[Janet Anderson in the Chair] — Rail Fares and Franchises

– in Westminster Hall at 12:00 am on 25 February 2010.

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[Relevant documents: Eighth Report from the Transport Committee, Session 2008-09, HC 233, and theGovernment Response, HC 1004, Session 2008-09.]

Motion made, and Question proposed, That the sitting be now adjourned.-(Kerry McCarthy.)

Photo of Louise Ellman Louise Ellman Chair, Transport Committee, Chair, Transport Committee 2:30, 25 February 2010

The Select Committee report that we are discussing reflects long-standing concerns about the rail franchise system and rail fares, and follows previous inquiries on those topics in 2006. The key issues for consideration are the absence of any real transfer of risk from the public to the private sector, a complex and expensive fare structure for many, and inadequate passenger support services that are seen to be at risk at this time of recession.

The inquiry was held as the recession impacted on rail, and one of the consequences was to make the 9 to 10 per cent. passenger growth projections anticipated in the last rail franchise round unrealistic. Indeed, while our inquiry was sitting, it was reported to the Public Accounts Committee that several train operating companies were displaying what the Department for Transport called red-light warning signals. Specific concern focused on the east coast main line, which had already lost one franchise operator when GNER defaulted and National Express was awarded the contract. At our meeting on 17 June 2009, the Secretary of State for Transport, Lord Adonis, assured us that no TOC was reporting financial difficulties or seeking renegotiation of its contract. Our Committee strongly holds the view, which we reiterated at the time, that franchise operators in trouble should not be permitted to renegotiate what they had agreed.

Two weeks later, on 1 July, it was announced that the Secretary of State had refused National Express's request to renegotiate contracts on the east coast main line. The contract was to be relinquished, and the Government would establish a publicly owned company to run the east coast main line service until refranchising in 2010. The Transport Committee supported that decision-we had made strong representations against renegotiation-but we stated clearly that we wanted the franchise to remain in the public sector so that there could be a comparator for private sector franchises. We were told that that would require new legislation, but we have not seen any intention to go ahead with it, which we certainly regret.

What are the key issues in our report, and where are we now with the major points that were raised including, first, the important question of risk to the taxpayer? There is still a lack of information about the financial stability of the franchise operators. This is of particular concern in the current economic climate and for the medium-term future. It is important because the level of contingent liabilities in transport is high, and much of it relates to rail.

In essence, the cap-and-collar revenue and risk-sharing agreement keeps the financial risk with the taxpayer. TOCs should not be allowed to escape their responsibilities through special vehicle financial arrangements if they default. We felt that National Express should not have been able to retain its two other franchises if it defaulted on its commitments on the east coast main line, but it appears that the franchises are to be allowed to run their course, although extensions that might have been agreed will be denied.

Photo of Stephen Hammond Stephen Hammond Shadow Minister (Transport)

I have listened carefully to the hon. Lady. I wonder whether she would care to give the Committee's view on this. As I understand it, the special purpose vehicle was not connected to the holding company as a direct result of the initial franchise negotiation. It was because of the way that franchising is undertaken, and not something that is necessarily a fault of the company. The fault is with the negotiation that was done at the time of the franchising renegotiation.

Photo of Louise Ellman Louise Ellman Chair, Transport Committee, Chair, Transport Committee

I thank the hon. Gentleman for his comments. The Committee has continually criticised the way in which franchise agreements have been put together, and our comments deal with that. This goes back to the question of risk. If some of the thinking behind the franchise arrangements is that the burden of risk should be transferred from the public to the private sector but the franchise arrangements do not reflect that, the criticism lies with those who arrange the franchises.

Photo of Stephen Hammond Stephen Hammond Shadow Minister (Transport)

I thank the hon. Lady for that answer on risk. Again, this goes to the heart of what franchising is. Relatively short franchises are set up under special purpose vehicles. Does she accept that if they were set up so that the franchise is against the holding company, there would be a heavier element of risk to the company, with the obvious result that the Government would see less in premiums? What is the Committee's view on that?

Photo of Louise Ellman Louise Ellman Chair, Transport Committee, Chair, Transport Committee

I thank the hon. Gentleman for his additional comments. The Committee has always been concerned that if the premiums demanded were too high and risked reducing services or jeopardising the TOCs, that, too, would be an error in the franchising process, and we have drawn attention to that in previous reports.

Our report also deals with passenger services and the threats to them. The range of services includes refreshment facilities, station security and booking offices, the provision of which impacts on passenger safety. There have been many complaints about TOCs trying to reduce passenger services in an attempt to reduce their costs and, in some cases, the Secretary of State has stepped in and not allowed that to happen. Passenger Focus, which does excellent work in the interests of the travelling public, has highlighted these issues, and it is encouraging that the new chairman of the Office of Rail Regulation, Anna Walker, has made public statements expressing her concern about the reduction of passenger services.

We welcome the inclusion of important passenger services such as improved stations, added CCTV, and cycle and car parking in the new South Central franchise for Southern Railways. We hope that it will be a model for future franchises. Recent statements by the Secretary of State encourage us to think that that might be the case. I shall make particular reference to the recently published Department for Transport document, "The Future of Rail Franchising", which discusses passenger services, the length of franchises, risk-many of the matters referred to in our report-and three new franchises that are under consideration. We would like the proposals in the document to relate to franchises as a whole, and I shall refer to that later in my contribution.

The third area that we looked at was fares. We repeated our long-standing, strong concern about the complexity and cost of fares and about the difficulty many people experience accessing cheaper tickets. We recognised that there are many good deals to be had, but for the passenger who perhaps does not have access to the internet and cannot arrange their journeys in advance or at specific times and days, the increase in fares is horrendous. We repeatedly expressed concern about this.

We are pleased that the Secretary of State accepted our recommendation to continue the retail prices index plus 1 per cent. formula for increases on most regulated fares. That was particularly important because, at a time when inflation was set to fall, there were reports that the train operating companies were attempting to have that formula removed so that they could increase fares, when they ought to have been reducing them.

We were also pleased that the Secretary of State promised to remove the basket of fares which allowed individual fares to rise by up to five times as much as the national increase. That promise was carried out and the basket for regulated fares has gone, but it is not at all clear whether its removal is for one year only-this year-or for the foreseeable future, so I seek clarification on that.

In July 2009, the RPI stood at 1.4 per cent., and most regulated fares fell in 2010-the first fall since privatisation-but there were concerns that the train operating companies would seek to recoup this through cuts in services or increases in unregulated fares. Last November, the Association of Train Operating Companies announced that overall fares would rise by an average of 1.1 per cent. for 2010, but this has masked major increases in some areas, particularly in unregulated fares. For example, the increase in the price of a First Great Western London to Swindon supersaver ticket by a massive 15 per cent. at a time of falling inflation is unacceptable.

Photo of Chris Mole Chris Mole Parliamentary Under-Secretary, Department for Transport

I assume that the Committee accepts that, although there may be one or two exceptions in the unregulated fares area, 60 per cent. of tickets are purchased on regulated fares. Therefore the vast majority of the travelling public have seen a fall in their ticket prices from January this year.

Photo of Louise Ellman Louise Ellman Chair, Transport Committee, Chair, Transport Committee

I thank the Minister for his intervention, but the logic of his comment means that 40 per cent. of passengers are travelling on unregulated fares. An increase of 15 per cent. can cause great hardship. Indeed, there are other examples, including the London to Liverpool anytime single fare and the London to Manchester anytime return ticket, the costs of which have increased by 6 per cent. These figures should not be taken lightly.

Photo of Norman Baker Norman Baker Shadow Secretary of State for Transport

I support the hon. Lady's Committee on this, and the Minister's intervention concerns me. Although it is true that regulated fares have decreased because of inflation this year, the decrease has by definition been marginal, whereas the increase in unregulated fares has in many cases been large, as the train companies have sought recompense for the reduction in regulated fares. Consequently, as the hon. Lady says, there has been a massive increase in some fares way beyond inflation, which is unacceptable to the public at large.

Photo of Louise Ellman Louise Ellman Chair, Transport Committee, Chair, Transport Committee

The hon. Gentleman makes an important point, and I accept the thrust of what he is saying. I hasten to add that First Capital Connect, Merseyrail and TransPennine froze their fares, and they should be praised for doing so.

There is concern that this year, in contrast to its previous practice, ATOC rather mysteriously refused to publish its unregulated fare increase by operator. In past years it has published such information, but this year they did not do so. When information about fare increases was requested, it agreed that it had the data, but it declined to give out the information or publish it. That unacceptable practice has led members of the public to wonder whether it masks high increases in unregulated fares. I call on ATOC to publish all train fare increases by operator as it has done in previous years.

According to information from the House of Commons Library, rail fares in January 2010 were 41 per cent. higher in real terms than in January 1987, and we should be concerned about the rising trend in rail fares. I recognise that ATOC has embarked on a review of fares. I am glad that it has responded to the concerns expressed by our Committee and by many others, including passenger representative groups, such as Passenger Focus. That review is welcome, but we will have to see what the outcome is.

I repeat the Committee's previous calls for the Government to review the distribution of taxpayer and passenger contributions to fares, because although I may criticise the individual train operating companies for what they are doing, and sometimes for trying to hide what they are doing, I also recognise that the Government, too, have a responsibility in respect of deciding to fund the travelling public. It is important that the public have adequate information so that high individual increases cannot be hidden.

Rail is a success story, with ridership at its highest level for 60 years. Rail received a subsidy of £3.86 billion last year, and it is essential that that sum brings value for money. It is always important that the public receive value for money for public investment, and that will be increasingly critical in the years ahead. It is encouraging that a number of the Committee's key recommendations are advanced in the Government document called "The future of rail franchising", which was issued in January by the Department for Transport. For example, it proposes franchises of 15 years, and perhaps longer, but they would be conditional on the train operating companies showing what additional benefits and investments they will bring and having adequate break points, so that steps can be taken to remove those franchises if the operating companies do not fulfil their promises.

The document suggests that there should be a new look at the transfer of risk from the public to the private sector and at the possibility of higher performance bonds being required, and whether other steps should be considered. It also refers to the importance of improved passenger services as part of the conditions of awarding a franchise. The document mentions three new franchises to be awarded, which could set a trend for the future, and I hope it does.

Rail is increasingly important. The issues raised in the Committee's recent report, "Rail fares and franchises", have been raised in the past, although these are given new urgency because of the current economic climate. The report highlighted some of the problems in the franchise system. I call on the Government and the rail industry to continue to respond to our concerns in the interest of the taxpayer and of the travelling public.

Photo of Stephen Hammond Stephen Hammond Shadow Minister (Transport) 2:48, 25 February 2010

It is a pleasure to take part in this debate with you in the Chair today, Mrs. Anderson.

I welcome the Select Committee's report on this crucial issue and welcome the opportunity, albeit somewhat belated, to debate it this afternoon. The timing of the Committee's report and investigation was perhaps fortunate for those who are not Ministers and unfortunate for those who are, because it came at the time of the second failure of the operator on the east coast main line franchise and, thereafter, the forced re-negotiation of services. That was perhaps the ultimate illustration of some of the consequences of the franchising system that the Government have put in place. As Mrs. Ellman said, in 2006 the Transport Committee's report concluded

"that the franchising system had failed to fulfil its objectives, and that it was nothing short of a 'policy muddle'."

In 2009, the Committee concluded in its report that there remain

"underlying problems in the current franchising model."

The conclusion that there are underlying problems is undoubtedly correct. Franchises are too short, too specified, discourage investment and innovation, and have not delivered the sort of capacity needs that the network requires.

Photo of Chris Mole Chris Mole Parliamentary Under-Secretary, Department for Transport

The hon. Gentleman and his colleagues on the Conservative Front Bench frequently suggest that the Government micro-manage and interfere too much in franchise operation. Would he care to suggest what aspect of over-specification he would drop, and what protection for passengers he would lose from the process?

Photo of Stephen Hammond Stephen Hammond Shadow Minister (Transport)

It is not a question of losing protection. Network safety is dealt with by the Office of Rail Regulation, and train operating companies must meet specifications in terms of intention to tender. Does the Minister agree that his predecessor said that 14 civil servants in his Department were writing timetables? Is that a necessary specification? He probably believes that it is a necessary specification, so I will leave it at that.

I absolutely agree with the hon. Lady that franchises are too short. Most are around seven years, and the latest-Southern-was for around six years, or slightly less. If that is compared with a train's useful life, the problem becomes immediately apparent. Beyond the issues raised by the hon. Lady, short franchises stifle investment and innovation, and operators are, not surprisingly, unwilling to commit their own money above the specified premia bonds because they are unlikely to get a return on their investment before their franchise ends. Longer franchises would foster more TOC managerial focus on improving services for passengers, rather than just looking ahead to the next bid. That, of course, also implies that longer franchises reduce the costs of bidding and tendering, which should facilitate more investment in the franchise, giving investors more time to benefit from their outlay and to provide a better quality of service to passengers.

All too often, Network Rail does not view the operator and its passengers as its first concern. The current short franchises undoubtedly misalign the objectives and incentives of the industry. If operating companies had franchises of at least 15 years, Network Rail would be forced to consider the operator as a long-term partner and, again, there would be benefits for passengers. As the Minister said, the Opposition's long-standing position has been that franchises across the network should generally be let for 15 to 20 years. I agree with the Select Committee's proposal that franchises should be let for up to 15 years, but that that should be towards the minimum end rather than the maximum end. I welcome the fact that in their document in January the Government joined us in that position.

A longer franchise must not be a licence for operators to do what they like for 20 years, and that point was ably picked up by the Select Committee. Clearly, the regulator will need powers to ensure that performance measures are met, and I stress that those should not be just the current performance measures. I would like more inclusive performance measures to include not only trains that are late, but trains that are cancelled. That would allow franchises to be removed from train operating companies if they consistently failed to deliver for their passengers.

Looking at how things can be done differently, Chiltern's franchise was let on a rolling basis for 20 years, which allowed Chiltern to make considerable and imaginative investment in long-term improvements, and to work closely with Railtrack previously and then Network Rail. It has invested in new trains, extra car parking places, better platforms, better stations, better buildings, and better performance for passengers. One of life's lessons is that it is a question not of how much money is spent, but of how it is spent, or not of how much is bought, but what is bought. A qualitative assessment as well as a quantitative judgement is required. An incoming Government will have to consider how, when they award future franchises, they will place emphasis on the quality of plans in each bid in terms of investing in rail improvements to increase capacity, improve services and attract more passengers. The assessment of franchise bids must be qualitative as well as quantitative.

When granting franchises, the Government focused solely on cost and how much money could be squeezed out of train operators. Cost must not be the only consideration. I accept that it will be the overwhelming consideration, but a qualitative judgment of what else will be being delivered must be made. The Opposition believe that there should be an opportunity for train operators to have a much stronger incentive to invest to improve the quality of service that they offer and to provide new capacity to help to tackle overcrowding. It must also become a realistic option for passenger operators to buy their own rolling stock. Longer franchises will provide an incentive to both operators taking decisions on buying and leasing rolling stock.

Photo of Chris Mole Chris Mole Parliamentary Under-Secretary, Department for Transport

Given that the principal factor in the failure of the National Express east coast franchise bid was the uncertainty about whether it had made a robust assessment of forward economic projections, and if the hon. Gentleman and his party are suggesting that a 20-year franchise is the magic bullet that fixes all franchises, how does he anticipate a business being able to forecast the economic scenario that far into the future with sufficient confidence to allow it to commit to such a long franchise?

Photo of Stephen Hammond Stephen Hammond Shadow Minister (Transport)

Presumably by listening to the advice that KPMG gave to the Minister's Department on economic reset mechanisms for 20-year franchises. It has been well publicised that advice was given to the Department on how longer franchises would need either an economic deflator, or economic reset mechanisms. I presume that an incoming Government-I hope that they are of our colour rather than the current colour-will take that advice when considering longer franchises. There is plenty of international experience of longer franchises, and I cite Australia. There are economic mechanisms that are not the same as the cap and collar-economic deflators and reset mechanisms. For the Minister to suggest that there would have to be a completely new science, or that his Department has not taken advice, is wrong.

Photo of Norman Baker Norman Baker Shadow Secretary of State for Transport

Does the hon. Gentleman share my perplexity that the Minister seems to be arguing against longer franchises when his Secretary of State has indicated a policy in favour of them? It might be helpful if he talked to his Secretary of State.

Photo of Stephen Hammond Stephen Hammond Shadow Minister (Transport)

The answer must be that given that the Chancellor and the Prime Minister cannot agree, we should not be surprised that that disease is prevalent further down the Government.

The key point must be that a change of vision is needed that will pave the way for more flexible and less prescriptive franchises, giving operators real scope for innovation and giving passengers a better service. Over the past 10 years, there have been unprecedented levels of control and micro-management, which means that railway professionals find it more and more difficult to find ways of innovating to bring benefits forward more quickly and cheaply to customers. Over-specification of franchises was taken up by the Select Committee in its third recommendation. It said that on the east coast network, the current service level commitment is 45 pages long and contains great detail on frequencies and stopping patterns for each route. But if the Government had wanted, they could have set first and last trains with minimum times and the number of stations to be stopped at. It was not necessary to go into great detail of each pattern, which has the effect of inhibiting flexibility. Some straightforward timetable adjustments could reduce overcrowding by providing a better match of supply and demand as the franchise moves forward, and increasing route capacity for both passengers and freight.

On the line between London, Tilbury and Southend, c2c's franchise is 15 years. It was let in 1996 when the Government did not specify franchises so tightly. That flexibility has enabled its management to focus on delivering to its customers, improving station environment, introducing a wholly new fleet of trains, and focusing on operational performance with better stations and platforms. It has transformed what was once known as the misery line into a line with some of the highest levels of customer satisfaction and punctuality within the profile of the original franchise agreement.

Within the rail industry, there is a clear and well-understood relationship between journey times, revenue and punctuality. Faster scheduled journey times lead to increased revenue, provided that that is not at the expense of punctuality. Faster journey times enable improved rolling stock utilisation, as it becomes possible to operate more train services for the same fleet of rolling stock. There is no need to specify journey times. The TOCs will work to optimise those requirements within the framework of the overall performance.

Several times, I have debated with the Government-in the guise of various Ministers-about the practice of civil servants setting detailed timetables across the network. The Government occasionally tell us that that is not happening, but a previous Minister has put it on record that at one stage he had 14 civil servants writing detailed timetables. Of course the Department for Transport has a role in monitoring franchises, but it should concentrate less on inputs, and set more outputs for the TOCs to deliver in the most effective way in areas such as operational performance, passenger satisfaction and station cleanliness. That is the way forward.

Photo of Chris Mole Chris Mole Parliamentary Under-Secretary, Department for Transport

I have listened with interest to the hon. Gentleman, and I thank him for giving way yet again. He talks as if train stopping patterns and timetables should be purely a matter for each train operating company on the line and service that it operates, without regard to the fact that lines and services interconnect. We need to ensure that people who transfer at a station from one franchise to another are able to interconnect and catch trains between the two different operators.

Photo of Stephen Hammond Stephen Hammond Shadow Minister (Transport)

Is the Minister telling us that it needs a pyramid of civil servants in the Department, rising up to senior civil servants writing timetables, for us to be sure that as we jump off the train somewhere on the network, we can jump on to another? Should we not say that those closest to the passengers inside franchises with minimum specified details could deliver as well and as effectively? I do not suggest anything wholly new; that model worked and was in place for many years. It was put in place by some of the Minister's predecessors. My lesser specification is an acknowledgement that that system works and has been seen to work.

The Government's role in buying rolling stock should be radically scaled back. It makes no sense for us to pretend that Ministers or civil servants should have day-to-day control over moving new rolling stock around. That degree of detailed involvement is slowing up the delivery of new capacity and driving up costs for the taxpayer and the fare payer.

We have witnessed the chaos surrounding the procurement of what was promised to be 1,300 carriages-although it is now generally accepted that there are 978-and the subsequent cancellation and moving around of the InterCity express process. There has been the failure to see the Thameslink process reach a decision, and the failure of the cascade to deliver trains, particularly to Northern Rail where the franchise suffers from carriages that are in excess of 25 years old.

Three weeks ago in this Chamber we debated Thameslink and I am sure that the Minister is almost ready to sign off the letter that he promised in answer to a number of questions. However, in conjunction with what was said in the Transport Committee, perhaps he will answer a few more points this afternoon, or again promise to deliver a letter. Will he confirm that the InterCity express contract will be signed on time? Will he confirm that, as he announced in the earlier debate, the Thameslink upgrade is going to be delayed for a year? Should we assume that the train procurement contract is therefore also going to be delayed for a year? Will he confirm how many of the 1,300 carriages have been ordered and how many are in production? How many have been delivered and when will they be in service? When can Northern Rail expect the cascade of trains?

As in the previous debate, I will give the Minister the opportunity to confirm whether the Government are postponing the decision on or have stopped the order of 42 extra Pendolino trains, and that we will not see an increase from trains with nine cars to those with 11 cars on the west coast main line. I hope that the Minister will be able to answer those questions. The Transport Committee report touches on rolling stock and procurement and for many people, particularly passengers, the Government's rolling stock procurement programme seems to have come to a halt or gone into chaos. That has a direct impact on passengers. I look forward to the Minister enlightening us with those details in a short period of time.

I believe that franchise agreements should be more flexible and less prescriptive. They should allow more decisions in the rail industry to be taken by rail professionals, subject to a more powerful consumer-facing regulator. That should improve the ability of the rail industry to react to capacity needs, plan for the future and deliver value for money for the fare payer.

My third point is that if the reason for lengthening franchises is to improve services, enhance capacity and incentivise operators to invest in the railways, we must ensure that not only is there value for money, but that any investment enhances capacity. That brings us to the issue of whether TOCs should be able to invest in rail infrastructure. At the moment, that area of responsibility is solely for Network Rail. The problem that we often hear about from passenger groups and operators is that Network Rail's culture can prevent what are relatively small and modest improvements to stations-such as short works outside stations or improvements to line capacity-from going ahead. Often, an operator might identify a platform that needs lengthening and be prepared to invest in that and work with Network Rail, but finds that Network Rail has not prioritised that issue.

We believe that contracts and funding for smaller scale capacity enhancement projects, which are currently dealt with by Network Rail, should be opened up to other providers, including-although not exclusively- passenger and freight operators, on the basis that those investments will enhance capacity. We would encourage rail franchise bids to contain projects of that type. Joint bids for funding by Network Rail and local passenger and freight operators would also be welcome. Network Rail says that it is receptive to the idea, and I look forward to that happening. It would also be important to amend Network Rail's licence to include a specific duty to co-operate with operators and other entities carrying out those sorts of capacity enhancements. The advantages of that are clear. It would speed up the construction of much needed capacity enhancements, improve efficiency and provide a cost comparison against the bulk of Network Rail's current functions. It would provide useful benchmarks against which to measure the whole of the infrastructure industry in this country, and it would encourage passenger and freight operators to invest in important capacity enhancements.

The last part of the Committee's report deals with National Express. Reading from the evidence-taking sessions, I want to point out a couple of issues that are particularly important. With the benefit of hindsight, the comments made by the Secretary of State to the Committee appear to suggest that the Committee was not given the fullest evidence about the state of the east coast franchise.

On 17 June, and again on 15 July, the Committee was told that the Secretary of State had no knowledge about the severity of the problems on the east coast main line. However, freedom of information requests have revealed that not only was the Secretary of State aware of the problems with the franchise when he went before the Committee, but that he, or one of his predecessors, had attempted to negotiate a management contract with National Express. That is clear from the evidence in the freedom of information request, and the letter written by Mr. Ray O'Toole to the Government on 21 April 2009, which stated that although National Express was not in breach of any term of the franchise, it would not be able to continue with that franchise. It is clear from details of a meeting between the Secretary of State, Mr. Bowker and Mr. O'Toole on 9 June 2009, which were surrendered under the Freedom of Information Act, that Network Rail had no viable alternative but to withdraw from the franchise from 1 January 2010. Both 21 April and 9 June were prior to 17 June and 15 July, when the Committee was given evidence.

Page 7 of the Committee's report states that the Government should

"hold firm on its commitment not to re-negotiate franchising contracts", and the Government reaffirmed that commitment in their response to the report. Ministers are on record as saying that they do not negotiate, but the Government were negotiating. As further FOI requests show, the previous Secretary of State put in place negotiations between National Express and the Department for Transport about a possible management contract. To be kind, the evidence given to the Committee was far from the very fullest; FOI requests have subsequently shown that certain elements, which should have been disclosed to the Committee, were not. That is an important part of the debate, and it needs to be raised this afternoon.

In paragraph 16 of the report, the Committee states:

"Now is an ideal opportunity to keep the lucrative East Coast franchise in the public sector."

It will not surprise the Chairman of the Select Committee to know that although I agree with much of her report, that is one thing that I emphatically reject. At a time when the newly nationalised East Coast company, after only three months in existence, has the worst punctuality and reliability figures, I would hope that the evidence is on my side. The Committee concludes that there are underlying problems with the franchising model, and everybody in this Chamber can agree with that conclusion.

Several hon. Members:


Photo of Janet Anderson Janet Anderson Labour, Rossendale and Darwen

Order. I owe hon. Members an apology for having got the order of speakers slightly out of kilter. I should have called the Back Benchers first.

Photo of Angela Smith Angela Smith Labour, Sheffield, Hillsborough 3:12, 25 February 2010

One encouraging aspect of the direction that we have taken on transport policy is the growing commitment from parties on both sides of the House to the future of rail services. We may differ over how those services should be delivered, and I would certainly take issue with the comments of Stephen Hammond about the east coast main line, but that commitment is nevertheless there. That has been, and will be, shown by today's contributions.

The context of today's debate is rather important. In recent years, passenger numbers have grown in a way that we have not seen for a significant time; indeed, we have the highest passenger numbers in 60 years. Some 1.25 billion passenger journeys were made last year, and rail operators are providing 22 per cent. more services than in the mid-1990s. In that sense, rail is clearly a success story.

Why? The reasons are many. We have seen significant investment in rail services in the past few years. Some may say that that investment has been on the slow side, that we should have seen more of it and that it should have been more of a priority for the Government, and I would agree, but we should nevertheless acknowledge that significant investment has been made available.

All parties involved in the delivery of rail services have also shown an increased commitment to ensuring that our railway network improves and becomes a great success story. Rail operators, passengers, passenger groups, the DFT, the Government and political parties have begun to focus on the role that rail plays in getting people from A to B and on the positive impact that rail services can have on economic growth. Increasingly, people also have an awareness of the role that rail services can play in reducing congestion on our road network and the impact of carbon emissions on the environment. There are therefore many reasons why rail services have grown in importance for the future of the country and its economy and why that will continue.

Continuing to invest in our rail services must surely be the way forward. It is interesting that Mr. Clarke made a speech in Yorkshire only the other week to the effect that transport spending should not be cut in the forthcoming period, which will be very difficult for public spending. That is an interesting statement, given that his party wants to cut the public deficit more quickly than any other political party in Parliament. However, on a personal level, I find those comments rather reassuring, because it is my strong view that we need to continue investing in our rail services.

We need to deliver major projects, and I am thinking of not just Thameslink and Crossrail, but the northern hub, which is otherwise known as the Manchester hub in the north-west, although those of us in the north more generally see it as much more important than that and as a genuinely northern hub. We need the rolling stock for the Northern Rail franchise to be delivered, as the first part of what I hope will be a long-term investment in improvements to passenger services in the north of England. We also need to invest in not only the promised high-speed rail developments, but expanded capacity on the traditional network.

All of that is necessary. If we do not make that investment, we will continue to see congestion on the road network. I can speak only about the north of England and from personal experience, but it is already difficult to use the M62, which is the major corridor from one side of the Pennines to the other. If people do not use it, they have to use the A roads, which are increasingly even more difficult to use. We will also start to see an increasing impact on economic growth. I would rather that the country looked to the future and made it clear that we should step up investment in rail services, rather than allowing the economy to be damaged because we had failed to invest in them. We have begun to realise that rail can promote economic growth. The point is not just that it helps to relieve congestion and keep economic growth going; it can actually promote economic growth.

In that context, it is critical that we get the arrangements for the future running of our railway services right. That is why the debate is so important. It is also why I was so ready, as a member of the Transport Committee, to sign up to the report's key recommendation, which is that the franchising arrangements for our rail services should be revised to tackle the short-termism that has characterised the granting of franchises over the past few years.

The impact of that short-term approach can already be seen. The last round of franchises was delivered on the basis that passenger numbers would grow by between 9 and 10 per cent. and profits would rise by 10 per cent. As the hon. Gentleman and my hon. Friend Mrs. Ellman have made clear, the franchises are let for a short period. That was predicated on a high premium and on a 10 per cent. growth in passenger numbers and profits. That growth has failed to materialise because of the recession, with the result that the rail sector had suffered 7,000 job cuts as of July 2009, the date of the report. Some 750 jobs were lost at National Express, 480 were lost at South West Trains and 300 were lost at Southeastern Trains. We can ill afford those job cuts at a time when we all agree that we should be investing further in our railways.

On top of that we have, of course, the events surrounding the east coast main line, the second default on one of our most important rail services. All the evidence suggests that it is the short-termism of our approach to investment in the railways that produces defaults and creates the risks for the DFT, the Government and the public purse that must be tackled if we are to ensure that rail continues to be a success story and that we take it to the next level. We have done well so far, but the cracks are appearing and we must deal with them and get the right arrangements for the future, because rail will play an increasingly important part in the future of the economy. Now is the time to pause and take stock of our arrangements.

I would strongly argue that we need to take a longer-term approach to franchising, and that the Select Committee is right to argue for that. We have been pleased that the Secretary of State agrees with us about that. We should be considering a minimum of 15 years, with all that that could bring, such as a greater commitment from the rail operators in their running of the services. The more they are seen as long-term partners in providing rail services, and as having a long-term stake in the future of the business, the more likely it is that they will invest appropriately to get the long-term return.

The greatest impact of the short-term approach to rail franchising is not just the potential risk to the public purse in situations of default such as the one affecting the east coast main line, but more than anything the impact on customer service. It must be recognised that so far the franchising approach adopted by the DFT has utterly failed in that respect. The quality of customer service has never been a formal part of the franchising process, and it is what suffers first when a franchise begins to suffer economic problems. There is a recession, so passenger numbers and profits fall, and customer service is cut.

Everyone in the Chamber who uses rail services will know what I am talking about. Cuts have been made to catering arrangements on many of our main rail services. In some respects there has also been a spill-over into the lower level maintenance services, so that for instance someone may get on to a train and not be able to get a cup of tea because the boilers have failed and there is no hot water. I am pretty convinced that that happens because the train operators have not been in a position, because of the premiums that they pay on the franchises, to invest properly in the maintenance necessary to give an appropriate standard of customer service on a train. That may not seem important in the context of getting people to work and to airports, and allowing them to go about their business; but if rail is to compete effectively with the car in future, we must offer passengers a quality experience.

Cold carriages where passengers cannot even get a decent cup of tea, sandwich or meal to keep them going, particularly when they are on the train a long time, do not make a quality experience. When people have paid up to £240, or in some cases £270, to travel to London and back, on a two-and-a-half-hour journey, the least they can expect is what is promised in the blurb on the operator's website-the newspaper, the regular offer of hot drinks, the so-called snacks and the rest of it. A lot of that is incredibly inconsistent and regularly lets passengers down. That kind of experience will in the end damage the rail industry.

We also need more investment in stations and their capacity to cope with car and cycle numbers. I acknowledge the work done by the Secretary of State to ensure that in the future more attention will be paid, in franchises, to station arrangements such as cleanliness, the welcome given to passengers, and the capacity to handle cyclists as well as car users. There has been a welcome start, but we need to build on it and recognise that the passenger experience is much more than getting to the station. It is time to look at the arrangements again. Not only do we need to review franchise length seriously; we need to take the opportunity of the review to consider how we deliver services to the passengers. We are going in the right direction, but there is a lot more to do.

I have one last point to make about the franchising arrangements, and it relates to the east coast main line. Surely, in an age in which ideology is seen to play much less of a role in public policy, it is time to recognise that it is ideologically unforgiveable and, indeed, dogmatic, to insist that we cannot have an arm's length operator as part of the mix in our rail services. Many would argue that that is anti-competitive, but I argue that in other areas of Government policy we have arm's length operators working alongside the traditional, private providers. In the housing market we increasingly have arm's length management organisations for council housing stock, which are on the verge of moving into not just housing stock maintenance, but the building of new stock. That is what the return of the housing revenue account to local level is all about: competing, and sometimes co-operating-I would hope more often co-operating-with social housing providers, such as housing associations, to provide what the nation needs.

I cannot for the life of me understand why an arm's length company working in the public sector can be seen to work in that context, but we cannot have that for rail services. If East Coast is allowed to compete for the next franchise for the east coast main line-and despite all the evidence that we have heard for the first three months about poor punctuality and the rest of it I suggest to the hon. Gentleman that that is a very short time in which to judge its performance-let us look at that, when the time for bids comes. Why not just allow East Coast to bid along with any other operator? It makes sense.

We were told at the Select Committee by the permanent secretary, when I asked that question, that it would take a change in legislation to allow East Coast to compete with other private market operators. Well, what are we here for? We are MPs; we are legislators. Let us do it. Let us make the necessary changes in legislation to allow East Coast to bid on a level playing field with other operators. That would potentially prove to be a useful model for the future of rail services. I cannot understand why anyone would resist such a move. The only possible reason why it might be resisted would be that ideologically there could be a fear that it would succeed. That is a pretty poor reason not to support it.

Briefly, I agree with everything that the Select Committee report said about fare structures. Paragraph 28 said that

"passengers were faced with up to a dozen different fares for a particular journey".

It is getting increasingly difficult for passengers to work out the best fare, in terms of price and service. I argue also that the websites that allow the cheapest prices are not always the easiest websites in the world to use. As someone who tries to use them reasonably regularly, even I become very frustrated sometimes with the inability of the websites to give me the information that I am looking for. I do not think that I am particularly unskilled at using websites. I do most of my purchasing online nowadays, but the thing that I find most difficult to do is to purchase a rail ticket. That says something about the fares mechanisms and the fares offer that is on the table from rail operators.

We are getting into a rather unfair and strange situation with rail services. Increasingly, passengers are using discounted fares to use the trains and they are invariably required to reserve a seat to use the services. However, the passengers who have to use open tickets-because they do not know when they will be travelling down to a particular location or when they will be travelling back-pay the full price and cannot reserve a seat because they do not know which train they will be catching, and they are increasingly unable to find a seat because the people paying £10 or £15 have made the reservations. The situation is getting quite difficult in terms of how rail operators are treating their customers. I argue that rail operators cannot afford to lose the full fare price paying customers on their trains and that the operators need to give more thought to how they pitch their fares at potential passengers.

In the long-term context of where rail services are going and where the country is going, it is incredibly important that we consider the overall price of travelling by train compared with travelling by car. If we are to make it possible for trains to compete effectively with car travel, we must make train travel attractive not just in terms of getting to the station, getting on the train and using the train, but in terms of how much it costs to use the service. For most people, if they have to pay the full price fare or they have made a last-minute decision to travel, the chances are that they will choose the car rather than the train, because the car is cheaper if they are paying the full price for the train fare on offer. We need to think in the long term about how rail services are priced. If we want more people to use the trains and congestion on the roads to be reduced, the Government and the rail operators must think very seriously about the long-term interests of the country when it comes to how the services are priced.

I want to mention the role of integrated transport authorities in our metropolitan areas in developing and organising rail services. The hon. Gentleman mentioned the numbers of civil servants developing and putting together timetables for rail services. I think that the ITAs would have some sympathy with that point of view, in that they are increasingly expressing an ambition to be at least consultees on the delivery or the development of rail franchises and, beyond that, to play a much fuller part in developing and delivering rail services.

If we are to deliver on our ambition in this country of putting together integrated transport networks, we must ensure that our train services work with our tram services, our bus services and all the local transport services across a particular region or sub-region. I understand that there are difficulties with developing that devolution of control of rail services, but surely it is not beyond the capacity of all the brains at the DFT to work out a workable way of devolving control of rail services at local level to ITAs, so that we can start the real process of putting together local rail services that work alongside tram and bus services. It should be possible for someone living in south Yorkshire-someone living in Sheffield or Barnsley-to get from home to the station on a bus or tram and to get from there to Leeds on a train in a way that is co-ordinated, comfortable and offers a high-quality experience. We have not reached that position yet. There is a lot of work to do, and I look forward to my hon. Friend the Minister's response.

Photo of John Grogan John Grogan Labour, Selby 3:35, 25 February 2010

It is a great pleasure to follow my hon. Friend Ms Smith for three reasons. First, it is always a delight to listen to her, particularly on the subject of transport, of which she has great knowledge. Secondly, even though the main Chamber is today dominated by Welsh men and Welsh women, I calculate that when we have finished in Westminster Hall, one third of the speakers will have come from God's own county of Yorkshire. As there is always a feeling in the county that we lose out on rail expenditure, perhaps that corrects the bias. The third reason is that I agreed very much with my hon. Friend's non-ideological approach to these matters. Basically, she was saying that she is in favour of what works, and I am too. I shall consider a number of different franchises in north and west Yorkshire, going into south Yorkshire as well, and I shall give different policy conclusions on them, depending on how well they are working.

I agree with my hon. Friend about the east coast main line. There is real frustration in Yorkshire in the business community as well as those who travel for leisure that for the second time in just a few years, the whole franchise has been thrown open to question. I think that there was a very strong case, on the basis of the public service comparator, for leaving it in the public sector for perhaps 10 years. Stephen Hammond cited the figures. It is interesting that in the south-east, some of the best figures ever for punctuality were recorded when the south-eastern trains were operated as a public service.

Let us just see what the evidence says; let us have a comparator. Who could lose out from that? It now appears, however, that there will definitely be a refranchising operation, so my fall-back position will be exactly the same as my hon. Friend's. Again, what is there to be afraid of? Why not let the East Coast company, as a stand-alone public company, compete? It is difficult to overstate the frustration in Yorkshire that that main artery, on which our economy is so dependent, is being used as a sort of plaything. It needs much more long-term stability.

However, the trans-Pennine franchise, particularly as it operates through Selby and York, which I know well, through to Leeds and Manchester, under First TransPennine Express has been a great success. Since the franchise began in February 2004, the number of passengers has increased from 13.5 million to 22.3 million. The number of passengers travelling to Manchester airport has increased by 67 per cent. In 2004-05, the punctuality figure was very low-74 per cent., which was one of the worst. The franchise now has one of the best figures for punctuality-more than 90 per cent.

There is a real case for extension of the franchise, which I think is allowed. I would be grateful if my hon. Friend the Minister confirmed whether that is the case. The House of Commons Library brief for the debate, which is very helpful as always, suggests that a five-year extension is possible. I remind hon. Members that the franchise, as I understand it, runs out in February 2012.

My researcher kindly looked up a parliamentary question in May 2009, when the Under-Secretary of State for Transport, my hon. Friend Paul Clark, said of the trans-Pennine franchise:

"There is a potential seven period extension at DfT discretion or 65 period extension by mutual agreement."-[Hansard, 21 May 2009; Vol. 492, c. 1494W.]

I am not quite sure what that means, but I believe that there is potential to extend the franchise. I am in my third term as Selby's MP. The second term was dominated, in relation to transport, by complaints from commuters on the line. I am not saying that I do not still receive some complaints, but the situation is an awful lot better. In terms of stability and continuation of service, it would be a very popular move in Yorkshire and the Humber if the franchise was extended.

Photo of Chris Mole Chris Mole Parliamentary Under-Secretary, Department for Transport

It may be helpful if I advise hon. Members that the general approach to franchise extensions is to monitor performance towards the end of the franchise period against a set of criteria. The norm if those criteria are met is to grant a franchise extension. The hon. Gentleman may be aware that that is not what happened with the Greater Anglia franchise, but that was an exception resulting from what happened with National Express, the parent company for the east coast.

Photo of John Grogan John Grogan Labour, Selby

The Minister has been most helpful. We are approaching the end of the franchise, so if there is no extension-it is only two years away-there will be a need for clarity over the next 12 months about what is to happen.

The Northern Rail franchise runs out in September 2013. Northern is the workhorse of the Yorkshire franchises. We have already heard about the need for additional rolling stock and so on, which prompts me to reflect on the remarks of the hon. Member for Wimbledon about more flexibility in timetabling. We have a largely privatised rail service and it needs a fairly strong centre, in the Department for Transport or elsewhere, to knock heads together among the franchisees to get some sort of overall strategy for the rail network.

In recent months, we have been in the mire of the recession, and I believe that if train companies had been allowed to cut services and thin out the timetable they would have done so. It would have been inevitable in recent months, and passengers in Yorkshire and elsewhere would have lost out. Many people depend on Northern Rail services. When the specification for the new franchise after 2013 is drawn up, I would make one plea. The Leeds to Goole line, which goes through my constituency, calls at Whitley Bridge and Hensall as well as Goole, which is a small market town, not dissimilar to Selby and not far from it. Selby has an excellent commuter service to Leeds, but Goole has only two trains a day. The town is under-served, which is not logical or sensible. With a new franchise, a case could be made for having more services.

Moving swiftly on to those services that are not part of a franchise-the open access services, which have played a real part in improving rail services in recent years-there has been a change in the Department for Transport's attitude over the past five or six years. The fear was that open access services could devalue some of the franchises and that the Department wanted to strangle some of them at birth-at an official level, that was true five or six years ago. However, there has been a change. Indeed, I have heard the Minister speak warmly about such services and their potential, and I hope that he will do so again.

Selby benefits from Hull Trains, which provides a pretty efficient service. I think that the economic value of a train service is a bit like having a championship or first division football club in the area. At King's Cross station, one can see Selby's name on the destination board; it is a direct service from London. I know that some of my hon. Friends in the north-east are equally pleased that the Grand Central railway now takes people from Sunderland and Hartlepool directly to London.

I understand that there are proposals to link the great city of Bradford directly to London, and also to provide a fast service from there to Manchester. Ian Yeowart, who helped to start Grand Central, is now trying to get options on paths-I understand that that is the proper technical term-to run various new services, including a cross-Pennine link from Hull to Liverpool, a fast link between Bradford and Manchester, and services linking London and Barnsley, Penistone and Huddersfield. Those are all interesting ideas, yet none of the main train companies has ever shown an interest in linking those towns and cities with London. I hope that the open access proposals get a fair wind.

It may seem an odd thing to say at the end of February, as we approach spring, but I have always felt that the Government could do a little more about Boxing day services. When the franchises come up for renewal-most of them will do so over the next six or seven years-I hope that Ministers ask the new franchisees to make a commitment to running Boxing day services. Manchester airport station is on the First TransPennine line. Boxing day is the most popular day of the year for travel at the airport, yet one cannot get there by train. Frankly, that would not be allowed at London's airports, which are all linked by trains on Boxing day.

I am a great admirer of Lord Adonis and of his plans for high-speed rail. He has put rail on the map. However, he has missed a trick. I am pleased that both Opposition spokesmen agree that there should be some provision for people going to the sales, attending sporting matches and so on. When Ministers consider their arguments privately, they must see that they do not stand up. Every other country in Europe manages it, and most run services on Christmas day, although I do not suggest that we should do so.

Photo of John Grogan John Grogan Labour, Selby

I would be interested to hear the Minister's list of countries that do not run trains on 26 December.

Photo of Angela Smith Angela Smith Labour, Sheffield, Hillsborough

Does my hon. Friend not agree that a really good starting point would be more Sunday services?

Photo of John Grogan John Grogan Labour, Selby

Indeed it would. Ministers have two arguments against running trains over Christmas. The first is that railway workers deserve time off over the holiday period; but then they say that engineering works are necessary. It is a rather contradictory argument.

As I said, every other country in Europe manages to run some services over Christmas and also keep up maintenance standards. Ministers are losing the argument, and they should do so with good grace. Even before the next election-I predict that we will have a majority of 75-the Government should make an announcement about the new franchises.

Photo of Chris Mole Chris Mole Parliamentary Under-Secretary, Department for Transport

Would my hon. Friend have the good grace to acknowledge that at least 50 per cent. more services ran during this Christmas period than the previous Christmas?

Photo of John Grogan John Grogan Labour, Selby

Yes; of course I will admit that, but it is 50 per cent. of a very small base figure. However, there is a regional bias, I am pretty sure that we had not one service in God's own county of Yorkshire, but there were rather a lot in the south-east where Department for Transport civil servants tend to live.

Photo of Louise Ellman Louise Ellman Chair, Transport Committee, Chair, Transport Committee

Is my hon. Friend aware that the Select Committee considered that matter? We have urged greater efficiency in Network Rail's maintenance work, which could include doing more work off-line. That would allow the railways to be used more frequently, thus meeting the needs of the travelling public.

Photo of John Grogan John Grogan Labour, Selby

My case is getting stronger with every contribution. It would be such a pity if, at the next election, two party manifestos contained a commitment to move on that question but the party that I love had not quite made that move. I hope that it will reflect on the matter.

I agree with my hon. Friend the Member for Sheffield, Hillsborough about the importance of integrated transport authorities. We in Selby are looking forward to the west Yorkshire MetroCard system being extended. It has already been extended to Skipton and Harrogate, and it will be a great boon to commuters in the years ahead.

Photo of Norman Baker Norman Baker Shadow Secretary of State for Transport 3:48, 25 February 2010

I am encouraged by the consensus between the hon. Members for Liverpool, Riverside (Mrs. Ellman), for Wimbledon (Stephen Hammond), for Sheffield, Hillsborough (Ms Smith) and for Selby (Mr. Grogan). On behalf of my party, I hope to demonstrate the same. In parenthesis, may I say that that could be useful in the event of a hung Parliament, as it might give us the opportunity to make progress in areas where parties agree rather than where they disagree? I hope that we can include the Minister in that consensus. I am confident that we can include the Secretary of State, having spoken to him, but the Minister seemed to be inventing his own policies earlier today. I hope that that is not reflected in his response to the debate.

The general view of the franchise regime, which I share, is that by and large the concept is working, but not the detail. We need to make changes to how the franchise system is applied. I am pleased that no one has made a case for hugely destructive changes to the franchise arrangements or for throwing everything up in the air like confetti and seeing where all the pieces land. The latter would be rather like the unfortunate reorganisation of 1994.

The last thing that the railway industry needs is uncertainty, especially as we need growth. The priority must be to increase the network, get more people on trains, and get more infrastructure in place. Navel gazing will not be useful. Whatever the House collectively comes up with will have to be constructive, and we should not take our eye off that particular ball.

There is no question but that the franchises have been too short, and that they have been moving towards an increased specification. I understand the temptation to do that; all of us as MPs get lobbied. We are often asked, "Why doesn't this train do this?", "Why isn't there a buffet car?" or "Why is the Southampton buffet not open at 10 o'clock tonight?" So there is a temptation to increase the width of the franchise documents to ensure that all those points are covered, including points about Boxing day, with which I happen to agree. That temptation needs to be resisted, otherwise we end up with an unwieldy document that involves a gigantic amount of civil servants' time, stifles any innovation and means that companies cannot respond to changes as they have to. That is one of the reasons why franchises have been brittle in recent years.

Therefore, we need to move towards longer franchises-my party is on an even keel with the Conservatives here-and arrangements that are based on passenger-orientated outputs, or the sorts of things that passenger focus groups measure. We should not specify when the booking office is open or when the buffet is open at Southampton Central, but we should regularly ask passengers, "Are you satisfied with the service you are getting on your line? Here are the criteria we want you to look at." If a rail company has a long franchise, say one of 22 years, then its performance should be measured every five years. If passengers are not satisfied, the franchise should be taken away. If passengers are happy, the franchise should be kept by the company, and that should give an incentive to the company delivering the service to worry about matters such as Boxing day services. It also means that they will be looking to the passenger for approval and not the Treasury. That is a very important shift to make if we are to move the railways further forward in responding to passenger needs. Such a system will deal with the cold carriages and the overpriced tickets, which are matters that regularly and unnecessarily irritate passengers.

I think that we all recognise-certainly my party does-that the longer franchise regime can bring in the opportunity for investment. I agree that the Chiltern model is very helpful, and it will bring in a new link between Oxford and London, which will give not only extra capacity but more opportunities for different journeys to be made. That is a relatively simple infrastructure measure that can be very useful in growing the network. We have not done enough in considering those relatively inexpensive measures that can make a big difference to the infrastructure of the network.

We have all been very busy on high-speed rail, which has a vital role to play in the future. I notice that all three parties are now committed to it to a greater or lesser degree. We must not take our eye off the ball and neglect the lesser improvements that can be important in delivering better services. The Skipton to Colne railway should be reopened. There is no logical or economic argument for not doing so. Improvements such as the Todmorden curve and, dare I say it, the Lewes to Uckfield railway line in my own constituency should be delivered. I notice that improvements such as the Stirling to Alloa line and the Ebbw Vale line are under way in Scotland and Wales. The Government's own formula told us that they would not be successful yet, lo and behold, when they opened they were tremendously successful. That leads me to say that the Government's formula needs to be significantly revised if we are to get some sensible idea as to whether rail schemes will be profitable or not.

The downside of long franchises, which the Minister half hinted at in his intervention earlier on, relates to the unpredictability of the economic situation. It is difficult to predict how GDP will be growing, the strength of the economy and what the state of the rail network will be in five, 10 or 15 years-or, to be perfectly honest, even one year. It is quite clear that the present arrangements are brittle and do not allow for that flexibility to enable train companies to respond sensibly. On the one hand we must ensure that train companies do not make excessive profits-the Select Committee mentioned that in its report-and run away with money, which the public quite rightly would not be happy about, and on the other we must ensure that train companies are not put in a position in which they cannot meet their obligations and have to walk away from a franchise. We have to move the cap-and-collar arrangements that are currently in place towards something that is externally validated. Perhaps the answer is to move towards a relationship with GDP, which would enable train companies to be protected in difficult times and the taxpayer and passenger to get the benefit in good times. That may not be an exact fit, but it is a better fit than the cap-and-collar arrangements that we have at the moment.

At a time when the economy is going up and down, we could consider changing the track access charges that train companies have to pay to Network Rail. Why should Network Rail always have the same amount of money and be protected from the chill wind of the economy? Surely it should take some of the risk as well, and we should consider varying the charges at times of economic downturn.

Photo of Chris Mole Chris Mole Parliamentary Under-Secretary, Department for Transport

Will the hon. Gentleman tell us how he would bring investment into the rail infrastructure if Network Rail had that uncertainty about its forward financial income?

Photo of Norman Baker Norman Baker Shadow Secretary of State for Transport

The amount of money Network Rail has is enormous compared with that of a train operating company. When the train company bears the entire risk of the economic downturn, as it does at present under the cap-and-collar arrangements, that is quite a significant risk for it to take. If some of that risk was shared with Network Rail-I am not suggesting that all of it should be shared-the percentage of Network Rail's money affected by such an arrangement would be marginal compared with the percentage of a train company's income. That is why it would be possible to do that without unduly disrupting Network Rail.

Photo of Chris Mole Chris Mole Parliamentary Under-Secretary, Department for Transport

My understanding is that there are fixed and variable components to the track access charges, and that the resourcing that the train operating company receives from the Department is consistent with the fixed component, so there is no variation or impact on the train company arising from track access charges. I am not sure whether the hon. Gentleman's argument stands.

Photo of Norman Baker Norman Baker Shadow Secretary of State for Transport

I believe that there is a relationship that needs to be considered. I draw the Minister's attention to the recent publication by ATOC that makes that very point. I will happily send him a copy if he has not seen it.

The Select Committee rightly referred to the issue of special purpose vehicles. I will not repeat what was said, but I agree with the Chairman of the Committee on the matter. There is a question about what the penalty should be if a company wants to walk away from a franchise, and whether that should then be reflected in other franchises that it holds. That is a difficult question. I took the view that if National Express was going to walk away from the East Coast franchise, there was a case for taking away its other two franchises. There was certainly a case for removing the uncertainty from the passengers as to what would happen to those two particular franchises. There is a case for penalising National Express for the current situation, even though it is not all its fault. However, there is another side to the matter. As the hon. Member for Wimbledon said, c2c has achieved some of the best performance on the rail network, and it is difficult to argue that people taking the line to Southend should have a franchise operator taken away when the company is successfully delivering for them, even though the company overall is not delivering to the Government. I do not have an answer to that. I just throw up the question because it is a difficult one to resolve.

Photo of Chris Mole Chris Mole Parliamentary Under-Secretary, Department for Transport

The hon. Gentleman needs to be aware-and I am sure that the Chamber will want to be-that the c2c franchise is being retendered at this point only because it was at the end of its natural life.

Photo of Norman Baker Norman Baker Shadow Secretary of State for Transport

I accept that. There would have been an option for the Government, I think, to end the franchise early. Obviously, they took legal advice on the matter. The franchise had not run for long so they would have been making a political point. Pragmatically, the idea of letting it run to the end was probably the right one in this particular case.

A couple of Members have spoken of the need to involve local bodies in the franchising process, including the integrated transport authorities. The hon. Member for Sheffield, Hillsborough made that point in her contribution. I very much agree. However, I gently remind her that I tabled an amendment to the Local Transport Act 2008 to that effect, to try to ensure that local authorities and ITAs were more involved in their local rail services. I made the case for that change on that occasion, and I will not repeat it now. However, if ITAs and local councils are concentrating on roads and buses, which is what they do, and they are being kept out of the rail process entirely, it is not surprising that, when they put in their bids for money, those bids are road-related and not rail-related. We must ensure that those bodies see local transport more in the round than they do at present.

Of course, the east coast main line has been referred to. I welcome the fact that at least three Members who have spoken in the debate so far, including the Chairman of the Transport Committee, the hon. Member for Liverpool, Riverside, believed that there was a case for having a public sector comparator. Having such a comparator has very much been our party's position. We supported that with Southeastern, when it was temporarily in the public sector. We support it with the east coast main line, and I believe that there is a case, even now, for that line to be held in the public sector for an extended period, as a comparator.

If we are now moving collectively across parties towards a more passenger-orientated, target-based franchise arrangement-that seems to be the move-why do we not try that arrangement now on the east coast main line, while it is in the public sector and see what comes of it? Let us try that now; it does not cost anything, particularly. If we cannot do that and the franchise must be retendered, I agree that East Coast should be allowed to bid, if it is possible for it to do so.

Photo of Louise Ellman Louise Ellman Chair, Transport Committee, Chair, Transport Committee

Does the hon. Gentleman agree that, because we now have information that the letting of the franchise has begun, it is a matter of great concern that it appears to preclude the public sector operating a service so that a comparison can be made between the public and private sectors over a longer term?

Photo of Norman Baker Norman Baker Shadow Secretary of State for Transport

The hon. Lady makes a very good point. We need to look at legislation in particular; if it needs to be changed, it needs to be changed. In fact, my reading of the law in my discussions with the Department for Transport suggests that there is a need for a change in legislation if we are going to allow East Coast to bid for the east coast main line. I am afraid that that legislation was written for unnecessary and dogmatic reasons in the privatisation proposals from the Conservatives at the time that rail was privatised, unnecessarily shutting down that avenue. However, the point made earlier by the hon. Member for Sheffield, Hillsborough was that, if East Coast can bid in a way that will produce the best result, let us have East Coast bid. If it does not produce the best bid, it will not win the franchise. I cannot see what will be lost by allowing that process to happen.

If we are going to give train operating companies longer franchises and more freedom, we need to look at the constraints that exist that prevent them from operating in a way that might maximise the benefit for the passengers. One of those constraints is undoubtedly the unnecessarily detailed interference in rolling stock arrangements that, I am afraid, the Government seem to be increasingly indulging in. Indeed, the Government seem to be sidelining the rolling stock companies as far as possible, not least in the preparation of the intercity express programme train for the east coast, and they are doing so at vast cost and with dubious benefit.

I will take the example of my own constituency. The rolling stock is such that we have overcrowded two-car diesel trains from Ashford to Brighton. It is not possible to get a third carriage, because there are none in the country, and the company-Southern-is not allowed to procure any. That is a nonsensical position for Southern to be in, and it is also unnecessarily restrictive, in limiting Southern's flexibility to improve the service.

The service is subject to an ongoing timetable consultation. Whether we should have those timetable consultations is another matter, but we have got one going on now with that service. The consultation is now about reducing the length of route on which two-car trains operate. So, rather than having more carriages, which is what everybody wants, we will have a reduced route, if that option is chosen.

In my area, we will also have cascaded dustbin trains from the north London line-clapped-out 313s, which are 1976 rolling stock-replacing 2004 377s. That cannot make any sense, and it is deeply unpopular with my constituents, as Members will no doubt appreciate. However, it appears to be Southern's only option. Having looked into the situation, I do not blame Southern for it, given the configuration of the rolling stock and the instructions that the Government have given Southern about what it can and cannot do. I am afraid that that is an example of the Government intervening unhelpfully in such a way that the rail company will get the blame for the problems, when, in fact, the hand of the Government behind the company is causing them.

Southern has also been handed 442 rolling stock, which happens to be quite acceptable. Nevertheless, we are now asking Southern to operate a vast complex of different kinds of rolling stock all on the same section of railway line. That cannot be good for efficiency. The opportunity to mix and match different carriages is limited by the fact that they do not couple. That sort of over-involvement by the Government in rolling stock has not been helpful to Southern, and I suspect that that is mirrored elsewhere in the country.

When the Minister replies to the debate, will he say something about the Government's rolling stock plans? I ask that because we have these mythical carriages do not always seem to materialise, and we also had the announcement last year of the creation of Diesel Trains Ltd, which was then uncreated very shortly afterwards. Since then, we have had no announcement whatsoever about what is happening with the rolling stock. When will the Government make a statement on rolling stock, so that we are quite clear what is going to happen with both the 1,300 carriages and the plans to replace the diesel trains that were initially announced and then cancelled?

We need to recognise that one of the constraints on the train companies is the control of the timetable, which is with Network Rail. Some train companies have been able to negotiate shorter journey times, particularly when they are in competition with air travel. An example is the Virgin west coast main line service, following the improvements that have been made to that line. Other train companies, particularly those in a captive commuter market, have been less lucky. The hon. Member for Wimbledon will doubtless be aware, as this relates to his own constituency, that the journey time into central London from Wimbledon is now three minutes longer than it was in 1930. That does not seem to be much of an improvement in the 80 years that the railways have operated since then.

Let me turn briefly to the fares issue, which was dealt with in the other part of the Transport Committee report. I think that the hon. Member for Sheffield, Hillsborough referred to the fact that the cost of travelling by train has risen by 50 per cent. since 1977. In fact, that is the relative figure. It has risen by 13 per cent. since Labour came to power in 1997, although that trend has been apparent under successive Governments. However, the cost of motoring has fallen by 14 per cent. since 1997, and the cost of aviation, which is far worse than rail in carbon terms, has fallen by 35 per cent. since 1997.

We have the absurdity that the more carbon that someone emits, the cheaper it becomes to travel, and the less carbon that someone emits, the more expensive it becomes to travel. All three major parties have agreed to a target of cutting carbon emissions by 80 per cent. by 2050. If we are seriously committed to tackling climate change transport must play its part, and we must recognise that financial incentives and disincentives will determine what people do. If it is cheaper to get into the car to go from A to B, people will get in the car. That is the logical response of any individual. So what are the Government going to do to try to ensure that there is more of a relationship between the carbon emitted in transport and the cost of travelling? At the moment, the situation is humpty-dumpty, upside-down and creates all sorts of perverse incentives.

What are the Government going to do to get Britain off the bottom of a league table where the distance that someone can go for a tenner on off-peak fares-not on first-class fares, or on anything else-is less in this country than it is in any other country in Europe? Effectively, someone can travel the distance between London and John O'Groats for a tenner if they happen to live in Serbia, but someone in this country can only get from London to Basildon for the same amount of money. I invite Members to decide whether they want to be in John O'Groats or in Basildon, but that comparison between countries is not an edifying one for someone wanting to buy a rail ticket in this country.

There are other unacceptable confusions with rail fares. For example, there are the split-ticket arrangements, whereby if someone wants to go from Bristol Temple Meads station to London direct it can cost £74.50, but if they go from Bristol to Didcot and then from Didcot to London it only costs £53.20. How can that be sensible? There are far too many complications in the fare system that need to be sorted out. ATOC has now rightly begun a consultation, but unless it deals with the complexity of fares, as well as the actuality of fares, it will not be sufficient.

The Chairman of the Transport Committee referred in her contribution to the increasing divergence between regulated and unregulated fares. That divergence is becoming ever wider, which is unhelpful. For example, there is no point in having a walk-on service, as we now have on the west coast main line-that service runs every 20 minutes, which is fantastic-if the fares operate against a walk-on service and passengers have to book in advance. That does not make any sense. It minimises the benefit of the west coast main line upgrade on which the Government spent so much money.

When I went to Warrington Bank Quay, my office produced a return ticket costing £215. When I said, "No, I want to go standard, not first class," they said, "That is standard. First class is much more." A £215 ticket to Warrington and back is not good value. As for the £1,002 first-class open return fare from Cornwall to Scotland quoted in the papers, I understand that the company sold only one ticket, to a journalist who wanted to carry out the journey. Perhaps the Minister has gone on that trip. Why do the train companies not do themselves a favour? Nobody will pay that much for a ticket, so why have it in the book? Why not just cut the price by two thirds? They might actually sell a couple of tickets.

Photo of Chris Mole Chris Mole Parliamentary Under-Secretary, Department for Transport

I just want to assure the hon. Gentleman that, apparently, the publication of that figure in the first instance was an error. The fare was corrected in December.

Photo of Louise Ellman Louise Ellman Chair, Transport Committee, Chair, Transport Committee

Does the hon. Gentleman agree that it is also to be regretted that there has been a reduction in the times during which off-peak saver tickets can be used? For example, on the Liverpool to London route-I am sure that it happens in other areas as well-fewer trains can now be used for off-peak services. That is another, hidden way of reducing services and value for the passenger.

Photo of Norman Baker Norman Baker Shadow Secretary of State for Transport

That is exactly right. Some train companies have introduced super-saver fares to persuade the Government that they need not worry so much about off-peak fares. As soon as the train companies have their way on off-peak fares, the super-savers disappear or become almost unobtainable. We must be careful. Train companies are using their flexibility on unregulated fares to the maximum to push them up in a completely unhelpful way. There is a serious issue of regulation for the Government in how they deal with the comparison between regulated and unregulated fares. There is a case for introducing a ratio, so that walk-on fares never cost more than a certain multiple of the pre-booked advance fare. That might be one way to deal with the problem. Things certainly cannot be allowed to carry on as they are.

There is another issue-it is a techie issue, but Passenger Focus raised it with me yesterday-about the distribution of ticket moneys. I understand that an incentive exists for the train companies to sell advance fares because they keep the money, whereas they have to share more of the money from walk-on fares. I do not understand how that works, but it certainly seems to be an issue. If it is true, there might be a case for saying that the train companies should keep the money from the walk-on fares and share the money from the advance tickets. That might be a better way of encouraging them to keep walk-on fare prices down.

The fares issue will not go away. It will be the biggest inhibitor of train travel in the years to come. It would be tempting for a Government of no matter what colour, faced with a difficult financial situation after the next election, to push up rail fares to skew even further the balance between what the passenger pays and what the taxpayer pays. That would also be a way to limit business on the railways to restrain the clamour for further enhancements. That was British Rail's policy back in the 1970s and 1980s. We do not want to return to those days.

Social desire for mobility, the environmental case and the business case all demand an expansion of the railways at a price that people can sensibly and realistically afford. That needs a change in Government policy to ensure that the railways do not simply become a plaything for those who are better off than the people who use them now.

Photo of Chris Mole Chris Mole Parliamentary Under-Secretary, Department for Transport 4:14, 25 February 2010

It is a pleasure to serve under your chairmanship, Mrs. Anderson. I welcome the opportunity to have this debate, which comes at a good time. Three new franchise competitions will be launched this year: Essex Thameside, which currently trades as C2C, Greater Anglia and the East Coast franchise. We have heard some interesting contributions from the Chair of the Select Committee on Transport, my hon. Friend Mrs. Ellman, from my hon. Friends the Members for Sheffield, Hillsborough (Ms Smith) and for Selby (Mr. Grogan), and from the two Opposition spokespersons.

The National Audit Office report on rail franchising, published in 2008, found that the franchise system had delivered good value for taxpayers and generated keen competition for franchises. We remain committed to raising operational performance through the rail franchising process. By 2014, for example, we want punctuality to reach 92.6 per cent. or better. However, the performance of the franchise system in the recession raises inevitable questions and highlights major issues about how franchise contracts and competitions handle risk and responsibility.

To set out our thinking and potential changes in the next round of franchises, the Department for Transport published "The Future of Rail Franchising" on 20 January this year. We are still debating the issues, so the views of the Committee are particularly timely and valuable. Franchising must strike difficult balances between competing objectives. The Committee report recognises that when it points out that contractual controls on services, ticket offices and fares protect passengers, but prevent operators from responding in a downturn by reducing services and costs. The Government have invited views on that and several other key matters considered in "The Future of Rail Franchising". Operational challenges vary between franchises, as does the scope for investment, new stock or major service change. That is why each franchise must be considered separately.

There is no division between the Secretary of State and me on the question. The point that I was testing with Stephen Hammond was about the Conservative line, which seems to be that if we extended franchises to 20 years or more irrespectively, it would somehow solve all the problems. Norman Baker may have suggested the same in the past. However, I welcome the recognition that the KPMG report has brought new thinking on how variations in the economy during the life of a franchise might enable the management of risk sharing over the length of the franchise.

We intend that the next rail franchises will be let for a minimum of 10 years. Bidders will be able to make proposals for terms longer than 10 years in return for commitments to additional investment. That will allow us to receive the benefits of continuity and longer-term partnership. However, we would not want to rule out shorter franchises in future. There is no single right length for a franchise, as changes on the network can make the future of the business hard to predict for prospective bidders.

One of the most important issues that we are considering is the allocation of risk. The franchise system must be designed to deliver for passengers and taxpayers across the economic cycle, not just in a downturn. The recent downturn has tested the performance of the current system in exceptional circumstances. National Express's inability last year to continue its East Coast franchise due to economic conditions was regrettable. The current franchise system takes account of the fact that franchisees may face financial difficulties, and is designed so that core passenger services are not disrupted if an operating company defaults. The cost of terminating the East Coast franchise will be recovered from a performance bond maintained by National Express East Coast. The overall cost to the taxpayer will depend on factors such as ticketing revenue over the next 18 months, but the Government will receive all the revenues.

That high-profile default and subsequent contractual termination must be viewed against the broader canvas of franchising as a whole. However, events have led us to reconsider the current franchise arrangements designed to ensure that the train operator remains solvent and cannot walk away from the contract without a monetary penalty. We therefore propose to increase the amount of the bond that franchise operators provide to cover the Department's costs in the event of default. We will also re-examine how parental guarantees are calculated, so that owning groups are required to stand behind losses incurred by the operator to a predetermined level. We propose to make it easier for operators to invest their own money during the life of a franchise and receive part of that investment back after the franchise ends. In assessing bids, we intend to place greater weight on additional ideas and options generated by bidders.

Photo of Stephen Hammond Stephen Hammond Shadow Minister (Transport)

I am interested in the Minister's last two remarks, and wonder whether he will explain them. I am intrigued by the size of the performance bond that National Express gave the Department, which I understand was £40 million, although he may not be able to give an indication of that. What increase in the performance bond does he think would be necessary for a longer-life franchise? He just slipped in a remark that operators might be expected to put in extra investment, which they might get back. Will he explain that thinking?

Photo of Chris Mole Chris Mole Parliamentary Under-Secretary, Department for Transport

On the first point, we would want to be sure that what we were getting from the business not only covered the administrative costs associated with refranchising, which is the primary purpose of the bond, but recognised that the taxpayer would not be getting the benefit of a premium payment, which they might have got had the franchise continued for longer. We would have to assess how much that came to and build it into the franchise. Of course, there is a cost associated with asking the bidders to do that. On the anticipation that operators might invest more money, I understand that there are concerns among operators about whether they will realise the benefits of investing in stations, for example, during the life of the franchise they hold or whether those benefits will accrue to the operator that takes on the franchise afterwards.

Photo of Stephen Hammond Stephen Hammond Shadow Minister (Transport)

Is the Minister implying that he would expect a residual value at the end of a longer franchise that may have to be transferred and that a performance payment might be needed from the new franchisee to cover that residual value?

Photo of Chris Mole Chris Mole Parliamentary Under-Secretary, Department for Transport

I think the hon. Gentleman has put it quite well.

Photo of Norman Baker Norman Baker Shadow Secretary of State for Transport

It is helpful for the Minister to recognise that conundrum. I draw to his attention the fact that the cap-and-collar arrangements also discourage train companies from investing, because a great deal of the benefits they accrue is deemed to be generated profit and therefore returns to the Department. Is there a way to ring-fence the innovations of train companies so that they are not caught by those arrangements?

Photo of Chris Mole Chris Mole Parliamentary Under-Secretary, Department for Transport

We would always seek to avoid such protection arrangements that produce perverse incentives, such as discouraging operators from investing in the promotion of additional journeys because the benefits would not accrue to them, but return to the Department.

As I was saying, in assessing bids, we intend to place greater weight on additional ideas and options generated by bidders. We are looking at rewarding franchisees that come up with investment or improvement proposals to be delivered after the contract term. We need to keep a strong focus on performance and make sure franchisees deliver for passengers. All rail franchises incorporate performance requirements, which we monitor closely. We aim to ensure that all rail franchise commitments are delivered, that franchise agreements are complied with and that, if appropriate, the taxpayer is reimbursed when operators do not deliver the obligations in their franchise agreements.

Photo of Louise Ellman Louise Ellman Chair, Transport Committee, Chair, Transport Committee

Does the Minister agree that Passenger Focus does excellent work in monitoring how passengers feel about the experience of rail travel, and that its concerns should be taken up and its recommendations considered seriously?

Photo of Chris Mole Chris Mole Parliamentary Under-Secretary, Department for Transport

If my hon. Friend has a little patience, I will come to that matter in a few paragraphs.

The Department adopts a stepped approach to enforcement to ensure that any action taken is proportionate to the contravention. We have a range of tools, including the Secretary of State's powers to make an enforcement order or impose a financial penalty. If an operator falls below the defined levels, we can require them to produce a remedial plan to restore performance, but if deterioration continues, the Department can terminate the franchise. It remains our position that we do not renegotiate franchises. We expect operators to abide by the requirements of their franchise agreements.

There have been calls for the East Coast franchise to remain under Government control as a public sector comparator. That is not possible, because legislation requires franchises to be put out to competition. Data from the months of public operation will of course help us to learn more about the business. However, I do not believe that robust conclusions about public versus private ownership could be drawn from a longer period of public operation.

Photo of Norman Baker Norman Baker Shadow Secretary of State for Transport

I accept that a legislative bar exists, but does the Minister accept that it would not be complicated or time consuming to remove it?

Photo of Chris Mole Chris Mole Parliamentary Under-Secretary, Department for Transport

Whether or not that is the case, I am not sure that it would be good for the industry to inject such uncertainty into the framework. I am also not sure what could be compared with the East Coast franchise if we made it into a longer-term public comparator. Among the dozen or more franchises, not a great number are comparable with the East Coast, which is a majority long-distance operator. There are many commuter, short-distance and regional franchises.

Generally, our approach to franchises is about recognising that they are all different. For that reason, I am unconvinced that a comparison could be achieved. Perhaps the Southern franchise mentioned by the hon. Member for Selby could provide a decent comparison with other commuter franchises into London as they are broadly of the same nature, but I do not think it can be argued that there can be much comparison between the East Coast franchise and the South West Trains franchise.

Photo of Angela Smith Angela Smith Labour, Sheffield, Hillsborough

The Minister ruled out the possibility of a comparator on the grounds that it is anti-competitive. It has been suggested that we allow an arm's length company to compete with private train operators. Surely that would be a sensible and undogmatic way forward.

Photo of Chris Mole Chris Mole Parliamentary Under-Secretary, Department for Transport

I do not believe that we could make that happen at this time.

Photo of Stephen Hammond Stephen Hammond Shadow Minister (Transport)

The Minister will probably not thank me, but I will try to come to his aid. First, if such a company had to bid against other bidders, the Government would face the suspicion of a conflict of interests. Secondly, to have such a public company would be to plough a huge additional subsidy from the taxpayer into the industry. How could we be sure that that would provide the best value for money for the taxpayer?

Photo of Chris Mole Chris Mole Parliamentary Under-Secretary, Department for Transport

Whether it did or did not, there would be the suspicion of a conflict of interests and there would be such accusations.

Photo of Angela Smith Angela Smith Labour, Sheffield, Hillsborough

I thank the Minister for giving way a second time; he is most generous. As I said earlier, there are models to prove that his objections are not the case. Local government has operated models for some time that allow competition between arm's-length companies and private sector operators. They show it is possible to prevent the appearance and reality of conflicts of interest and of the unhelpfulness of subsidies to arm's-length operators.

Photo of Chris Mole Chris Mole Parliamentary Under-Secretary, Department for Transport

I am grateful to my hon. Friend for that clarification. I understand more clearly the point she is trying to make. I fall back on the belief that such a move would inject uncertainty into the industry, which would be unhelpful and would not ensure that we got the best services and value for the taxpayer in the longer term.

Photo of Louise Ellman Louise Ellman Chair, Transport Committee, Chair, Transport Committee

I have something of significance to add to the argument. Is my hon. Friend the Minister aware that I received a letter from the Secretary of State in January this year on this very topic? The end of the letter states:

"Any bids for the new franchise will have to demonstrate better value for money than the state operator. If they do not, then the new franchise will not be awarded and the franchise will continue to be run by East Coast."

Will he publish the criteria and details of how the comparative value would be assessed? Does he agree that the statement in the letter I received from the Secretary of State suggests that it is, indeed, possible for the franchise to remain in the public sector?

Photo of Chris Mole Chris Mole Parliamentary Under-Secretary, Department for Transport

I think that that is a different assertion from suggesting that the franchise should be awarded to some kind of arm's length public sector operator. What that letter is saying is that if we are not satisfied we will get a bid that offers better value, it would not be in the taxpayer's interest to award the franchise to a business that is going to cost the taxpayer more. That is simply common sense. The implication is that we would have to return to the market and start the process again. However, this time, given the success of the South Central franchising process, we are confident that the market will bring forward bids that will satisfy our expectations. I will look into how much of the information that my hon. Friend has asked for can be published, but she will be aware that the commercial sensitivity around a lot of these processes will disable us from exposing what a bidder's content might be in terms of their business plan, financial viability and so on.

Photo of Norman Baker Norman Baker Shadow Secretary of State for Transport

I am sure the Minister does not want to give way, but I am grateful to him for doing so, nevertheless. He is dancing on the head of a pin. To make the assessment that the Secretary of State has just been quoted as wanting to deliver, a bid must be effectively constructed by East Coast in order to make a comparison. If the bid is effectively constructed and it can "win" because it is deemed to be better than other companies who are bidding, that is a bid by any other definition. Is it not the case that what we are arguing for is, in fact, being considered by the Secretary of State? Is this another example of where his policies are rather different from those of the Minister?

Photo of Chris Mole Chris Mole Parliamentary Under-Secretary, Department for Transport

I am astonished that the hon. Gentleman can reach that conclusion from those exchanges, because it is not the one I would have reached. I certainly do not believe he should put that interpretation on what the Secretary of State intends.

Moving on, there remains a strong argument for sharing some measures of wider economic risk with franchisees. Train operators have a number of levers to increase revenues, but they cannot control the economy. We are considering improving the mechanisms within the contract that protect train operators from the effects of recession and ensure operators do not make windfall profits in good times, which was the point the hon. Gentleman made.

The recently-let South Central franchise is a good example of a passenger-focused franchise. Southern has announced an investment of £28 million to improve facilities at stations. That investment will meet the contractual requirement to refurbish 34 stations, and will provide new cycle and car park spaces. More passenger-focused franchises will become the norm. We have given Passenger Focus an enhanced role within the specification process, which emphasises the importance that the Department places on passenger needs. I hope that addresses the Select Committee Chair's point.

Train operators continue to feel the effects of the economic slowdown. We naturally try to take an informed view about what might happen to franchisees. Franchise agreements require operators regularly to supply the Department with detailed and forward-looking financial information, including business plans and rolling forecasts. Speculation about whether franchisees might default would be improper, and would destabilise the market. Ultimately, we cannot be certain what actions a parent group or franchisee might take until we are notified of a default.

Stephen Hammond sought to wring the last available point of political benefit out of his freedom of information inquiries, but I think he has misunderstood what the then Secretary of State, my right hon. Friend Mr. Hoon, was saying on 1 May 2009 in looking at a management contract. There was certainly no commitment to put a management contract in place; it is just one of the options for maintaining services and protecting passengers when we know that a franchise might be moving towards potential financial difficulties. If a management contract had been put in place, it would have been very short term and it would have been done to allow refranchising to take place-nothing more or less than that. The hon. Gentleman has misunderstood what was happening.

Photo of Stephen Hammond Stephen Hammond Shadow Minister (Transport)

It is clear from the response to the FOI request that the previous Secretary of State, Mr. Hoon, instructed that management contract negotiations should begin between the parties of the Department for Transport and National Express. That is made quite clear in the response to the FOI request. I have not misunderstood anything, and whether it was a short-term arrangement is irrelevant. It is not appropriate to say the situation has been misunderstood, because the key point is that negotiations were undertaken. Ministers from the Department later said no such negotiations were taking place but, through the release of departmental papers, the previous Secretary of State has shown that they were.

Photo of Chris Mole Chris Mole Parliamentary Under-Secretary, Department for Transport

No, no, no. Clearly, the purpose of a management contract is not to renegotiate the franchise with the franchisee for the remaining life of the franchise; it is to prepare and protect passengers and services during a period when there may be some uncertainty. That is not the same as renegotiating a franchise to allow the franchise holder to stay in place for the duration of the franchise, which I believe is the normal interpretation of renegotiating a franchise.

I would like to move on to fares, which I know is a subject of interest to many hon. Members and their constituents. I welcome the opportunity to discuss the policies that the Government have in place. As I suggested in my intervention on the Chair of the Select Committee, more than 60 per cent. of all rail journeys are made on regulated fares. The Government limit most operators to an average increase in regulated fares of no more than 1 per cent. above inflation each year.

Regulated fares are there to protect those who generally have little alternative to rail when making necessary journeys-for example, season ticket holders or those needing to purchase a ticket on the day of travel for longer-distance journeys, where a regulated flexible fare, such as the off-peak return or super off-peak return, would apply. I was a little bemused, shall we say, by the hon. Member for Lewes making robust assertions about changes in unregulated fares, because the only conclusion one can draw from that is that he believes they should somehow become regulated fares, or that all fares should be regulated. That is a retrograde step if we want franchisees to be able to use their initiative to provide fares that are competitive and attractive to the travelling public.

Photo of Norman Baker Norman Baker Shadow Secretary of State for Transport

If I may say so, the Minister was not listening very clearly to what I was saying because I suggested two mechanisms to try to make matters better. One suggestion was to have a ratio relationship between regulated and unregulated fares, beyond which they could not rise. That is not the same as deciding what every fare should be; it is setting a maximum ceiling. The second suggestion was to look at the rather techie point of how the moneys are divided between train companies for particular classes of tickets sold. That is far different from the gross distortion, with which I have just been confronted.

Photo of Chris Mole Chris Mole Parliamentary Under-Secretary, Department for Transport

I listened to the hon. Gentleman's second point and thought that, given our earlier comments on perverse incentives in the cap-and-collar arrangements, if train operators were asked to share the advance fares, what incentive would there be for them to promote advance fares in the way they do?

Photo of Norman Baker Norman Baker Shadow Secretary of State for Transport

I will happily answer that question as well. They will still have an incentive to sell advance fares because they have empty seats that they will wish to sell, particularly on off-peak train services, so that incentive will not disappear. However, they will also see an incentive not to overprice walk-on fares for the reasons the Minister has heard from all Members present.

Photo of Chris Mole Chris Mole Parliamentary Under-Secretary, Department for Transport

The incentive for them not to overprice any of the non-regulated fares is that they are in competition with other modes of travel. Entirely for that reason, they are non-regulated fares. I am sorry, but I do not think that the hon. Gentleman's argument holds water.

Photo of Angela Smith Angela Smith Labour, Sheffield, Hillsborough

Is not the reality that the unregulated fares are not competitive with other modes of travel, as was pointed out by Norman Baker? The cost of car travel has decreased in the past 10 years and the cost of rail travel has increased. If we are to reduce congestion on the roads and the impact of climate change, we must tackle the matter as a country. It is not just about competitiveness within the industry. It is a far broader question.

Photo of Chris Mole Chris Mole Parliamentary Under-Secretary, Department for Transport

In her introductory remarks, my hon. Friend the Member for Liverpool, Riverside drew attention to the fact that rail passenger numbers are now at the level they were at in the 1940s. If the fares were so uncompetitive, clearly the train operating companies would have been unable to fill the gaps between the peaks, which is what they have done so successfully. I am sorry to have to disagree with my hon. Friend the Member for Sheffield, Hillsborough on that point, although I will argue that there is some link between regulated and unregulated fares anyway.

Photo of Angela Smith Angela Smith Labour, Sheffield, Hillsborough

Passenger growth has to some extent been fuelled by the fact that the road networks are getting so congested, particularly in the south-east of England, that there is no choice but to use the trains. There has been a success story, as I acknowledged in my earlier contribution, but we are rapidly coming to the point at which the fare prices on offer could impact on future growth of the railways. It is not necessarily a given that growth will continue regardless of the fares.

Photo of Chris Mole Chris Mole Parliamentary Under-Secretary, Department for Transport

I do not want to disagree with my hon. Friend, but the evidence we have indicates that ridership will continue to rise in the coming years, which is why we are making unprecedented levels of investment in the rail network.

My noble Friend the Secretary of State appeared before the Transport Committee last June to talk about fares and a change that was made in the way fares are regulated. We removed the flexibility for train operators to increase individually regulated fares by up to 5 per cent. more than the average, so long as compensatory adjustments were made to other regulated fares. I am unable to give my hon. Friend the Member for Liverpool, Riverside any further information about what might happen in future years. Last July's retail prices index figure of minus 1.4 per cent. has meant that many fares, including most commuter fares, fell this January. We hope that those reductions will encourage more people to travel by train.

I was a little surprised that my hon. Friend referenced a piece of evidence from the Library that referred to 1987. If those figures are correct, I am certainly not going to take any responsibility for what might have happened in the first 10 years of that period. Certainly, in the past 15 years we have seen rail fares rise less than earnings. One can see that by looking at several popular journeys: a ticket from London to Birmingham in January 1995 cost £55, and this year it is £140, but the notional price this year if the RPI change was applied would have been £143; a ticket from London to Manchester in 1995 was £96, and this year it is £262, but it would have been £269 if RPI was applied; and a journey from London to Norwich was £55 in 1995, and that has risen to £82, but it would have been nearly £97 if RPI was applied.

Photo of Norman Baker Norman Baker Shadow Secretary of State for Transport

I hear the Minister's examples, but according to an earlier written answer, the cost of travelling by train has risen by 13 per cent. above inflation in real terms since 1997 and the cost of travelling by car has gone down 14 per cent. Those are the Government's figures.

Photo of Chris Mole Chris Mole Parliamentary Under-Secretary, Department for Transport

That was not the point I was making, which was that fares had not increased as much as real terms income.

Photo of Stephen Hammond Stephen Hammond Shadow Minister (Transport)

The implication of what the Minister has just said, with regard to the document that referred back to 1987, is that fare increases were higher when the railway was in nationalised hands than they have been since the industry was privatised. Is that what the Minister was trying to say?

Photo of Chris Mole Chris Mole Parliamentary Under-Secretary, Department for Transport

No, I was drawing attention to the Government who were in power at the time, as fares were allowed to rise by considerably more than they have done under this Government. I want to draw the attention of the hon. Member for Lewes to the cost of a train journey from Lewes to Newhaven Town, which was £3.80 in 1995, but £3.90 this year, having increased by 10p in 15 years, which I suspect his constituents would regard as stonkingly good value.

Photo of Angela Smith Angela Smith Labour, Sheffield, Hillsborough

I will refer to my own experience a few weeks ago, when I left Sheffield to watch Sheffield Wednesday play Nottingham Forest. We wanted to buy two train tickets to go to the match because we did not fancy the congestion in Nottingham, but the cost was nearly £40. In the car, on the basis of 40p a mile, the cost would be £24. Consequently, we went in the car and took the hit in the time it took us to get home because it was so much cheaper than going by train. Sheffield to Nottingham is a common commuting journey.

Photo of Chris Mole Chris Mole Parliamentary Under-Secretary, Department for Transport

I draw my hon. Friend's attention to the website, the name of which I cannot remember, that enables travellers to make realistic comparisons between different modes of transport-

Photo of Chris Mole Chris Mole Parliamentary Under-Secretary, Department for Transport

No. The website gives the true and real costs of motorcar travel and a better indication of what it will cost to make a journey, above and beyond the fuel cost alone. That might change my hon. Friend's perspective on the value for money of that journey.

Photo of Norman Baker Norman Baker Shadow Secretary of State for Transport

I am grateful to the Minster for drawing attention to the Lewes to Newhaven line, because I persuaded the rail company that it was in its interests to fill empty space and that, were it to introduce a reduced fare on the journeys to Lewes on which it had spare capacity, it would get more passengers. To its surprise, by cutting the fares by a third it has got the same amount of income coming in. That is an example of train companies responding properly, and that is why those fares are still down.

Photo of Chris Mole Chris Mole Parliamentary Under-Secretary, Department for Transport

I do not know whether the hon. Gentleman's efforts extend to the journey from Hitchin to London, which was £18 in 1995 and is now only £19.50, or to the journey from Newport to Cardiff, which was £3.40 in 1995 and has increased by only 70p to £4.10 this year. Cleary, it is dangerous to generalise in the way some do on different fares, except that 60 per cent. of passengers travel on a regulated fare, and this year, as I have said, they have seen their fares fall for the first time in living memory.

Passenger Focus, working with the Association of Train Operating Companies, has recently published research exploring the factors that prevent people from using the railway. The research revealed that many people believe that travelling by train instead of by car would increase journey time, involve more hassle and prove too expensive. However, when passengers were encouraged to "give rail a go", participants said that catching the train was more comfortable and reliable than they expected. In some cases, passengers found that the ticket was significantly cheaper than they had expected.

We need to tackle negative perceptions of train travel and encourage more people to travel by train. We aim to continue to work with Passenger Focus, the Office of Rail Regulation and the train operators to improve the quality of information given to passengers.

In 2008, with the encouragement of the Government, the industry introduced a new simplified fares structure that has three main ticket types: advance, off-peak and anytime. The National Rail website has recently had a major upgrade which emphasises this simplified structure, and my hon. Friend the Member for Sheffield, Hillsborough may find that the website is now simpler to use. It includes a link to a site called Best Value Fares which signposts information about where customers can buy train tickets, including information on independent websites such as The Trainline and Raileasy.

Of course, at the end of the day, there are only two sources of funding for the railway: the taxpayer and the fare payer. We need to strike a balance between the burden placed on taxpayers and that imposed on fare payers. In the past five or six years, the amount invested in rail has risen and the increase has been almost entirely funded by taxpayers.

A major development that I would like to bring to the attention of the House is that Oyster pay-as-you-go was rolled out across the national rail services in London on 2( )January. That will make life easier and simpler for travellers. Oyster on rail will simplify travel across London for passengers who need to use national rail and other forms of transport such as the underground-they will now need only one type of ticket. Now all the users of the major public transport networks in the capital have the assurance that their pay-as-you-go fare will be at least as cheap as the cheapest cash fare, and often cheaper. Pay-as-you-go fares on rail have become regulated because, as pay-as-you-go is bound to become the standard way to pay for a walk-up fare, passengers will need the protection of having such fares within the regulatory system.

In December, the Department published the first ever smart and integrated ticketing strategy for public transport in England, including up to £20 million of additional funding for the large urban areas outside London, to speed up development of smart ticketing schemes. Oyster pay-as-you-go is well suited to the kinds of journey made in London but it is not right for the whole public transport network. The Government's vision is based on the Integrated Transport Smartcard Organisation specification. That is why part of the pay-as-you-go deal is for ITSO to be accepted in due course on the bus and underground networks in London.

In conclusion, I believe that the right investment is in place to achieve our objectives for rail. Despite the global economic downturn, further significant growth in passenger numbers over the next 10 years is still predicted. We are making the biggest investment in capacity for a generation. Franchise contracts contain strong safeguards to ensure that key standards are met, even in a recession. There will be even tougher performance measures to ensure that longer franchises continue to deliver for passengers.

Rail passengers can be more confident than ever that they are buying a ticket for a fair price. Our policy is one of continuous improvement, and we aim to achieve value for money for passengers alongside the ongoing capability to invest in the rail network.

Photo of Janet Anderson Janet Anderson Labour, Rossendale and Darwen

Mrs. Ellman, as Chairman of the Select Committee, do you wish to respond? You have another opportunity to speak if you wish, with leave of the House.

Photo of Louise Ellman Louise Ellman Chair, Transport Committee, Chair, Transport Committee 4:53, 25 February 2010

Thank you, Mrs. Anderson. With the leave of the House, I would like to respond briefly and say how pleased I am that there is such strong agreement on the importance of rail, investment and attention to the services that the public require, and on the need for risk to be shared more equitably, which is an important point.

The proposals in the Department's document "The Future of Rail Franchising" reinforce many of the points in the Select Committee's report, and have been supported by comments made during this debate. It is important that they are followed through, and that includes the need for longer franchising with appropriate safeguards, and the need for fares that will encourage the use of rail.

I hope that because of this debate, the question of the future of the east coast main line will be considered in an open and proper manner, and that there will be adherence to a statement made in a letter to me from the Secretary of State that a new franchise would not be awarded unless it demonstrated better value for money than a state operator would provide.

Question put and agreed to.

Sitting adjourned.