transport; Labour)

My Lords, I am not aware that the announcement made by the National Express Group today has any impact on the coach operation of the group. Its statement was solely in respect of its east coast rail business.

Of course, I cannot speak for the company. My noble friend should approach it to ascertain whether it is intending to make any changes in respect of the coach business.

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Viscount Tenby (Crossbench)

My Lords, I shall say in passing that those who would like to put the clock back are by no means confined to noble Lords sitting behind the Secretary of State. In these straightened times for train operating companies, can the Secretary of State give an assurance that essential services to passengers will be continued and all economies by train operating companies, such as the closure of stations, ticket offices and cleansing services in stations, will be resisted at all times?

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Lord Adonis (Secretary of State, Department for Transport; Labour)

My Lords, I can give that assurance. All the essential services relating to the east coast main line will be maintained in full when the contract is under public management.

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Baroness Maddock (Liberal Democrat)

My Lords, I welcome the Statement. As my noble friend said, some people who travel regularly—and I declare an interest as one of them—have been concerned about the east coast franchise. I particularly welcome the Secretary of State's comment that he will do his best to make sure that there is smooth running of the service. I was particularly interested in what he said about car parking. We have particular problems in Berwick-upon-Tweed with people reneging on promises. The Secretary of State knows about this because I have spoken to him about it.

I am concerned that we get the franchising right this time, and I know the Secretary of State is interested in doing that. I hope that we do not rush it too much. I am still worried about the timescale the Secretary of State is talking about. I have raised with him the fact that in recent months there has been a lot of discussion in the press about the franchise. One of the things I picked up was the increase in passengers that National Express thought it would get to give it the money to pay the Government. When I looked at it, I had no idea where it would have put those passengers because the trains that we travel on are very crowded and there was no indication, in the short term anyway, that we were going to get new rolling stock. When the Government look at the franchise, will they please look at the passenger predictions because many of the trains, even now in the downturn, are very full? Putting 50 per cent more people on the present trains is impossible.

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Lord Adonis (Secretary of State, Department for Transport; Labour)

My Lords, the noble Baroness's points are well taken. As soon as she mentioned the word "car", I though she was going to ask me, yet again, about the dualling of the A1 north of Newcastle, which I know is a cause dear to her heart and to the heart of Sir Alan Beith. I entirely accept her point about seeing that we have adequate car parking at stations. If we want to get more people out of their cars and onto the train, which is high priority of mine, we have to see that they can park their car at the station without having to get there at the crack of dawn in order to get a space. As part of the contract specification, we will be looking at the adequacy of car parking at stations along the east coast main line and seeking to get significant improvements where appropriate.

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Lord Foster of Bishop Auckland (Labour)

My Lords, as a fellow lifelong learner but, more importantly, almost a lifelong traveller on the east coast line, I tell the Secretary of State that his Statement will be widely welcomed by passengers and staff on that line. Staff morale could not have been lower and the service was mediocre and deteriorating, so he has done the right thing. We hope that he will go on to achieve another, more successful, letting of the franchise.

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Lord Adonis (Secretary of State, Department for Transport; Labour)

My Lords, I am grateful to my noble friend who has huge experience of the railway industry and the services to the north-east. I appreciate his remarks.

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Lord Bates (Shadow Minister, Cabinet Office, Shadow Minister, Communities and Local Government, Shadow Minister, Energy and Climate Change; Conservative)

My Lords, does the Secretary of State agree that transport links are particularly important to peripheral regions, such as the north-east of England, and their economy? Is he aware that with the loss of flights between Durham Tees Valley airport and London Heathrow, another major link between the capital and the north-east of England has gone and, therefore, there is a potential worrying over-reliance upon rail? Would he support efforts to re-establish that link to Heathrow? Would the Minister also agree with the view of many of us that the heyday of the north-east railway service was the Great North Eastern Railway company operating a franchise very successfully for 11 years from 1996 under the previous Conservative Government?

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Lord Adonis (Secretary of State, Department for Transport; Labour)

My Lords, I know that GNER was widely admired for the services that it provided. I note that GNER put in a high bid in the last competition on the east coast main line. It is not correct to say that there was simply one operator that was way out ahead of the others, with them far behind. GNER was very anxious indeed to retain the franchise and bid hard to do so. Because, as the noble Lord so rightly says, of the excellent train service to the north-east and the view that operators had that it is possible to grow that market significantly, the market conditions of the time and growth projections have been attractive to many operators.

I am happy to look at the issue of air services further, but I am afraid that there is no simple or straightforward answer.

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Baroness Scott of Needham Market (Liberal Democrat)

My Lords, the Minister referred to the future of the East Anglian franchise in his Statement. Can he say a little more about the timing of such a review? Those of us who use the service regularly have already seen a marked deterioration in the quality of customer services. I fear that if a review takes a long time, they will have even less interest in maintaining a decent service while it is going on.

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Lord Adonis (Secretary of State, Department for Transport; Labour)

My Lords, my good friends, including noble Lords in the House, have made their views, particularly on the absence of the restaurant car on the line to Norwich, very clear to me. I know that there are concerns, although the punctuality of the service has been improving.

On cost default, I am under an obligation to take account of the full circumstances of the case before the Secretary of State makes any decision. National Express's statement was of course only made this morning. I need to consider that statement very carefully with my legal advisers before I am in a position to make a judgment on it.

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Lord Elystan-Morgan (Crossbench)

My Lords, the course of action taken by Her Majesty's Government in this matter has been swift, prudent and practical. However, I raise a fairly narrow legal point. It has been said that the company is currently making an operational profit. It has also been said, of course, that insolvency looms large and will inevitably occur with the decision of the parent group not to give further financial sustenance. In those circumstances, does it not seem rather clear that fraudulent trading, a serious criminal offence under companies legislation, could well occur swiftly? Can the Government therefore give an undertaking that the pro tem successor authority will take over sooner rather than later?

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Lord Adonis (Secretary of State, Department for Transport; Labour)

My Lords, I am anxious on behalf of the Government to see that National Express's obligations are fulfilled. That is why we do not think that it would be prudent or in the public interest to seek to transfer the business from National Express East Coast to the public sector company until a point very close to the company ceasing to be solvent. However, I am mindful of the noble Lord's point, and we will be seeking to act co-operatively with the National Express group in deciding the precise date on which the transfer would take place.

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Lord Snape (Labour)

My Lords, I declare an interest as a former chairman of the bus division of the National Express and, alas, a shareholder in that unfortunate company. Does my noble friend accept that the responsibility for today's announcement lies entirely with the board of the National Express Group, and particularly with the, thankfully, outgoing chief executive, Mr Richard Bowker, who made what was described at the time as a "heroic" bid—some of us thought it was frankly insane—to take over the east coast main line in the first place? Fresh from wrecking the Strategic Rail Authority, he now has a train wreck of his own so far as the east coast main line is concerned. At the risk of making myself even less popular with some of my colleagues, I urge my noble friend to resist the calls somehow to recreate the golden age that supposedly was British Rail. I remind him that under British Rail Eastern Region, the east coast main line had half as many trains as it has at present, that civil servants, or supposedly Ministers, made the decisions in those days about investment in that line, and that those Ministers, in a Conservative Government as it happened—but I do not think that the situation would have been vastly different under my own party—regularly refused the then British Railways Board the right to borrow money in order to improve its services. Finally, when he re-lets this or any other franchise, will he look at proper, long-term franchises based on what passengers need and want rather that what the Treasury demands?

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Lord Adonis (Secretary of State, Department for Transport; Labour)

My Lords, my noble friend's remarks in respect of British Rail are well put. We all remember Jimmy Savile declaring in the 1970s that this was the age of the train, but, frankly, nobody really believed him at the time because the reality and the hype were so much at variance. However, rail services have improved dramatically over the past 10 to 15 years. Objectively, it is true that the public have more confidence in the railways because so many more members of the public are using them than was the case even a few years ago. My noble friend's remarks about the increased volume of trains are absolutely right too. The number of services running on the network is now higher than at any time since Beeching, so we have indeed improved not only the quality of services but the volume of services too, alongside increases in passenger numbers. Although much is splendid about our history as a country in respect of railways, as a Minister I want a better future not a better past.

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The Bishop of Chester (Bishop)

My Lords, I follow the previous question by pressing the Minister a little on whether it is necessarily in the public interest to let franchises to the highest bidder.

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Lord Adonis (Secretary of State, Department for Transport; Labour)

My Lords, a range of factors are taken into account in assessing the suitability of bidders to win franchises, including a necessary process of prequalification, under which prospective franchise operators need to demonstrate that they are fit to operate the railway and can meet the contract specifications, so it is not the case that only the price that they bid determines whether or not they are successful.

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Lord Lyell (Conservative)

My Lords, those of us who live north of Berwick-on-Tweed, in Scotland, depend very much on this franchise—whatever it is called, Great GNER, or whatever. The noble Lord referred to rolling stock. Perhaps if he comes north of Edinburgh one day, he will find that in winter the scene on the trains is something akin to a scene in Dr Zhivago as sometimes the doors do not close and the windows are frozen. I hope that he will carry that in mind, but above all I am very gratified by what he said about staff pensions. I have always found the staff are extremely loyal. I spend 12 hours a week every week on this franchise. I hope that the noble Lord will keep supporting it and will see what he can do.

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Lord Adonis (Secretary of State, Department for Transport; Labour)

My Lords, I am glad to tell the noble Lord that on my great national rail tour I ventured north of Edinburgh and experienced the rail services there. That occurred at a very early hour of the morning. I am also glad to tell him that the windows were not unduly steamed up and that the doors were operating properly. I was impressed by the quality of service on offer. I entirely echo his remarks about the quality of the staff on the east coast main line who deliver the service day in, day out. I stand by them absolutely.