I am glad that we are having this debate. I want to contribute briefly to it because of the vast importance of the east coast main line to the north-east of England and to eastern Scotland. Two companies have walked away from the franchise. We cannot go on like this. We cannot have repeated franchise abandonment, because it has a demoralising effect on staff, it causes a loss of confidence among customers, particularly among business customers, who plan over a long period, and there is the danger that we will not get rolling stock improvement and acquisition that is badly needed, given the tired state of some of the rolling stock on the service at the moment.
I shall mention in a moment what should now happen with the bidding process, but first I express the hope, which other hon. Members have expressed, that some recent grievances are dealt with as a side-benefit of the disaster of National Express's walking away from the franchise. Let us put a stop to the nonsense of installing ticket barriers, not just at York, but at Newcastle and other stations, which will bring to the railway system the disadvantages of air travel. One of the competitive advantages of that system is that it is easy to get on a train and there is less danger of people being caught in a queue and missing it. Let us also get rid of the odious seat reservation charge, which was one of National Express's most foolish decisions.
I am particularly concerned that the Minister ensures that in any new specification, including for the period of public ownership, services from Berwick and Alnmouth and the limited service from Morpeth are maintained. Given that the Secretary of State has committed himself to improvements, can we please have some real effort behind the improvement of car parking at Alnmouth and Berwick and the introduction of a proper train information system at Alnmouth, so that passengers are not left standing on an empty platform late at night with not the faintest idea of whether a train has been delayed or will arrive? Every station that I go to in the south-east of England has an efficient train information system, and many stations in other parts of the country have such provision. Alnmouth station ought to have that, particularly because there are periods when it is unstaffed.
I do not want the service to be split between several operators, as Hugh Bayley suggested. We already have three operators north of Newcastle-Arriva, CrossCountry and Northern-and we do not want to confuse the service more. I remind the Minister that Northern runs services on the east coast main line, including one to Belford that nobody can get on because there is still no rail platform there. I hope that the Minister will put his weight behind carrying that proposal through to a solution. I do not want the service to be further split between more operators and I do not want another failed franchise bidder.
I agree that there is merit in not rushing this process. I am attracted by the suggestion of my right hon. Friend Malcolm Bruce, which he will no doubt develop when he catches your eye, Mr. Cummings, as I hope he will, on a public sector comparator on the line, at least for a period. That could be a positive way forward.
The line is essential to the region. The services from centres such as Berwick, Alnmouth and Morpeth serve a wide area and must be maintained. We want some consistency and confidence in the operation of this vital service.
We discussed the future of the rail industry in this Chamber on
I cannot understand the nature of today's debate. Two franchisers have failed on this line in three years, yet the solution seems to be more franchising. I do not understand why we do not learn lessons from what has happened. National Express has taken the Government for a ride. It has made £500 million profit out of a public subsidy of £2.5 billion. It has increased the fares this year as follows: regulated at 6 per cent. and unregulated at 7.4 per cent. On the east coast and the East Anglia lines, it has laid off 750 workers. Cannot we get the message that we are being ripped off?
The proposal that we advanced when the south-eastern trains franchise company, Connex, went down was to put the line in the public sector. We wanted a public sector comparator at least to prove its worth so that we could see whether forms of public ownership could work elsewhere, but the Government reprivatised. A public sector comparator should be used as an example, because some believe that we can demonstrate that the public ownership option can work. If we had a comparator option, at least that would sharpen up the opportunities to increase the efficiency of other rail providers. That is the whole point.
Standing back from ideology, it is about trying to get a rational, pragmatic approach on how we go forward on the matter. I can think of nothing worse than rushing to reprivatise within 15 months, with the turbulence, yet again, of a franchise exercise. Remember the costs of franchising, which we discovered in respect of London Underground: £400 million was spent on consultants, accountants and others to set up a private finance initiative disaster. I am urging people to stand back.
Let me say one thing about the myths about British Rail. The last independent study, by Catalyst in 1995, said that, in comparison with the rest of Europe, for the levels of investment, British Rail was the most efficient service in Europe. We now know that infrastructure costs have gone up fivefold since privatisation and that fares have increased dramatically and impacted on the overall service. Therefore, let us at least come with some objectivity to the debate. On this exercise, at least allow us to have a public sector option, which will enable us to demonstrate that the public sector can have a role to play in the rail industry.
Thank you, Mr. Cummings. I will be very brief indeed.
Aberdeen is a wonderful place and it contributes an enormous amount to the national economy, but it is a long way from everywhere. One of the things that I think people have been most concerned about is that Aberdeen does not get a fair deal on railway services. Indeed, although there is a franchise from London to Aberdeen, very often the northern part of the line is the neglected part, as Mr. Weir will know.
We want to ensure that, first, there is a full operation of the line, that runs absolutely from London to Aberdeen, with a full service provided throughout the line. Furthermore, I believe that the case for a public sector comparator is a good one.
Secondly and lastly, we want to ensure that we have a sensible and competitive fare structure. It is ridiculous that people trying to book a long time in advance find that it is cheaper to fly than to use the railways. Surely a public owner could find a way to encourage people on to the railways rather than off them and on to air travel.
I agree with all that my right hon. Friend Malcolm Bruce has just said, so I will not repeat any of it. Instead, let me pick up on the statement by the Secretary of State for Transport on the "Today" programme, which has already been referred to. I want to be very fair about it. The Secretary of State was responding to a press release from National Express; that is entirely different from a Government-oriented release coming ahead of a parliamentary statement. Therefore, I clear him on that count. However, there is an issue about Members of the House of Lords being in the Cabinet and there not being a statement in the Commons until half-past 7 that evening. The Government either need to have the Secretary of State making statements in the Commons, even though that would break procedure, or we must have the Minister of State making a statement in the Commons ahead of the Secretary of State making a statement. We cannot be treated like that again on major statements about this matter.
On the franchise offer, it is a sad state of affairs for Members along the east coast line and for others who are rightly concerned about the disruption, the uncertainty and the hiatus that is being caused, as well as the message that is being sent to the travelling public and, indeed, the consequences for public finances of yet another failure of the franchise. Clearly, there are lessons for National Express, but there are also lessons for the Treasury and the Department for Transport on how the franchise process works.
Richard Bowker said on behalf of National Express, when he launched the bid for the franchise:
"We will not bid at levels that we think are unsustainable or undeliverable. There is no point in being a hero for a day and a villain forever more afterwards."
He seems to have got that calculation slightly adrift.
The DFT recognised that there was an issue about the level of the National Express bid, even if the Treasury did not. Dr. Mike Mitchell, the director general for rail in the DFT, told the Public Affairs Committee on
In those circumstances, it is rather odd that the DFT is still not able to say whether or not it will invoke cross-default procedures for the other two National Express franchises. One might have thought that, after a number of months of anticipation, it would have the answer immediately to hand. Will the DFT invoke cross-default procedures for the other two National Express franchises, for East Anglia and c2c, which runs out to Southend and Shoeburyness, or will it not do so? We still do not have an answer to that question, so let me ask the Minister now when will we have an answer, because the uncertainty that applies to the east coast line is now affecting other franchise areas.
I just want to draw the hon. Gentleman's attention to the fact that cross-default does not come into play until the current franchisee hands the keys back, which has not yet happened.
That is true, of course, but it means more months of uncertainty for people in East Anglia-including people in the Norwich, North area-and for people who live along the line out to Southend and Shoeburyness.
Indeed, there is an oddity about this business of whether or not National Express has defaulted. The National Express statement on
"National Express East Coast is continuing to run the East Coast business... Despite suggestions that the Government is taking over the running of East Coast today, this is absolutely NOT true. Further comments that the National Express Group has "financial problems" which have led to it "defaulting" on its commitments to East Coast are also NOT true."
There appears to be some dispute between National Express and the Government. Of course, the possibility therefore exists that we will not have a default-at least, National Express maintains that that is a possibility-and that it will continue to run the east coast service, so that this debate will, in a sense, become unnecessary.
What is clear, however, is that the passengers on the east coast line, the members of the staff employed by National Express on the line and all those who depend on the line for economic reasons are in a period of uncertainty, which is causing disruption and problems for the economy, the future of the railways and those of us who believe in attracting people on to the railways and away from more carbon-intensive means of transport. The sooner that the matter is sorted out, the better. We cannot drift on with it for several months, although, unfortunately, that appears to be what will happen.
I believe that, if we are to have a default, it is right that we should have a cross-default invoked. Otherwise, the message certainly goes out to the industry that it can walk away from that which it does not like and keep that which is profitable. That would not be a satisfactory outcome for the taxpayer-we cannot have that. So the company has to pay a penalty if it walks away from the east coast franchise.
National Express has released a statement that says:
"The Group would oppose any attempt by the DfT to cross default, in order to protect shareholder value."
Perhaps we can send a message from this debate that we will take National Express on, if necessary.
I very much hope that the Secretary of State is looking at that issue. Indeed, reading between the lines-I do not know whether or not this is a fair assessment-the officials in the DFT were willing to look at a business arrangement involving a management contract and negotiations with National Express. To be fair to the Ministers, they said no to that. That is how I read the situation; perhaps the Minister can clarify whether or not that happened.
We have a cost in place already, of course. A new public sector company has been set up-the East Coast Main Line Company. Elaine Holt has been appointed to run that company and, no doubt, an infrastructure is in place. Therefore, can the Minister tell us how much has been spent already on the public sector body that has been set up to run the east coast main line in the event of a default? Is Elaine Holt already being paid for her job? What are her terms of employment? Furthermore, if National Express does not default, how much money will be wasted in the shadow process that has been established to date?
To pick up on an important local point, it is also vital, for stability, that the headquarters of the line remains in York. Hugh Bayley made that point himself and Andrew Waller, the Liberal Democrat leader of the city council in York, has made a similar point to me, so there is cross-party agreement on that important issue. As other Members have already said, if National Express finally defaults, we must look long and hard at where we go with that franchise and the franchise process more generally.
As other Members have already said, it seems quite clear that the idea of a public service comparator is sensible. First, it gives stability to that franchise; it lets people have confidence that there will be no further change of ownership, delivery and everything else within another 18 months to two years. Secondly, it enables the DFT, with those in the industry, to say, "How can we rearrange the franchise, so that we put passengers first? Let's have some passenger-oriented outputs, rather than simply having Treasury-driven outputs. What do the passengers want out of this?" That would drive up performance and not just on the east coast main line. By the way, I do not think that National Express is particularly bad, which was the point that Mr. Weir made. None the less, that process would still drive up performance and get rid of these nonsensical own goals, such as £5 reservation tickets and getting rid of some of the buffet facilities. Some of those actions have cut costs but damaged passenger confidence in the service. We should therefore use that public service comparator to tell other franchise holders, "Well, this is happening on the east coast main line. It is very popular. Why don't you extend it to other areas of your operation as well?" Without that public service comparator, I do not think that we have the tools or the leverage to pull up the rest of the industry in a way that I would like.
There is a case for longer franchises, but they must be based on a five-year review period, to find out whether passenger-oriented targets are being met. If we drive things towards the passenger rather than towards the Treasury, we will end up with a better railway system than we might otherwise end up with. It is very important that the Government, having got in this situation partly but not entirely through their own making, now set some very clear signals about where the east coast main line is going, in what time scale and at what cost. The longer that we delay, the more uncertainty that we have, the more that the railway suffers, the more that the train passengers suffer and the more that the people employed by the railway suffer. Those are not outcomes that I wish to see.
This is an important debate, as several hon. Members said, and I congratulate Hugh Bayley on securing it. He made some comments about the Conservative party and the view on franchising. He will know, if he has read our documents, that we have indicated that we think that there should be a quantitative as well as a qualitative judgment, and we agree that franchises should be longer.
Mr. Grogan quoted Lord Adonis and his wise words. I think that he will find, if he reads the rest of the article in the New Statesman-I do not have it with me today, but I read it last night-that Lord Adonis said that he was not starry-eyed and no one would want to go back to the bad old days of British Rail and a nationalised industry. I am sure that the hon. Gentleman will correct me if that is not quite what Lord Adonis said, but I am pretty certain that that is what the wise words are.
Norman Baker says that he clears the Secretary of State on the point about the procedures, the announcements and the technicalities at 7 o'clock. I cannot agree, because if the Secretary of State was only responding to a statement from National Express, he assembled in 22 minutes a panoply of apparatus to put in place a takeover. If he was only responding-I know how the process works, having worked in the corporate world-he would almost certainly have seen that statement the night before and could even have instructed one of his Ministers to come to the House at 10 o'clock the night before and make a statement. The reality was that 12 hours after the stock exchange, eleven and a half hours after the "Today" programme and four hours after the House of Lords, the House of Commons heard about it-then and only then. I am sure that the Minister will say, "Ah, but the House of Commons could have accessed the statement at 7 am." Will he tell us exactly what was open at 7 o'clock in the morning? Was it the Library? Was it the Vote Office? Where could a Member of Parliament have obtained the statement from Lord Adonis at 7 o'clock in the morning?
No, without wishing to pull the hon. Lady up, that is simply not true. It was indicated by her own side that the statement in the House could happen at 5 o'clock and Mr. Speaker rejected that. Also, as the Minister of State attends Cabinet, he is surely competent and should have been able to make that statement at 12.30.
The one thing about which we can all agree is that the Government rightly say that they do not want any impact on passengers. However, much of what is happening and much of this debate is still clouded by a huge lack of clarity and huge uncertainty. As the hon. Member for Lewes said, there is some dispute about what the company actually said and what the Government actually said. Can the Minister therefore confirm that the east coast main line franchise has not been nationalised, that National Express Group has not yet been stripped of its franchise-I think that he confirmed that in an intervention a few moments ago-and that it is still running the franchise until it fails to meet its obligations? When does he anticipate that those obligations will fail to be met? If, in the mad world that the Prime Minister seems to believe in, there was a huge bounce in the economy in the next month and National Express East Coast started to meet the obligations again, would all this be an irrelevance?
The statement that has been made requires careful examination. Are the Government convinced that the way in which they made the statement that they intend to take National Express into a public special vehicle, rather than allowing the franchise to go into default, will not have adverse legal consequences? The Government rightly said that they would not renegotiate the terms of the franchise. Can the Minister confirm today what meetings the east coast group had with the Government before
Can the Minister confirm that there was a letter between the Department and National Express Group? There was an allegation in that regard in the 15 to
"a letter of May 1, on Adonis' behalf, allegedly discussed a deal which would have seen NEG renegotiate on and hand over a £100m compensation payment."
Can the Minister confirm that that letter exists and that there would have been a compensation payment of £100 million?
I think that it is misleading to suggest that, if National Express defaults, that will cost the taxpayer £1.4 billion. It is clear that a publicly owned company running the service will make broadly the same surplus as National Express. I have talked to Andrew Adonis about that. There is no prospect whatever of the Department losing £1.4 billion.
I will come on to the hon. Gentleman's point about exactly what the Minister thinks the forgone income and the income gained might be.
Are the Government satisfied that, as they will take over the franchise, the holding company's liabilities-the £40 million loan and the £32 million performance bond-are still liable? Can the Minister confirm that that is the cap to the holding company's liability? This is very important for the point about cross-default: can he confirm that the contract in existence is with National Express East Coast, not National Express Group? If so, there is a financial firewall between the holding company, National Express East Coast and the Government. That will certainly protect the company and adversely impact any possibility of the taxpayer or the Government being able to initiate cross-default.
The statement says that all other rail companies are fulfilling their contracts, but we know that there is a watch list in the DFT; that has been widely talked about. Can the Minister today talk about the arrangements that he is putting in place to ensure that the Government are doing their due diligence? If, in similar circumstances, they find another holding company making the same announcement, is it their intention to do the same thing?
On the point made by the hon. Member for City of York in his intervention, did the Government analyse the option of offering a management contract to National Express or any other operator? What would have been the cost and what potential income would have been generated? What is the total cost of the new public liability holding? The special vehicle-the public liability holding company-is to take over the day-to-day running of the east coast franchise. That is what the Minister of State said, but he failed to tell us exactly what capital the Government intend to put into that body. Exactly what working capital will they put into that body?
Clearly, in the period after National Express is taken over by the public liability holding company until the franchise is taken over, some income may well be generated. Does the Minister expect that the new company will derive substantially the same revenue and the same profit as the holding company? If not, will the Government say exactly how the shortfall between the total premium payment of £1.4 billion and whatever is derived will be made up? Has the Treasury given a commitment to pay extra money? Will fares increase, or will public transport be cut elsewhere?
The Government have rightly said that franchisees should not be able to run profitable franchises and hand back non-profitable franchises and that that would be the worst of all worlds, certainly for the user-the passenger-the taxpayer and other rail companies, because it breeds uncertainty. So far, threats have been made, but no action has been taken. We have had talk of other defaulters not remaining in the rail industry, and the Minister of State has talked about keeping all options open.
I accept that there is commercial sensitivity about whether we might want to exercise the cross-default option, but the same clearly does not apply-this is where I agree entirely with the hon. Member for Lewes-to legal advice that is not commercially sensitive and that relates to the circumstances in which the cross-default option may or may not be exercised. Crucially, if the Government have a contract only with the operational company, not the holding company, is there any potential liability for cross-default?
In a moment, the Minister will undoubtedly talk about the franchising system and use the fig leaf of the National Audit Office, which said that the system is "generally well thought through". Although the NAO uses the word "generally", we should be clear that that does not apply to the way in which the franchising process worked with the east coast main line.
How much blame can be attached to the Government? They introduced the franchising system; they specified the current franchise; they wrote the contract; and they capped National Express Group's holding company liability. They must therefore accept an amount of responsibility. We are not sure quite what the cost to the taxpayer will be, and we will be able to assess that only over the weeks and months to come.
First, I congratulate my hon. Friend Hugh Bayley on securing the debate and giving us an opportunity to discuss rail services on the east coast main line. Clearly, the subject is of interest to many Members of the House.
In addressing the many issues that have been raised, I doubt that I will be able to cover the swathe of hypotheticals offered by the Opposition Front-Bench spokesman, Stephen Hammond, which were invariably spurious.
The east coast main line is an exceptionally valuable asset in the national transport system. It provides the fastest surface transport between London and the Yorkshire and Humber region, north-east England, Edinburgh and beyond. It is also vital for freight, particularly as part of the link from major ports to distribution centres in large conurbations and to coal-fired power stations.
The east coast main line is a busy route, which is used by six of the 16 passenger train operating companies, two open-access operators, which my hon. Friend Mr. Grogan mentioned, and freight operators. Its value is underlined by the demand to run additional services. Last year, for example, the Office of Rail Regulation considered applications for additional passenger services from not only National Express East Coast and the two existing open-access operators, but two aspirant open-access operators.
At this time, there is rightly a focus on the difficulties of National Express East Coast. However, before I talk about the Government's plans for the future of the franchise, it is worth reminding ourselves that the overall story of the east coast main line is one of success.
GNER was the first inter-city franchisee on the route and during its initial franchise it set the pace for the rest of the industry in quality and customer service. The number of weekday services grew from 100 at privatisation to 112. In 2006, it grew again to the current 136, with the introduction of half-hourly services to Leeds.
The timetable is set to grow again, and my hon. Friend Shona McIsaac will be pleased to hear that from December 2010 there will be an additional 25 services a day, including a two-hourly service between Lincoln and London. For the first time in many years, that service will provide a regular direct train service to her area.
Not directly to my hon. Friend's constituency.
Punctuality, which is passengers' No. 1 concern, has improved dramatically. It has risen steadily since National Express East Coast took over the franchise, with the moving annual average rising from 81.7 to 87.6 per cent. Daily punctuality levels are now frequently above 90 per cent., and several 100 per cent. days have been achieved.
We have seen tremendous innovation on the route, with wi-fi being introduced first to 10 trains and then to the whole east coast inter-city fleet-I have ambitions to see that on the service that I use every week. Stations on the route have also benefited from substantial and sustained investment, with the quality of the facilities being offered being recognised at places such as Durham, which was declared station of the year at the 2008 national rail awards.
Finally, we should remember that the inter-city east coast franchise is one of those rare breeds that return a premium to the Department, and that premium is reinvested in the railway industry. Events of the recent past may have reduced the premiums available, but we can still confidently expect a significant return.
The Department for Transport recently appointed a new franchisee to the South Central franchise following a strongly contested competition. That demonstrates the market's belief in the franchise system. The recent events surrounding National Express East Coast, the current inter-city east coast franchisee, have generated significant interest and debate. None of us takes any pleasure in the failure of a business or in a company's inability to fulfil its contract to the Government. My hon. Friend the Member for City of York asserted that train operating companies take all the benefit while the Government take all the pain, but I draw his attention to the fact that companies normally have revenue risk for four years, after which Government revenue support comes into effect. However, the revenue share mechanism commences from day one, so excess profits are immediately shared with the Government.
I would rather not because I have limited time.
The National Express bid was predicated on growth rates that, although reasonable at the time, proved undeliverable in the current economic climate. That has led National Express to conclude that it will be unable to maintain the franchise into the foreseeable future. The Secretary of State has made it abundantly clear that the DFT does not renegotiate franchises. At a point in the future, therefore, the DFT will take over the operation of the inter-city east coast franchise through Directly Operated Railways, a DFT company established for that purpose.
I should say to Mr. Jackson that the departmental officials who originally evaluated the bid judged it to be deliverable. The National Express bid was not the highest. I also reject his assertion that we spent five months negotiating with National Express. We have not negotiated with National Express and we never renegotiate franchises.
We plan to operate the business for about 12 to 18 months while a competition is undertaken to select a new private sector operator. The Government's role in running trains is purely short term, as required by the Railways Act 1993.
This is, of course, the second time in three years that an inter-city east coast franchisee has been unable to continue for the full duration of its franchise. In both cases, external economic circumstances were a factor, as was the inability of the bids submitted to withstand those changed circumstances.
Some have argued that those two failures demonstrate that the franchising system is fatally flawed. I disagree with that view. Across the industry, passenger numbers are at their highest since the 1940s, punctuality is above 90 per cent. and customer satisfaction is rising. That all points to the fact that we are talking about an isolated failure in an otherwise successful system.
There are two important points to remember in the current situation. First, the Government are protecting passengers by taking control of the inter-city east coast franchise. Our aim is to secure a seamless transition from National Express East Coast to Directly Operated Railways and to a new franchisee in due course. Secondly, the Government are protecting taxpayers by holding franchisees to their agreements and not renegotiating contracts, which some could interpret as reward for failure. Risk sharing and risk transfer are part of the franchise system. Franchisees must be able to shoulder the risk in hard times, just as they benefit in good times.
The hon. Member for Peterborough asserted that other operators have received revenue support sooner than four years into the franchise. It is true that the First Great Western franchise included a provision whereby revenue support became available after two years, but that was an exceptional arrangement.
No, there is no indication that that is what the statement is about. Hon. Members will find that it is about performance against the recovery plan that was put in place for First Great Western. Franchise bids must be sustainable and deliverable in the long term. Franchisees must be able to stand behind their bids for the duration of the franchise. We expect nothing less.
The east coast main line is a long route with many stakeholders who have clear views as to what the franchise should provide, and I have listened with great interest to the views expressed today. Hon. Members will be pleased to hear that the DFT is preparing for a full public consultation on the new inter-city east coast franchise. I encourage all those associated with the route to participate in that valuable exercise, which will shape the next period in this important route's history. I think that that answers the five points raised by my hon. Friend the Member for City of York, as well as those raised by Mr. Weir on the service specification.