Effect on franchise agreements of directions under section 28 or 33

I beg to move amendment No. 18, in clause 34, page 24, line 5, leave out ‘terminate the agreement’ and insert

‘instruct the Office of Rail Regulation to review the agreement and to determine how to vary it in light of those directions’.

With this it will be convenient to discuss amendment No. 19, in clause 34, page 24, line 9, leave out

‘Secretary of State has terminated the franchise agreement’ and insert

‘Office of Rail Regulation has acted’.

We move on to a clause that deals with the impact of the Crossrail project on the existing railway franchise agreements. The amendments are very much in line with one another as they deal with exactly the same issue. The clause gives the Secretary of State the power to terminate a franchise if the parties to the franchise cannot agree on how it is to be modified to deal with the consequences of the Crossrail project, and only in those circumstances.

I can understand that some sort of external arbitration will be necessary if such a situation arises. After all, none of us wants the construction or operation of  Crossrail to be held up by a disagreement between two sides to an existing franchise where that franchise agreement will have an impact on Crossrail. However, giving the casting vote in such a dispute to the Secretary of State is not necessarily the solution to the problem. The power to mediate in such disputes should be given to the ORR, which is transparently more of an independent and impartial expert body than the Secretary of State and so perfectly suited to carry out this role.

Amendment No. 19 would change the wording of subsection (3) so that instead of terminating the franchise himself, the Secretary of State will instruct the ORR to review the agreement and try to mediate to achieve an equitable solution. It would therefore revise a subsequent subsection to reflect the change made by amendment No. 18. I hope the Minister will look favourably on the suggestion that the Secretary of State should not mediate and that the ORR, as an impartial and expert body, should take on that role.

Clause 34 deals with the consequences for franchises affected by the amendment of access rights held by the franchisee in order to facilitate Crossrail services. That may arise when, under clauses 28(2) or 33(2), the ORR directs amendments to access rights. If those amendments affect the carrying out of a franchise agreement, the parties to that agreement must use all reasonable endeavours to vary its terms. If they fail to agree, the Secretary of State can terminate the franchise agreement. The ORR can direct that compensation as payable and determine the amount. Amendment No. 18 and amendment No. 19, which would apply to the consequential changes, would remove the Secretary of State’s power to terminate the franchise agreements when agreement could not be reached between the parties and instead allow the ORR to vary the franchise agreement for the parties.

While I approve the spirit of the hon. Gentleman’s amendment, it is unsatisfactory for two reasons. First, it would place the ORR in a role completely outside its normal regulatory function. It does not regulate franchise agreements and has no experience in doing so, or in setting or writing the minimum specification for them. The hon. Gentleman suggested that it has expertise in that area. It does not.

Franchise oversight and construction lie with the Department for Transport, and lay previously with the Strategic Rail Authority. The functions of franchising and of overseeing access contracts are in practice well connected, but they are separate functions undertaken by separate bodies with separate responsibilities.

More importantly, the amendment would remove a necessary protection for the holder of the franchise. Agreement might not have been reached because the franchise holder considered that an amended franchise would not be a viable business proposition for him, so he would wish it to be terminated with compensation. In that case, it is far more satisfactory for the Secretary of State, who holds a franchising function, to terminate such an agreement with compensation and then refranchise the service. Therefore, following that explanation, I ask the hon. Gentleman to withdraw his amendment.

It may well be that the ORR does not have the expertise, as the Minister described from first-hand knowledge, but in its function as a  regulator it is an expert, independent and impartial observer. Many in the industry might prefer that that body conducted the franchise renegotiation process, rather than the Department for Transport, but that is a discussion for another day and I am not tempted to open it now.

I am interested in the Minister’s reference to an unintended consequence of my amendment being that it might affect the business viability of a franchise and, therefore, might undermine the ability of a franchise holder to terminate if a franchise became unviable and the ability to get compensation. That is certainly not a consequence that I had anticipated.

The spirit of the amendment is to look at a resolution where the access is purely to do with Crossrail. I could not envisage circumstances under which such a minor access arrangement would invalidate the whole franchise, but I am prepared to accept the Minister’s explanation that in certain cases it might, and, therefore, that protection should certainly be in place. Owing to that unintended consequence, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 34 ordered to stand part of the Bill.