Open Access Rail Services — [Mr Philip Hollobone in the Chair]

Backbench Business – in Westminster Hall at 3:58 pm on 10th July 2018.

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[Mr Philip Hollobone in the Chair]

Photo of Martin Vickers Martin Vickers Conservative, Cleethorpes 4:00 pm, 10th July 2018

I beg to move,

That this House
has considered open access rail services.

It is a pleasure to serve under your chairmanship, as always, Mr Hollobone. It is noticeable that the audience is fleeing just as the highlight of the day is coming on.

I secured this debate for two reasons: first, because I think the present system of rail franchising needs a certain amount of reform; and, secondly, because I am conscious that an open access operator will shortly put in an application to the regulator to deliver direct rail services to my constituency. I hope the application will be for four trains a day each way serving Scunthorpe, Grimsby and Cleethorpes, because that would be a great boost to the local economy.

Just last week, the Government acknowledged the important part that northern Lincolnshire and the Grimsby-Cleethorpes area have to play in the northern powerhouse, when the Northern Powerhouse Minister and Lord Henley from the Department for Business, Energy and Industrial Strategy visited north-east Lincolnshire to sign the pilot town deal, which promises considerable investment in the area. It also recognises the importance of the Humber estuary and northern Lincolnshire in particular to the national and regional economy.

The reality is that the south bank of the Humber is badly served by rail at the moment. The hourly service to Manchester airport is very welcome. It provides connections to Doncaster and Sheffield, which link to many parts of the country, but businesses and many Members of Parliament would greatly benefit from a direct train service.

I note that the former Rail Minister, my hon. Friend Paul Maynard, has joined us. I think I am right that he once described himself as an apostle of open access. Hopefully, he will continue to argue that case in the higher reaches of Government, to which he has succeeded in climbing. I hope the new Minister—I welcome him to the debate—has similar views. In recent appearances before the Transport Committee, the Secretary of State seems to have been more sympathetic and warmer to the concept of open access.

In my part of the country, Hull Trains has given a considerable boost to the economy of the north bank of the Humber. Grand Central, which I think is about to submit an application, will hopefully do the same for the south bank.

Photo of Mike Hill Mike Hill Labour, Hartlepool

My constituency also benefits from open access services run by Grand Central, which covers Yorkshire and the north-east to London. It is a vital service, but this year it has been struggling and not performing very well. Does the hon. Gentleman agree that the recent frequent cancellations, the failure of air conditioning units and the overcrowding are worrying signs that require investigation?

Photo of Martin Vickers Martin Vickers Conservative, Cleethorpes

I acknowledge what the hon. Gentleman says, and I have to say that I have experienced similar problems on some of my own journeys. Hull Trains, in particular, has recently gone through a rather bad spell, from which it has now hopefully recovered. That does not take anything away from the concept of open access which, as the hon. Gentleman acknowledges, has provided services to towns off the main east coast and west coast lines. That is essential if we are to develop the north-east and Humberside economies.

Photo of Stephen Hammond Stephen Hammond Conservative, Wimbledon

Does my hon. Friend agree that the concept of open access could drive efficiency back into the railway system, where it is needed? He mentioned the failure of the franchising system. Network Rail’s inability to link to the requirements of the operator is one fundamental problem with the rail system. A slot auction system for access could give Network Rail an incentive to align itself with the operators’ objectives.

Photo of Martin Vickers Martin Vickers Conservative, Cleethorpes

I thoroughly agree. My hon. Friend’s experience as a former Minister makes that a particularly relevant point.

We are currently experiencing record private investment in UK rail. In 2016-17, that investment totalled £925 million—the highest since records began. The vast majority—£767 million—was spent on rolling stock. Some of that went to Hull Trains.

Given the other demands on the Budget, the idea that more taxpayer investment would go towards the railways was a myth. I know the Opposition’s policy is to renationalise the railways, but those of us who remember the nationalised system know that, in fact, it spiralled down because of a lack of investment. The reality is that there are so many calls on Government investment that transport does not get what it deserves. If the Government have a choice between investing in the health service and improving the rail services to Cleethorpes, I rather suspect that the rail services to Cleethorpes would suffer.

Photo of Alex Sobel Alex Sobel Labour/Co-operative, Leeds North West

On that point, I am a Labour and Co-operative Member of Parliament, and there are proposals for the co-operatisation of the railways. An open access operator—Go-Op—is developing a route in the south-west. Diversifying rail ownership is a big priority for the Co-operative party and for me as a Member of Parliament. Does the hon. Gentleman agree that we need diversity of ownership in the system?

Photo of Martin Vickers Martin Vickers Conservative, Cleethorpes

I am perfectly happy to have diversity of ownership—that is what the free market would most likely deliver. Sadly, the history of British Rail did nothing to encourage my enthusiasm for a nationalised system. Indeed, British Rail ended the direct service to Cleethorpes in 1992.

There has been record investment and record numbers of journeys in recent years. Passenger numbers fell under British Rail but, since privatisation in 1994, the numbers swelled to 1.65 billion in 2015—almost triple the low point of 1982. Although there have been clear failings by Virgin Trains, it is vital to look beyond the headlines. Thanks to the Transport Secretary’s efforts, rail efficiency has been improved, ensuring that passengers and taxpayers get maximum value. On average, 97% of every pound of passengers’ fares goes back into the railway, which is very welcome.

Since Virgin took over its franchise in 2015, it has contributed more to the taxpayer than when the service was publicly run. Refurbished trains, additional services and improved ticketed access are just a few of the benefits that passengers have experienced. Of course, Virgin is not blameless in the debacle, but it is not alone. Network Rail, the publicly owned element of the railways, failed to deliver the promised improvements on which Virgin based its final projections.

I have been reassured by the Transport Secretary’s commitment to a new approach from 2020, with the first regional public-private partnership on the route. The partnership will have one brand, one management team and one leader, which will ensure that it is transparent and accountable to both Parliament and passengers.

A privatised franchise system on the east coast is preferable to the publicly owned system that preceded it. It has also been improved dramatically by the advent of open access operators, which provide constant competition to drive up standards and outcomes for passengers. The main problem is that the rail industry has been reformed to an unsatisfactory halfway house between nationalisation and privatisation. The solution, contrary to what many in the Opposition would argue, is not to nationalise the whole system—the experience of British Rail shows where that will take us—but to push ahead with privatisation and extend the market by allowing open access on other lines which could benefit so greatly from it. The hard left so often tell us that true communism has not been tried, but in actual fact true competition has not been tried on our rail network.

Open access could be a logical component of the Prime Minister’s mission, which she set out at the party conference last year, saying of free markets that she was

“prepared to reform them when they don’t work.”

The rail service is a prime example of a market underperforming. The solution, rather than to take the market out of the picture altogether and reverse all the progress made over the past few decades, is to reform the market, taking on the monopolies so as to expand it and allow it to flourish.

Competition must extend beyond the bidding stage to avoid the winner being granted a complete monopoly. The message to existing franchise operators and bidders should be clear: expect competition in future.

Photo of Luke Graham Luke Graham Conservative, Ochil and South Perthshire

My hon. Friend is making strong points about competition and bidding. Is it not also incumbent on the Government to refine their bidding process, ensuring better information for potential rail service providers so that contracts may be structured to work for the long term?

Photo of Martin Vickers Martin Vickers Conservative, Cleethorpes

That is an important point. It is essential that we move in that direction.

What has been the impact of competition to date? As I said, passenger journeys have increased by 42% on competitive lines, compared with 27% on those that have no competition; revenue has increased by 57%, compared with 48%; and average fares have increased by only 11%, compared with 17%. The east coast main line has open access operators such as Grand Central Trains and Hull Trains. Other rail lines around the country would do well to replicate that model.

Open access operators take no support from the taxpayer. The open access model creates competition on the line, which has led to fantastic results. In fact, since that has been the case on the east coast, the main line has had the highest satisfaction ratings in the country. The east coast open access operators deliver the very highest rates: in 2015 First Hull Trains and Grand Central each had a 94% passenger satisfaction rate, which was the joint highest score of all operators. That was confirmed in 2016 and 2017 in the passenger satisfaction surveys conducted by the Competition and Markets Authority.

In 2016, the CMA recommended more on-track competition generally, either with much more open access to compete with franchises on the same lines or with multiple operators to provide services in a fully commercial environment. Unlike the CMA, however, the Government are yet formally to declare their support for the principle of extended open access. Perhaps the Minister will take up the offer to do so this afternoon.

Open access competition has led to new routes being opened or reopened. Without open access on the east coast main line, would places such as Sunderland, Hartlepool, Halifax and Bradford have the frequent, direct and high-speed long-distance services from which they now benefit? Something similar desperately needs to be replicated in northern Lincolnshire.

The business community has made its support for open access clear. On services to northern Lincolnshire, the Hull and Humber chamber of commerce stated:

“Hull Trains have done an outstanding job for the city in improving our rail service from a one a day return with the main franchise holder (GNER) some years ago to seven a day now.”

In the north-east, the chambers of commerce have been equally supportive.

Some argue that more open access will reduce the franchise premium. I acknowledge that protection should be offered to the franchise holders given that they pay such a large amount for the privilege of operating services, but I ask the Minister what is more important: the Treasury getting additional resources or the passenger getting better services? Without doubt, we should focus on the passenger.

To conclude, I restate the importance of services into northern Lincolnshire, which have the support of business and of the local community who want the services for leisure travel. As I said, the Government gave northern Lincolnshire the title “energy estuary”. It is an important part of the northern powerhouse, which has focused too much on the north-west and the Leeds-Manchester-Liverpool triangle. An opportunity now exists to provide a boost to the local economy in many of our regions and provincial towns, and coastal communities in particular. I urge the Minister to do all he can to support the requirement for services into northern Lincolnshire. I very much hope that the application to the regulator in the not-too-distant future will be successful.

Photo of Jo Johnson Jo Johnson Minister of State (Department for Education) (Universities and Science) (Joint with the Department for Business, Energy and Industrial Strategy), Minister of State (Department for Transport), Minister of State (London) 4:16 pm, 10th July 2018

It is a pleasure, Mr Hollobone, to serve under your chairmanship, which I am sure has played its part in attracting not one but two illustrious former Rail Ministers to the debate.

I congratulate my hon. Friend Martin Vickers on securing the debate and on the landmark town deal for Greater Grimsby that was agreed last week. More than 8,800 new jobs and nearly 10,000 new homes will be delivered in Greater Grimsby, including his proud constituency of Cleethorpes, thanks to a deal worth £67 million. The deal encompasses improvements to key roads and the establishment of enterprise zones to attract and support businesses in the area, further increasing investment and employment.

Competition through open access on the rail system has delivered benefits to parts of the network, as my hon. Friend highlighted and as the Competition and Markets Authority noted in its 2016 report on rail competition. For a number of years we have had successful open access operators on the network, such as Hull Trains and Grand Central, delivering important services to the communities that they serve.

In the right circumstances, therefore, the Government have supported open access applications—for example, Hull Trains’ successful application to run innovative services in 2017 in support of Hull’s year as the city of culture. Those services gave many more people the opportunity to enjoy the city’s excellent showcase, and they still operate today.

Ultimately, the independent Office of Rail and Road determines applications to run open access services based on industry consultation and its own analysis, balancing the range of statutory duties, which include benefits for passengers; the financial impact on the Government and, critically, existing passengers; and the performance impacts on the network. Grand Central’s 2016 application to run services to Cleethorpes was not granted by the ORR, but as a Department we want future applications that offer genuine benefits for passengers, serve new markets such as Cleethorpes and deliver innovative services that complement the existing franchising system. We made that position clear in “A Strategic Vision for Rail”, published last November, and in the guidance we issued to the Office of Rail and Road last July.

It is important to pick up on the point made by my hon. Friend about open access operators not receiving any Government subsidy. It is true that we do not directly subsidise open access operators, but they do not pay towards the fixed costs of the network on which they operate, and nor do they contribute towards the vital social services that the franchised operators that they compete with deliver. That creates something of an uneven playing field, which distorts the incentives of operators and means that we cannot realise the full benefits of competition for passengers.

The CMA recommended that, with robust reforms in place, open access could deliver benefits for passengers. The Department for Transport and the Government agree with that assessment. That is why we are working closely with the ORR on its proposals for reforming track access charges in the next rail control period CP6 from 2019 to 2024. Under those reforms, open access operators will pay an appropriate amount towards the fixed costs of the network where they can. We support that as a vital step in creating a level playing field between franchised and open access operators.

We have also consulted on a possible public service obligation levy. The levy would complement track access charging reform so that open access operators would also pay towards the social services that franchises deliver to many stations—those stations would not have the levels of service they do today if the free market was left entirely to itself. The Government offer greater passenger choice through the franchising system to deliver social as well as economic benefits. A greater contribution from open access operators towards the costs of the railways and a more level playing field should lead to more opportunities for open access services, but it is critical that we get the reforms in place first so we can start on the right footing.

It is important to state that franchised operators will still deliver the vast majority of services. We need public accountability to ensure everyone can benefit.

Photo of Martin Vickers Martin Vickers Conservative, Cleethorpes

I welcome the Minister’s comments, particularly on creating a level playing field. Does he acknowledge that it would be beneficial for perhaps two franchise operators to operate on some of our main lines, such as the east coast? That would provide competition between them.

Photo of Jo Johnson Jo Johnson Minister of State (Department for Education) (Universities and Science) (Joint with the Department for Business, Energy and Industrial Strategy), Minister of State (Department for Transport), Minister of State (London)

Indeed, in 2016 the Competition and Markets Authority said that there could be a greater role for open access of up to 30% of train paths on some routes. It suggested that it would like two to three open access operators on each inter-city route—east and west coast—and also on the Great Western main line. That recommendation was subject to important reforms to ensure that the open access operators make that appropriate contribution towards the cost of the railway. Those reforms were the ones I mentioned: to track access charging and the introduction of a public service obligation. Both would therefore see open access operators pay a sufficient contribution towards the overall cost of the railway.

It is right that government retains sufficient control over services and fares as well as operator profits through franchising contracts. Those contracts allow government to ensure the provision of socially and economically beneficial services that the market would not otherwise provide and protect passengers by regulating certain fares. It is also right to recognise the role that franchising plays in rebalancing the economy—franchise payments from the most heavily utilised parts of the network fund services in other regions, thereby maintaining the national network and providing a range of economic and social opportunities that would not otherwise materialise.

Open access has an important role to play in delivering new, innovative and commercially viable services for passengers, but it must fulfil that role as part of a railway that serves as a national asset and not just a business. That means operating alongside and complementing a franchising system that allows the railway to shape and support people, businesses and the economy all over the country.

Question put and agreed to.