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Rail Franchises

Volume 453: debated on Wednesday 29 November 2006

I appreciate the opportunity to discuss this topical subject. My reasons for seeking the debate were partly parochial. My constituency is served by the South West Trains franchise and about 10,000 of my constituents use the railway system daily from eight stations. I have deliberately couched the debate in rather broad terms to give party spokesmen and other hon. Members the opportunity to speak.

I shall focus on the terms of and background to the South West Trains franchise, which was announced on 22 September. It is one of the biggest franchises and has been let again to Stagecoach, which has held the franchise since privatisation. It is fair to say that the company has had a rather mixed experience—initially it was utterly disastrous. The company came from the bus industry and did not have any rail experience. In the mid-90s, it decided to make a quick, cost-cutting attack on the business and laid off large numbers of drivers but then discovered that there were not enough left to drive the trains and we had months of mayhem. That was probably a main contributory factor to my being elected in 1997.

There have been improvements on different levels since then. Punctuality has been improved, partly by lengthening journey times and thus making targets easier to hit. None the less, there has been an improvement and the franchise is now one of the better ones. There has been an increase in the rolling stock and its quality has improved on both long and short-distance routes. There are now 40 per cent. more passengers than in the mid-90s, and there are a variety of reasons for that large increase: congestion on the roads, increased economic activity and the rising population. However, we are undoubtedly now dealing with the problems of success rather than the problems of failure. The system is much bigger and is growing, and the problem is with accommodating that growth.

When the franchise was announced in September, my first reactions were positive. There were some good news stories, there was commitment to improved station facilities, and the Oyster card system was extended to outer London making it easier to interchange between London Transport and the commuter system. Above all, there was the prospect of some easing of the chronic overcrowding that has been the condition of the rail system locally with the promise of a 20 per cent. increase in the number of seats. I asked the Minister about that in Transport questions last week, and he confirmed that there would be an increase in exactly the same terms as the Government initially said and that South West Trains had confirmed that we will have a 20 per cent. increase in seating capacity.

What has happened since has created a major mystery around those assurances. It became clear from a freedom of information request that was published in the Evening Standard that the company does not interpret its franchise in that way. Indeed, it is currently ripping out large numbers of seats from its existing stock—approximately 160 seats per train. I was surprised by that and went to speak to the company in person, and it reiterated the explanation that it gave on the record in the national and regional press. There is no question of the seats not being taken out. The people at the company are perfectly honest, open people. They are hard-nosed businesspeople, but they are straightforward.

The company has stated explicitly that its policy is to

“allow more people to stand in comfort.”

It wants to clear away seats with the specific objective of getting people away from the doors because it is dangerous and time-consuming to have people standing there. It wants to move people down the carriages and get more people in to stand.

Overcrowding is officially defined by the Department for Transport as

“35 standing for every 100 sitting”.

The implication of the company’s decision to take out seats is that overcrowding is being increased as a matter of policy, not as a by-product of growth. Its deliberate policy is to have more people standing relative to those sitting.

One of my main aims in securing this debate was to obtain from the Minister a clear understanding of what is going on. It is clear from his statement in Parliament last week that his understanding is quite different from those of the company and the general public. I do not imply that there is ill will or that anyone is trying to mislead anyone else. There has obviously been a terrible misunderstanding. It may be that when the Minister talks about increasing the number of seats or the stock, he is talking about the improvements of recent years that are now in operation. The company categorically denies that what has been promised will be the end product of its franchise; indeed, there will be less seating and more technical overcrowding. It is important to establish how that misunderstanding arose, so that the general public will no longer be in their current state of alienation and confusion.

Is it not an inherent problem of privatisation that profit maximisation means getting as many passengers on as few trains as possible?

Profit-making companies have different ways of making profits. It is fair to say that the franchise is highly constrained, and I am concerned by what those constraints are and how the Government have specified them. I do not think that the private company is trying to go outside of the rules that have been set. The question is whether the rules and parameters were precise enough. That concludes my first set of questions to the Minister. There is an enormous amount of confusion and ill will. Will he clarify what has happened so that we do not perpetuate this story?

My second set of questions is about future investment in the franchise. The company is paying a substantial premium. It was receiving a subsidy but will now put in a premium. One could argue that that is a measure of good performance. Perhaps it opposes the point that the hon. Member for Luton, North (Kelvin Hopkins) made, because here is a company that believes that it can deliver an increasing service, make money out of it and contribute more to the Government. But where is that premium going? Will it be invested? I shall raise several issues that have not so far surfaced in discussions about the franchise.

The franchise is for 10 years, so one would think that there was some prospect of significant investments taking place. One key to improving the number of trains, the provision of services and other requirements of growth is the freeing up of Waterloo International when Eurostar departs in 18 months or 2 years’ time. I asked the Secretary of State about that in October 2005, and he gave a constructive and helpful response that was well received. He said that the Government had grasped the issue and had headed off Network Rail from the initial proposal—a property development project, I believe. The Secretary of State made it absolutely clear, and later reaffirmed, that there would be a rail use for Waterloo International. That was very welcome and creates a great deal of potential.

I subsequently received a helpful letter from the Minister’s predecessor, the hon. Member for Halton (Derek Twigg), in which he sketched out the process. He said that the franchise negotiations would not incorporate the use of Waterloo International but that there would be a separate costing and it could later be added once agreement was reached. I want to press the Minister on that. Will he give us some indication of what kind of time horizon is envisaged? In the short and medium term, this might be the most fruitful way of increasing capacity and improving the number and frequency of trains.

Beyond that, there are other objectives. There is a general acceptance in the railway system that there will have to be longer platforms and more coaches, particularly on the very congested commuter routes. There is no indication in the franchise about how and when that will happen, so it would be useful to have some indication from the Minister as to how he sees this matter evolving in the medium term.

My third set of questions relates to fares, which is a highly topical issue in view of the announcements of the new fare structure in the past 24 hours. The franchise makes a specific commitment, stating:

“Fare structures will change to incentivise travel outside the busiest periods”.

The objective is clearly desirable: to reduce crowding at the peaks and spread the load.

It is fair to say that the company has already announced one positive step in that direction, because the season tickets will make it relatively more attractive to travel off-peak. The problem with the fare structure is a built-in tendency to create exactly the opposite incentives from the ones that are being sought in the franchise. We saw that yesterday in the announcement of the fares for South West Trains—I believe that this applies to all of the other operators—because the regulated fares are increasing by 4.3 per cent. whereas the unregulated fares are increasing by 5.3 per cent. The unregulated fares apply predominantly off-peak, so in a sense the incentive is being created to travel at peak times rather than at off-peak ones.

The finances of the company will come under a great deal of pressure. It might well have made money out of the railways, but most analysts think that it is now operating on a 3 per cent. margin rather than a 10 per cent. one. The one way that it can create breathing space for itself in terms of profits is to jack up its unregulated fares. There will be strong pressures to widen the differential between unregulated and regulated fares, which would create the opposite of what the Government intend. I do not just want to make a political point about fare increases being a bad thing, but I must ask them how they think the pattern of fare increases will reinforce sensible incentives.

My fourth set of questions relates to the broader political points that the party spokesmen will want to make and is on the rather damning comments in the Select Committee on Transport report on passenger rail franchising. I understand that it is a consensus report, and it talks about the “self-contradictory muddle” in the current franchising structures.

One can see some of that self-contradiction in the South West Trains franchise. On the one hand, companies are being insulated from risk. I think this is true of South West Trains, but I know that it is generally the case that the franchise operator does not have to pay the risk of industrial action, even though some of their managers may tend to provoke it.

I am interested in this issue of risk. Does not a proportion of the risk always remain with the Government, because they cannot allow the railways not to operate? Risk is always, to an extent, with the Government and not with the operators.

That is the argument for the direction in which the Government are going, but it raises the question of why the private operators are in place. The whole purpose of having private enterprise is that someone will carry the risk and act in an entrepreneurial way.

Some aspects of risk are clearly not being carried by the franchisee. Industrial disputes are one such aspect, but a more important one is uncertainty over revenue growth. This particular franchise has a formula built into it, under which if revenue growth is exceptionally strong, a large part will go to the Government, but if the revenue growth falls below expectations, the company will be protected from the loss.

I have outlined two aspects in which risk is being removed from the private company, but in other respects it carries considerable risk. It is not clear why some forms of risk are being carried and others are not. Perhaps the Minister will clarify something. One of the main elements of risk relates to open access to the track and competition, upon which I believe the regulator can insist. I am sure the Minister is grappling with the tricky issue of the problems that are being caused for Great North Eastern Railway by the entry of new competitors on to the east coast main line track. I believe that the position is so serious that GNER is thinking of returning its franchise. Will the Minister spell out how he expects that awkward problem to be addressed?

The same problem could arise on the South West Trains franchise, because other operators are keen to use the track. Bubbling away in the background is Airtrack, which is a proposal by BAA plc to run a new fast service between the new terminal 5 and Waterloo, and possibly other major stations. I do not know the details and have no idea whether it is a good or a bad thing. However, it has the potential to cause competition for scarce track and would probably disrupt the services of South West Trains unless additional capacity was provided. It could cause the same kind of difficulties on the South West Trains franchise as are being caused by competition on the east coast main line. If BAA plc was to come forward with a plausible set of proposals, would the regulator be obliged to let it have access to the track and to compete on it at the expense of the existing franchisee? How would the allocation of risk then evolve?

A few years ago, Stagecoach made a set of proposals for a general improvement in the financing of the railways. In a way, it went out ahead of the pack in arguing for vertical integration as a way of cutting costs. We all know that one of the big problems is the way in which the companies that do the maintenance have been greatly inflating the cost structure.

I know that the franchise report deals, albeit rather briefly, with vertical integration. The idea seems to have rather run its course, at least for the time being. Does the Minister still see any scope for it, at least in self-contained parts of the network? It would be hopeless in areas such as Clapham Junction, where different franchisees operate, but do the Government still intend at least to entertain experiments? Since this company has shown an interest in pioneering such work, is it something to which we can look forward? I hope that I have raised a series of questions to trigger both further debate and a response from the Minister.

I am pleased to have an opportunity to speak in this debate, and I congratulate the hon. Member for Twickenham (Dr. Cable) on raising this important issue. I have taken a long and close interest in the railway system, not least because I have been a commuter for 27 years on First Capital Connect, which was Thameslink and, before that, British Rail.

I study the railways with interest and read about the subject, and I have many friends and colleagues in the railway industry who tell me on a daily basis what is actually going on. My comments are based on some background of knowledge and are not just made from a position of prejudice, even though it is probably well known to everyone here that I do not think that privatisation was a good idea and that I strongly believe that the railways should be reintegrated into a publicly owned system.

I have recently heard surprising comments from private enterprise members of the railway industry, who said that they had overheard a Treasury official saying that the reason why we privatised the railway system was “to promote its decline”—those were the words that were used. Before that, apparently, another Treasury official, who was put on the board of BR, said, “I have come on to the board to oversee the decline of the railway industry.”

There was a profound disbelief in the railways among Governments and among politicians in general. We believed collectively—I am not talking about us personally—that the railways were a system of the past and that the future would be the roads. I understand, although this might be apocryphal, that Mrs. Thatcher believed that railways were inherently socialist because they were collective and people travelled together, whereas the true freedom-lover, the individual, would always drive by car.

That story might not be true, but apparently it was true that there were plans at one point possibly to close Midland Mainline and the line that goes through my constituency. That was at the extreme of the mania for road travel. I think that the world has realised that a terrible mistake was made and that we can never all get on to the roads. They are now incredibly crowded. Setting aside any concerns about carbon dioxide, we need our railways. The fact that millions more people are travelling on the railways every year demonstrates that the population—our constituents—believe in railways, which will be more important in future as we deal with environmental problems and the population density of this country. It is possible that the population of this country will rise to 70 million and we will need more transport, so the narrow, fast corridors that rail provides will be vital.

The franchise that serves my constituents is First Capital Connect, and before that it was Thameslink. One of the features of privatisation was vertical disintegration: the rolling stock is owned by rolling stock leasing companies or ROSCOs—essentially the banks—who lease them to the train operating companies, who buy time on the track owned initially by Railtrack and now by Network Rail. Even Conservative Members realise that that vertical disintegration was a terrible mistake and that vertical integration is the way forward. If we have vertical integration, the franchises will disappear and will be integrated into another sort of railway organisation, be it public or private. Over time, it might even start to look a little like British Rail. At a meeting at Westminster, the former regulator, Tom Winsor, said that British Rail handed over the railway network to Railtrack “in good order” but that the problem was that there was desperate under-investment. The network had been starved of investment for decades.

If one compares the level of investment in railways in Britain with that in railways on the continent, one can see the difference. We are now trying to make up lost ground. Unfortunately, we are doing that in the private sector instead of the public sector and that costs a lot more. My friends in the railway industry suggest that, for example, the cost of laying a mile of railway track is now between four and five times what it was under British Rail when costs were held down by cash limits and work was carried out by directly employed staff who did a superb job and, as Tom Winsor said,

“worked miracles on a pittance.”

Had we had more foresight, we would not be in our present position. We would have a much better, modern railway system with better investment and the work would be done much more cheaply.

The franchises are relatively short term, so there is not much incentive to invest, and we are going to integrate them and make them longer term. If all the risk is held by the Government, who pay the bill and are responsible to the electorate, what is the point of having the system in the private sector if it is inherently subsidised and non-profit-making? The system is not sensible and we shall look back on this as a period of political madness.

I draw attention to my entry in the Register of Members’ Interests and my relationship with the National Union of Rail, Maritime and Transport Workers.

I draw my hon. Friend’s attention to parliamentary questions that I and others put down about the rationality of the process by which the franchises operated, particularly the bidding process. The Government confirmed that more than £60 million was spent on franchising passenger services just in terms of the bidding processes and the assessment of the franchises alone.

The bidding process and all the contracting across the former public sector, now the private sector, are expensive, as I know from managers in my local hospitals. The bidding process and subsequent management costs money. My hon. Friend is absolutely right.

Let us look at how the franchisees operate. First, they must lease their rolling stock from the ROSCOs and the charges have been horrendous. I know that the Government have focused on that and no doubt my hon. Friend the Minister had some influence is bringing down those charges, but they were sometimes of the order of 30 per cent. and more for rolling stock that might last 20 years. It was a rip-off, and the banks were coining public money and pocketing it by charging vast amounts for leasing rolling stock.

Turning to the relationship with Railtrack and now Network Rail, I travel on trains on a daily basis and every now and again there is a rash of what are called “wheel flats”. When wheels skid, particularly at this time of year, they form a flat and bang the rails as they go round. That happens daily at the moment and almost every carriage that I have been in during the past week has had wheel flats. One of the problems with that is that stock must be taken out of action for the wheels to be taken off and the profiles to be reground, but I understand that Network Rail still owns the wheel-grinding machines, so wheels must be taken to another organisation to have that done by the ROSCOs. The ROSCOs are not too bothered because, as long as the rent is paid, they are not concerned about when the wheels are repaired. The problem is that the wheel flats hit the track and damage it. They do not do much good to the trains and certainly make an uncomfortable ride, but there is not much incentive to deal with wheel flats because that is always someone else’s responsibility.

Another problem is that if track is not maintained, trains must operate slowly. That happens frequently and sometimes the cause is not dealt with for weeks. The complexities of the way in which fines are paid between one group and another in the industry does not seem to work because, time and again, there is slow running for several weeks as, for example, near the Elstree tunnel recently. There seems to be nothing in the system to deal with that in the short term.

I am not necessarily blaming Network Rail, but for some reason, especially under Railtrack, drainage was not dealt with, so there was a problem but no incentive to deal with it. In the end, two groups of people pay and they are the same people. First, passengers pay with high fares—they are much higher in Britain than in Italy and other countries that still have an integrated, nationalised system. We pay some of the highest railway fares in the world. The other great payer into the system is the Treasury. God knows why the Treasury is so interested in maintaining a system that soaks up so much of its money every year when it could do things much more cheaply in the public sector, thereby saving public money and making it easier to balance the Chancellor’s Budget.

It is in the Treasury’s interest and that of all rail operators to have more bums on seats—more passengers paying their way on the trains. Is the hon. Gentleman aware that Passenger Focus’s recent research shows that the aspirations of the Cross Country franchise would lead to 2.8 million fewer passenger journeys a year, predominantly because everyone travelling to the south coast or the south-west from north of Crewe—and from Oxenholme in my constituency—would have to change at Birmingham New Street station? Will he acknowledge that research and say whether it is a matter for concern?

I have not seen that research, but I thank the hon. Gentleman for the information. My view is that if the system were integrated, we could have much better integration of cross-country routes. A couple of years ago, I travelled to my party conference from my constituency and used three different train operators to get there. One problem was the fares. I was initially told that the return fare was a vast sum of around £190. I asked the person behind the desk whether they were sure about that and they said that they would make a few phone calls. Apparently, certain phone calls can be made to find out about integration of fares so that they come right down. Instead of paying £190 return, I got it down to £120 after a bit of questioning, but ordinary people, such as pensioners, might not be as assertive as an over-confident MP so they might not have challenged the fare and might have paid the higher amount.

The hon. Gentleman is making a strong case for integration, and rightly said that those on the Conservative Front Bench are very much in favour of integration. However, will he think again about what he just said about the overwhelming merits of the public sector? My constituency did not see a single new train in 40 years under the old system.

I accept entirely what the hon. Gentleman said. Indeed, I made the point earlier that the railway system was under-invested in for decades by successive Governments of both parties. As Tom Winsor said, BR

“worked miracles on a pittance”.

We did not have the investment then, and one has only to go to foreign countries to see what such investment can achieve. I recently went from Cologne to Frankfurt on a fantastic high-speed line, 30 per cent. of which was in tunnels. Those involved had spent a very large sum on it, but we are nervous about spending money. The private sector, however, spends three or four times what we need to spend, because it is so inefficient at building. However, I understand, Mr. Weir, that we are talking about franchises and train operators, rather than the track.

On the principle, however, as my hon. Friend acknowledged, the Government are slowly recreating British Rail—that is what the Network Rail operation is all about. The figures for the past two years show that delays have dropped by 28 per cent. since Network Rail took control of the track. That has to be an indication of the trajectory that the Government must pursue in bringing back rail into public ownership.

Indeed. That is absolutely right. I went to yesterday’s briefing by Network Rail’s chief executive, who said how much improvement there had been. One great advantage of the franchise system, of course, is that when the franchises come to an end, they can simply be handed over to the national railway operator, which might be Network Rail as operators. There is no problem about buying the franchises, because they are just handed over when they come to an end. If we bought them in beforehand, of course, things would be more difficult.

My hon. Friend is right that we are moving progressively towards the reintegration of our rail industry and something like a modern version of British Rail, although it would, I hope, have a lot more investment. It would be easy to move in that direction and it would not be costly: we could just hand the franchises over to John Armitt and his chums and we would be moving back towards a publicly owned railway.

I should add that if the ROSCOs are going to rip off the public purse in the way that they have in the past, we should say, “Right, we are a monopoly buyer. We will pay this amount for your trains. If you don’t like it, sell them to us at a knock-down price, and we’ll buy them back in.” There would be a cost, but it would not be prohibitive. At the same time, we could possibly do a deal to reduce the leasing charges and lease operations until such time as, bit by bit, they all come back into public ownership.

My hon. Friend is right to suggest that we are moving back towards a publicly owned, integrated national railway system. Unfortunately, Front Benchers on both sides do not want to be seen to be allowing something to be recreated in the public sector, because that goes against the zeitgeist—the spirit of the times—which is all for privatisation, and the slightest step back from that might persuade some people that there is a case for public ownership, not just in the railways, but perhaps elsewhere. However, we are talking about how the franchises could be quickly integrated with the rail network operators to recreate a national railway system.

At present, there are too few incentives in the system to provide a good service, keep trains in good order, make rides comfortable and provide enough stock. Another problem that has resulted on my line as a result of the franchise system is that there is a shortage of stock. Those who know the Thameslink network will know that there has to be a dual-voltage operation, because there is AC on the north side and DC on the south side. There have to be special trains with both types of motor, but there is a limited number of them. Some are actually held by another franchisee, but it will not let them be transferred to our franchisee, which needs them.

At peak times, as I have experienced myself, there is four-car operation instead of eight-car operation. We are so short of sets that if one set goes out of operation, it becomes a scrum to get to work. Even I have occasionally had to stand, even though I travel in from as far out as Luton, and people will certainly have to stand by the time that the trains reach St. Albans. That is unacceptable. We need more trains and more stock. Even now, there is stock that could be transferred to Thameslink, but it is not being transferred. The reasons are complicated reasons, and the franchisees cannot agree on the issue. With an integrated national system, however, that stock could simply be transferred, and we could have optimal use of all stock in all regions. That would make for a much better railway and much more comfort for my constituents and for all those who travel on lines such as mine.

I think that I have made my point. I did not expect to have quite this much time and I am surprised that many more Members do not wish to speak on this subject. My speech has therefore been rather longer than I thought that it would be, but my basic point is that the franchise system is nonsense. It should be wound up quickly by integrating the train operating companies with Network Rail and by beginning to recreate a sensible national integrated railway system.

I congratulate the hon. Member for Twickenham (Dr. Cable) on his highly topical choice of subject for debate: we had the Network Rail annual report on Monday and the announcement on regulated fares yesterday. I agree with what he said about pressing the Minister on what happens to the Eurostar platforms at Waterloo when they are released.

The hon. Member for Luton, North (Kelvin Hopkins) will not be surprised to hear that I approach the issue from a different philosophical perspective from him. I should like to disabuse him of his notions about the prevailing culture in the Treasury in the run-up to privatisation. Between 1994 and 1997, I was either at the Treasury or the Department for Transport, and it is a travesty of the truth to portray the policy towards the railways as a sinister conspiracy to run them down. What one wanted to do was to release them from the constraints of public sector funding and the Treasury and to unlock their potential to allow them to expand. In my time at the Department for Transport or the Treasury, I certainly met no officials who held the views that the hon. Gentleman describes.

I do not doubt the right hon. Gentleman’s good intent and his good wishes for the railways, but Treasury officials apparently made those comments to senior executives in the railway industry. Those executives are now in the private sector and repeated those comments to me.

I hope that the hon. Gentleman will accept that the leadership coming from the top of both Departments was heavily tilted the other way and that the policy he describes was certainly not the Government’s policy.

Closer to home—to revert to the speech by the hon. Member for Twickenham—my constituents are also talking about the railways, because work by Network Rail has overrun on two successive weekends, as a result of which my journey from Andover on Monday took two hours instead of one. Network Rail says that it has a grip on the contracts, but the contractor has overrun on two successive weekends, causing considerable disruption on the network. Such problems are not assisted by Network Rail’s reported inability to spend all the money that it has been allocated, because of some byzantine investment processes.

The hon. Member for Twickenham may not know that the first franchise train to run in this country left Twickenham station at about 5 o’clock in the morning one February in, I think, 1996. Somewhere in my archives, I have the first ticket to be sold by a franchised operator, and I was escorted on that historic first journey by Toby Jessell, who was the Member for Twickenham at the time.

As the hon. Member for Luton, North implied, the previous Administration’s policies on the railways was among their more controversial, but I would argue that the concept of franchising was sound and successful. We have created an industry that did not exist before—a train operating industry. Before that, all we had was British Rail, the monopoly that operated the railways. If it did not perform, we could not sack it and we could not get anybody else in—we were stuck with it. Franchising has enabled successful operators of other modes of transport—airways, buses and ferries—to apply their skills to the railways. We would not have been able to take that approach had we not privatised the railways and restructured them in the way that we did.

Franchising has also enabled the taxpayer and the passenger to benefit from the constant re-bidding for the franchises and to capture the extra value, which one simply could not do when British Rail was the provider. Coupled with privatisation, franchising has led to additional investment in the railways, which we would not have had before, when we were wholly dependent on what we could get out of the Treasury. If anybody fails, as has happened, others are willing to take over and to do a better job. We could not have had that before.

The right hon. Gentleman is having his Edith Piaf moment. Does he have any regrets about the management of the railway system and the system that we now have as a result of the policies that he introduced? If not, that would seem to be somewhat contrary to the policy of the new leadership of his party, which is to plead for forgiveness from the electorate.

What I really regret is that, at the time, the Labour party did not say that it would do what it actually did—leave the structure virtually as it found it. It would have been a much easier policy to implement if the Labour party had been realistic and not made threats, including the threat to renationalise Railtrack. As a result of franchising, we now have train operators that look outwards to the market and passengers, whereas previously we had just British Rail, which looked inwards to the Secretary of State, who provided the subsidy to keep it going. Many good people stayed on from British Rail and entered the new companies. To counterbalance what the hon. Gentleman just said, many people who had been in British Rail regarded themselves as liberated, under the new arrangements, to innovate and to use the resources that they simply could not get out of the Treasury to provide a much better service.

It is interesting that the right hon. Gentleman’s experience of former BR employees is different from mine. In many cases some of the companies do not like the old BR employees, because they are too fussy and like to get things right. They do not want to cut corners, as so many of the private companies do.

I think, for example, that Christopher Green, who was at British Rail, has been an outstanding example of a good manager transferring across and making a success of the new regime, so I find myself in respectful disagreement with the hon. Gentleman, but also with the Select Committee on Transport, whose conclusion on franchising was, in paragraph 124:

“Passenger rail franchising, far from being a model capable of delivering quality rail services for the next half century, appears to be a policy muddle.”

I think that the concept—the model—is all right. If the Committee is saying, as I suspect, that the way in which it has been applied is not perfect and is capable of improvement, I would agree.

I agree with what has been said about long franchises. In the previous Parliament we had some two-year extensions, which were a disaster. If we want to maximise investment in the railways, as I hope all those present this afternoon do, the train operators need a long franchise to have the incentive to invest. The Select Committee suggests 15 years; the South West Trains franchise is for 10 years, as the hon. Member for Twickenham said, with the last three dependent on performance. I want to spend a moment on something that the Committee did not touch on—what I call end-of-franchise blight. As the end of a franchise nears, the franchisee becomes reluctant to invest, understandably, because its investment may end up in someone else’s pocket. There is provision in the legislation to get around that, but it does not appear that it is being used. If memory serves, it provides that the regulator—possibly now the Department—can underwrite the investment at the end of the franchise if it believes that to be sensible; that carries through to whoever wins the franchise. I should like more of that, to avoid the cyclical effect that can come with franchising.

For many people in North-West Hampshire the constraint on using the train is not the fares or concern about congestion or safety; it is station car parking. The Government and the operators want people to use trains in the middle of the day, when they are empty, but by the time trains are empty the station car parks are full. I have four South West Trains stations in my constituency—Grateley, Andover, Whitchurch and Overton—and there is a serious problem at all of them. Last week I got to Andover at a quarter to 8 in the morning, and there were only six places left. That puts people off the railways and upsets people who live near the station, who find commuter cars blocking their streets.

The local authorities—the town and parish councils—want progress to be made on that front much faster. The Department’s press release about the South West Trains franchise mentions smart tickets, gated stations and new radio equipment, but says nothing about the major constraint on rail usage in my constituency: parking. I am not sure that I want a taskforce to put that right, but I want a focused effort to expand capacity. Otherwise, people will simply get back in their cars and drive all the way on the M3.

The Select Committee also says with respect to train operators that we need new entrants—a recommendation that may not find favour with the hon. Member for Luton, North. One of the Government’s policies seems to militate against that. They are trying to reduce the number of franchise operators at a number of mainline stations. No one in this country is trying to reduce the number of bus operators or airline operators, and I am not quite sure why the Government are trying to reduce the number of franchises and, thereby, train operators.

I agree with the Select Committee that the specifications in the franchise documents are now far too tight. They leave little incentive to innovate, and the Department virtually dictates the timetable. It may be more difficult for the Department to arbitrate if the bids come in on different levels, but I should prefer the encouragement of innovation and investment, and allowing differential bids, to the straitjacket that we have at the moment. I have seen some comment in the press to the effect that South West Trains may have “overbid” for the franchise. I think that it is unlikely that an experienced company that has been operating in the market for 10 years would have done anything uncommercial. I think that it knew exactly what it was doing when it bid the £1.2 billion premium.

The hon. Member for Twickenham mentioned Airtrack. I hope that the Government will try to make progress with that project. Someone who wants to get to Heathrow by public transport from my part of the country catches a train to Woking, and then catches a bus. It would be much easier if one could go all the way by train from Woking to Heathrow. There are plans. I think, contrary to what the hon. Gentleman said, that South West Trains would get extra business from the south-west if there were a through service to Heathrow through Airtrack, which might counterbalance any possible loss of traffic from the east. If the Minister has time to explain where we are in relation to Airtrack, it will be enormously helpful.

I cannot resist a plug for Hayes station. People coming from the west can now get off at Hayes station and transfer to a Heathrow train that will take them directly to Heathrow. I think that from Woking it may be possible to get there via Reading.

Passengers can if they are on First Great Western, but they cannot if they are on South West Trains, because those do not go to Hayes and Harlington. I should like my constituents to have the facility that the hon. Gentleman’s constituents have to go by train to Heathrow.

The key issue for Network Rail, for the Department for Transport and for those who run the railways is how to get the increased infrastructure that we need to cater for growth. If we consider the South West Trains franchise, there is only one scheme of any significance in the 10-year plan. That is double tracking some eight miles of the west of England line near Axminster. The route utilisation strategies for most Network Rail routes are long on words but short on specific action. The argument is always that there is no business case. The problem with the railways, as we all know, is that quite often there is not a business case for projects, but they are for the benefit of UK plc, and are desperately needed for a balanced and sustainable transport strategy. At the moment, a lot of the key schemes to expand the network simply are not getting carried out. The present arrangements for franchising are freezing out those crucial expansion plans, and that aspect needs revising.

I want to say a final word on fares. Those are regulated by the Government, with no freedom for the train operators to charge what they want. In the first franchise period, regulated fares could go up by only the retail prices index minus 1 per cent. That gave a clear signal that rail fares would fall in real terms, and provided an incentive for people planning their lives and the way they would get to work to use public transport. Now there has been a move to RPI plus 1 per cent. I understand all the pressures that led the Department to do that, but it is absolutely the wrong direction in which to go if we are to have the balanced and sustainable transport strategy that I hope everyone present today wants. The Treasury has won that battle with my old Department, but I hope that the Minister will fight back in future years and get a fares structure that is better balanced and provides the right incentives for people to choose a public sector mode of transport.

I congratulate my hon. Friend the Member for Twickenham (Dr. Cable) on initiating the debate. He has made several points about South West Trains and the new franchise that will be echoed across the country as the new franchises elsewhere are set out. I want to consider some of those and set out what I believe should be the vision for the railway industry in the future. Interesting though the debate was between the hon. Member for Luton, North (Kelvin Hopkins) and the right hon. Member for North-West Hampshire (Sir George Young), it is a debate for the past, and it does not deal with the present and future needs of the railway industry and passenger commuters.

Whatever else we might say, the railways are in a period of unparalleled growth. Passenger numbers and investment are up, and no doubt the Minister will tell us about the £88 million a week that the Government are investing, which is welcome, and the £1.1 billion subsidy that is given to the network each year. My concern is that the management of the railways addresses neither the continued growth of the railway industry nor passenger demand for decent services. As my hon. Friend said, the predicted growth on South West Trains and one person saying that it will introduce new rolling stock, is contradicted by the reality of seat removal and my information from Angel Trains, whereby South West Trains has been told that it cannot purchase new rolling stock or expand the service.

If one considers the Government’s plans for growth in new house building in the south-east and the south-west, one sees an immediate contradiction between the Government’s transport policy and the reality of other policies. Last night I met business representatives from Colchester. They were concerned at the amount of house building planned in their area, and the fact that there are no plans within the franchise to expand the service. There is a contradiction between Government policies on house building and growth, and the letting of franchises.

I thoroughly agree with the hon. Gentleman, but his argument applies not only to transport, but to water supply, to sewerage arrangements, even to the national health service, and to almost every other area. There is no co-ordination with the plans for house building.

I totally agree with the hon. Gentleman. The Transport Committee’s recent report summed up rail franchising as

“a self-contradictory muddle, providing no coherent framework or vision for development of passenger service”.

There is growth, and we have improved the service, but if we look to the future, there are many concerns. I hope that the Minister will address them through the long-term vision in next year’s White Paper. We have reached phase three of the franchise letting process, and we have reduced the number of operating companies from 25 to 19, which may be a good thing; but at the same time, fewer and fewer rail companies are bidding for projects. Part of the reason why is the cost of tendering: franchises are set so tight as to discourage innovation even where it is wanted.

The specification of several lines, such as the Great Western main line earlier this year, has resulted in reduced local services and inconvenienced commuters. At the same time, companies have to bear a much greater risk on the revenues that they are asked to deliver during their contracts. That is fine if the economic trajectory continues upwards, but if there is a downturn, as my hon. Friend said, the Government will have to bear the risk. For example, Great North Eastern Railway will have to provide £1.3 billion over the course of its franchise, and First Great Western will have to provide £1.1 billion. Those are huge sums of money, and my criticism is that although they reduce public expenditure, it is at the expense of service development.

The northern franchise, which I know something about, illustrates the lack of long-term planning. It is the largest franchise in the country in terms of area, covering five passenger transport authorities, and the company running it is an excellent rail operation. The punctuality of its service is a considerable improvement on that of the two franchisees it replaced. However, its franchise does not allow for any innovation, expansion, new lines or rolling stock. New rolling stock will be provided through First Group, but they will be the only new trains that the franchise has. The company wants to innovate, and the passenger transport authorities have plans to improve the service, but under the Railways Act 2005, they no longer have to be statutory co-signatories to the franchise. As a result, we have plans that were made before the Act and a company that wants to innovate and develop, and it will not be allowed to do so.

The rail utilisation strategy for Manchester has just been published. It identifies overcrowding on the network and explains what needs to be done. I should have thought that when creating a franchise, one should conduct the network utilisation strategy first, discuss with the passenger transport authorities their long-term plans, talk to the regional development association about their plans, and then come up with a franchise that reflects those needs. However, in reality, in franchise after franchise, that is not happening. The Department for Transport prescribes the timetable, stifles growth, and does not consider the long-term growth implications. As a result, there will be a saturation point.

The hon. Gentleman makes a valid point about the franchising process, but is not part of the process its pure opacity when trying to find out what the franchise comprises when the bidding starts and whether the factors that he has mentioned have been taken into account in the construction of the franchise document?

I agree. The removal of passenger transport authorities as statutory co-signatories to those franchises breaks an important link. The 2005 Act gives them the right to add services at their own expense or to remove them to make a saving, but it cannot replace genuine partnership. The Government say that they will provide the authorities with that sort of involvement in bus services. Such co-ordination is crucial to the planning of services locally, regionally and nationally, but the link has been broken.

My hon. Friend mentioned Waterloo station, which is the case in point. Waterloo will be saturated by 2012. The Eurostar platforms will be released, but we have not seen any concrete plans. The contract for South West Trains has been let, but when re-franchising took place, would it not have made sense to include in the contract the use and cost of those platforms?

I am most interested in what the hon. Gentleman says, and I agree with much of it, but is not the whole tenor of his speech about the need to plan and integrate, and is not that impossible when the service is privatised and fragmented? Does he not agree that if one could integrate planned train operations with regulated and planned bus and underground services within a coherent and planned transport system not only for London, but for the entire country, the service would work better?

“Regulated” and “planned” does not equal “public owned”. That is an important point. I am a great believer in partnership. Partnerships work between private enterprise and government, and between public services and private enterprise. The Department for Transport’s control of those services is stifling long-term growth and development. If the Government are genuinely serious about wanting to engage the regions and the local authorities and give them more say in and responsibility for their services, a role in transport planning is vital.

The Crossrail franchise is another case in point that illustrates what is happening. We are seeing a break in the cross-country routes of through trains from Glasgow to the south coast. That break will happen at Birmingham New Street. Anybody who knows Birmingham New Street knows that it is the most disabled-unfriendly station one could possibly think of. We know that it has capacity problems, but they will not be addressed. The franchise is being let. It should all be planned. It needs to happen at the same time.

We see the same contradiction in the Government’s response to open-access rail companies, no matter whether whole trains or Grand Central Railway are involved. They have let a contract to GNER, which is told that it must raise so much money—£1.3 billion—yet a contract is let to Grand Central, which is allowed to run up to three trains a day from Sunderland to London. But—this is another example of the contradiction within the Department for Transport—the train services should have started in December. They will not, because Grand Central Railway does not have the railway sets. East Midlands has railway sets that it is happy to return to the rail operating company so that Grand Central Railway can use them to start the services running down to London, but the Department for Transport has seemingly told the train operating companies, “You cannot do that.” That is an example of the micro-management of the rail industry by the Department for Transport that the Select Committee says is stifling innovation and not allowing the service to grow and develop as it needs to.

That is the sort of problem that we face. We have a successful rail industry—there is no doubt about that—but unless we address the fundamental issues of how to plan and develop it, we will not see further growth. We will see stifled growth, further road congestion and people who are very unhappy with the way that the railways are running. We need a clear long-term vision, and that must involve working in partnership, getting the process right for setting the franchise and involving local and regional partners.

I congratulate the hon. Member for Twickenham (Dr. Cable) on securing this debate and introducing it in a characteristically thoughtful way. We have had a high-quality debate, including a particularly good contribution from my right hon. Friend the Member for North-West Hampshire (Sir George Young), who brings a great deal of experience to it from both sides of the discussion—the ministerial side and the Treasury side.

No one who suffered this morning on London’s train and tube network, as did all my staff—I am fortunate in being able to walk to work—can be in any doubt that a considerable increase in capacity is needed and that the role of franchising is a key issue.

To make the point I made earlier, one of the problems with the tube system is Metronet Rail. Metronet has not exactly covered itself in glory. I myself was delayed slightly by problems ascribed to Metronet.

Indeed, but we are here to discuss franchising. I shall make a number of points on the relationship between franchisees and the track.

The Opposition transport team has been taking part in a large number of discussions on the future of the railways. My hon. Friend the Member for Wimbledon (Stephen Hammond) has engaged during the past 12 months with the directors of every single franchisee company. It is because he is at a conference that a shadow Minister with responsibility for shipping and aviation rather than he is replying from the Opposition Front Bench.

I make no apologies for privatisation. Not only did it deliver the first new trains to my constituency in 40 years, it resulted in a 30 per cent. growth in passenger numbers during the past decade. The Conservative party is firmly committed to trains, not just because of the collective need to tackle CO2 emissions but because of the reduction in congestion that it offers for road users. The view that we have come to, as has been mentioned several times, is that the current structure of the railway network and franchising system is not fit to meet the capacity challenge.

There are a number of reasons for that. The relationship between franchisees and Network Rail, although it has improved, has tended to be dominated by disputes as each apportions blame for delays to the other. Endless man-hours are wasted deciding who is responsible for lost passenger-minutes and how large a fine one party owes the other. The greatest irony is that because of the huge subsidy that the railways receive, the money passed back and forth comes from the public anyway. That is one of the reasons why ticket prices have just seen a fourth annual inflation-busting rise, as my right hon. Friend said.

My hon. Friend recently visited the new joint control centre at Swindon, where he saw a little cameo of the situation. The centre was supposed to herald a new, constructive relationship between Network Rail and the train operating companies. It should come as no surprise to hear that a significant portion of the building’s floor space has been assigned to—wait for it—the delay attribution team. A similar experience was described to me by a commuter who, after bricks fell off a bridge and as they sat for an hour and a half waiting for the muddle to be cleared, heard a conversation back and forth between the train driver and someone on the other end who was clearly trying to gather data to ensure that Railtrack and not the operator took the blame. That illustrates that the relationship is not working at the moment.

The bidding process has figured in this debate. It is another aspect of franchising that has gone seriously awry. What we have witnessed during the tendering process is the Government’s ever-increasing desire to recoup from train operating companies some of the vast sums that have been spent on the rail networks since the demise of Railtrack. The companies, in turn, have ratcheted up their bids in the knowledge that the overriding point of interest to the Department, or rather the Treasury, is the size of the premium they are willing to pay. Christopher Garnett, former chief executive of GNER, made the well-publicised comment that it was far better to overbid drastically for a new franchise than to underbid and lose it. Yet there is no point in the Department accepting absurdly high bids when it is quite clear that they cannot be met. My hon. Friend alluded to GNER’s particular problems as a result of a court judgment, but the wider point applies. Everyone ends up losing out. Fares go on and on rising to cover the premiums, and the taxpayer ends up forking out when the premiums cannot be delivered.

The Government should be awarding contracts not just to the highest bidder but to the one that shows that it has serious plans for enhancing the service it wants to operate. Unfortunately, recently re-awarded franchises have been tied up with such tight specifications that the operating companies are left with little or no room to innovate. It is clear that the franchising process is going wrong mainly because of too much Government interference at the time of setting and sometimes subsequently. Can it really be right that 12 civil servants are involved in writing timetables? Is it not madness that all procurement decisions lie in the last resort with Government? Is it not altogether crazy that in 2006, the Secretary of State has operational involvement in and control of the railways? It must stop. Politicians should set and agree the railways’ strategic framework with industry and passenger groups—a number of speakers have made it clear that that is not happening—but the railway professionals should run the railways. The Government should not be in the business of micro-managing them, but unfortunately they are.

The Transport Committee report has been referred to several times, but I shall quote it:

“The Government has embraced the notion that private enterprise is best at delivering high-quality, innovative services such as the passenger railways, and yet it does not trust companies to deliver these services without highly detailed and specific contractual requirements which reduce the scope for innovation.”

I entirely agree. The Government need to stop dictating and give the companies that operate the railways the scope to respond to demand.

Undoubtedly the greatest failure of the current franchising system is the fact that it does not allow for capacity increases in line with the rise in passenger numbers. That problem is going to get worse. The Office of Rail Regulation forecasts that although passenger numbers will grow by 28 per cent. by 2014, rail capacity will grow by just 2 per cent.

Perhaps unusually, I want to defend the Government. Pressure is put upon them by the electorate who travel on trains, who say, “Sort the railways out, because they don’t work and I’m standing, having a miserable journey every day”. However, the hon. Gentleman says that the Government should not intervene, so they are caught between a rock and a hard place—they are damned if they do, damned if they do not. The Government are right to intervene and say that things must improve, and right to give some direction, to ensure that passengers have a slightly better time than they have now.

I am afraid that I profoundly disagree. I hope that I am not going beyond the rules of order in saying that there is a direct parallel with the NHS, where more and more Government intervention, targets and rules are not helping. The way to do things is to have a structure that enables the operators to do better, not to sit over their shoulders and micro-manage them on detail. That applies in management of all sorts.

I so am grateful to the hon. Gentleman for giving way, and I shall try to make this my last intervention. There is a difference between the health service, which is still essentially a public service in the public sector, and the railways, which are run by private companies that try to operate like a public service. Would the railways not be better in the public sector, where there would be more accountability, rather than being left to the private sector?

I would try your patience if I gave a long answer to that, Mr. Weir. Briefly, I firmly believe in the delivery of services free at the point of contact in the NHS. However, there is only one part of the health service in my constituency about which I have never received a letter of complaint, and that is the Pilgrims hospice in Canterbury, which is a voluntary organisation and wholly independent from the NHS.

The Government need to stop dictating and allow the companies that operate the railways the scope to respond to demand and to innovate. Undoubtedly the greatest failure of the current franchising system is the fact that it does not allow for capacity increases in line with the rise in passenger numbers. I have made the point that the problem will get worse with the differential rates of growth. Even now, commuter routes are heavily congested. Capacity on trains travelling into London is regularly exceeded by more than 40 per cent. The seating capacity on the Cambridge to Liverpool Street route is exceeded by more than 80 per cent., which is way beyond the official definition of crowding. Put another way, some trains are carrying 200 more people than they have space for.

One might think that the Government might look for increases in capacity when putting new franchises out to tender. Not a bit of it. Two recently awarded franchises demonstrate that fact. First Capital Connect had to remove trains from its routes in order to meet its franchise specifications, and the hon. Member for Twickenham has already taken us through the South West Trains saga of ripping out seats and lavatories to provide more room for people to stand.

In order to achieve greater flexibility for the operating companies, the Government must consider extending the length of franchises, which is something to which my right hon. Friend referred. The central problem with the current seven-year franchises is that they leave a small window of opportunity for train operating companies to invest, if they want to see a return on that investment before the franchise expires. The most important example of that is obviously new rolling stock. From purchase to delivery takes several years, but it makes little sense for a company to spend a lot of money on an asset out of which it might get very little use. If franchises were extended to 15 years, the train companies could expect to enjoy a long period of use. They would also be in a position to invest more in all the station facilities that passengers want. My right hon. Friend gave examples of those, from car parking to platform lengths, as did other hon. Members.

Ultimately, the capacity problem will begin to exert a stranglehold on our economy. Overcrowding is not just bad for people’s quality of life. A buoyant economy requires people to be able to get from place to place in a timely fashion. We need the integration of track and operator, by some means or other. We need less Government micro-management, and above all we need the longer horizons that would come from much longer franchises. Privatisation has delivered some fruits, but we need to think again about its structure.

I welcome you to the Chair, Mr. Weir, and say what a pleasure it is to see you where you rightly belong: at the centre of the British establishment. Long may you remain there.

This has been a useful debate and I congratulate the hon. Member for Twickenham (Dr. Cable) on instigating it. The debate has been extremely well informed, as usual. Most of the colleagues who take part in these debates have long experience of and genuine support for the railways—my hon. Friend the Member for Luton, North (Kelvin Hopkins) is a perfect example of that. That always makes the debates more interesting and worth while. It is also a delight to see the former Secretary of State for Transport, the right hon. Member for North-West Hampshire (Sir George Young).

I am pleased to have the opportunity to explain the present position and future plans for passenger rail franchises. As was pointed out a number of times, we recently announced the award of the new south western franchise, which encompasses the present South West Trains and Island Line franchises. At the end of last month we issued invitations to tender for three new franchises—the new cross-country, east midlands and west midlands franchises. I am of course aware of concerns that arise about service levels and other matters when rail franchises are replaced, and I shall deal with those.

The Transport Committee’s report has been referred to a number of times. The Department for Transport will obviously consider the report, and we shall issue a formal response in January. However, I want to make it clear that my remarks today are not intended in any way as a formal response to that report.

My hon. Friend the Minister has mentioned the range of new franchises. The east London line extension is critical for London. It has been welcomed by all, and was to be transferred to London Underground, but can he clarify—if not today, then in correspondence—whether it was a condition of transfer to the Mayor of London’s responsibilities that the line should be franchised out?

My hon. Friend might anticipate my answer to that. I shall have to write to him once I have checked the details.

The current franchising system is delivering. More than 1 billion passenger journeys were made last year, which was 40 per cent. more than 10 years ago. Performance has continued to improve, with almost 88 per cent. of trains running on time over the past 12 months. People are seeing newer trains and investment in stations. Not only do we have one of the fastest-growing rail networks in Europe, but we have one of the youngest. We are making changes so that more people can use smartcards. Those improvements are being made under the current franchising system. Capacity improvements have been referred to. They are part of current contracts, but future growth will be addressed as part of the high-level output specification, which is the longer-term framework for the railways that we will publish next year.

I shall try to make some progress through my prepared comments, but I want to address some of the comments that hon. Members made first. The hon. Member for Twickenham referred at length to South West Trains and the improvements in the rolling stock. I should like to clarify the points that he raised. The south western franchise commits the franchisee to a 20 per cent. increase in peak-time capacity on suburban lines and a 21 per cent. increase in the number of mainline peak-time seats. The franchisee will be held to those commitments, which will be monitored constantly over the length of the franchise, so those improvements will be delivered.

The hon. Gentleman is right that the Government are dealing with the problems of success. It is useful that the right hon. Member for North-West Hampshire is in his place, because I rather suspect that previous Governments would have given their eye-teeth to be dealing with the problem of increased passenger numbers on the British railways, rather than—as happened in the past, particularly under the previous Conservative Government—what was seen as a terminal decline in passenger numbers on the British railways. The current situation obviously presents serious challenges to any Government, but I would rather deal with exponentially increasing passenger numbers on the railways than, as my hon. Friend the Member for Luton, North suggested, have to deal with the terminal decline of the railways.

Like the Minister, I am a strong supporter of railways and welcome the massive increase in passenger numbers. However, there is a non-sequitur: passenger numbers would have or could have been at least that high—perhaps higher—whether the railways were publicly or privately owned. It was not privatisation or the franchising system that led to the increase in numbers. Indeed, fares have gone up considerably. Had the railways been in the public sector, they might not have gone up so much, and passenger numbers might even have been higher.

My hon. Friend makes a valid point. He may be familiar with an interesting book called “Prime Minister Portillo and other things that never happened”. It would be extremely entertaining, although not particularly useful, to speculate about alternative history—what would have happened if British Rail had not been privatised in the early 1990s.

I am content to state that under the management—the hon. Member for Canterbury (Mr. Brazier) might call it “micro-management”—on this Government’s watch, passenger numbers have increased by a healthy margin and services have improved. We are certainly content with that. I do not want to speculate about whether it would have been different under British Rail.

May I press the Minister to clarify his answer about the 20 per cent. increase in capacity? I am glad to hear that he will monitor that, but will he explain how it will happen? As I understand it, under the franchise there will be only 10 more carriages—less than 1 per cent.—on top of the existing 1,400. That is what the company has announced. Where will the seats come from? If the Minister is monitoring the situation and the company has clearly announced that it is removing seats, at what point will the Department intervene to stop what is clearly a contrary process?

The Government have no intention of intervening at this stage; we have every confidence that the targets set in the franchise will be met. New trains and carriages will be introduced and £40 million will be spent on station improvements. That will build on the £70 million investment in new trains already made under the existing franchise, providing an extra 4,500 seats.

Some, but not all, of those trains are already in service. An additional 17 new four-carriage Desiro trains, comprising 68 vehicles, will provide those 4,500 seats for passengers on the busy routes to London Waterloo. The new trains will enable more 12-carriage trains to be run at peak times to increase capacity on busy commuter routes.

I am not sure which figure the hon. Gentleman is citing; his figures on the increase in rolling stock seem rather unambitious. I shall be happy to sit down with him to sort out exactly where he gets his figures from and to clarify the issues for him. The Government are satisfied that the capacity improvements promised by South West Trains will be delivered by the end of the franchise.

The commitment to pay a £1.191 billion premium in the bid for the south western rail franchise was also mentioned. The Government do not specify whether a premium should be paid by any rail franchise company or the level of that premium. It is entirely for bidders to decide whether they wish to pay a premium and how much that will be. However, I am sure that most Members will agree that if a company wants to force £1.191 billion on the Government—that money, incidentally, would go back into the rail budget—they will be wise to consider the offer seriously. The infrastructure changes mentioned by the hon. Gentleman are not matters for the franchises, but undertaken and progressed by Network Rail.

Of course the size of the premium must be considered, but the point is surely that it is not the only factor that should be. Another is whether it is sustainable, because the taxpayer will end up in trouble if it is not.

The hon. Gentleman is absolutely right; it is not the only thing that is considered. A great deal of work is done to ensure that any potential premium that may be paid by a future franchisee is deliverable. That is a crucial part of the franchising process.

The hon. Member for Twickenham mentioned the impact of open access on GNER. He was suggesting, I think, that the impact of open access operators on the east coast main line was responsible for some of the problems that GNER is reported to be having. However, no open access operator gets access to the railway unless it can convince the Office of the Rail Regulator that that will have no significant impact on the revenue of existing franchises. They must always be given precedence over any open access operator, for the simple reason that open access operators do not pay track access charges.

Vertical integration was mentioned. I accept what the hon. Member for Canterbury says; a debate can be had, and the Government do not shirk from that. However, as the Transport Committee’s report into rail franchising makes clear, there is not much of a case to be made for vertical integration in respect of the benefits that might be achieved by going for that particular structure. Of course the Government would be willing to look at particular proposals made by particular authorities and operators, but in my experience train operators do not want the responsibility of repairing infrastructure and the infrastructure companies do not want the responsibility of operating trains.

Stagecoach is committed to increasing the passenger performance measure from the present level of 90.1 per cent., as a moving annual average, to 92.5 per cent. by 2009-10 and 93.3 per cent. by the end of the franchise. To put that in perspective, at present the national average of all train companies is 87.6 per cent., so whatever criticism has been levelled at South West Trains during this debate, its performance is well above the average of any of the train operating companies.

The franchise builds on progress already made. Recent timetable changes have brought about high reliability and extra services. All the train companies have been criticised for increasing fares. South West Trains currently runs some of the lowest fares on the network. It runs a low-cost operation called Megatrain—the equivalent, I guess, of the low-cost airlines—on a limited number of services on selected routes, and Stagecoach proposes to continue the scheme.

I turn to the comments made by my hon. Friend the Member for Luton, North. Neither I nor the Government approach the structure of the railways ideologically. We do not look at the privatised railways and conclude that, because they are private, they are good.

When Connex was taken over, it was run by the public sector for two years and was one of the most successful operations in the whole network. It was then privatised again. On what basis was that decision made? If what worked mattered, it would have remained in the public sector.

I disagree. I should point out that since the new franchisee took over that franchise, performance has been at least maintained or, as the hon. Member for Canterbury says, improved.

What would be the point of renationalising the rail industry unless we could show benefits for the travelling passenger? We have the highest safety record in history and performance that, although not at an all-time high, has certainly improved greatly since the Hatfield incident in 2000. Record investment is going into the network. In the context of the more than 1 billion passenger journeys being made—the highest level since 1946, I believe—what would be gained?

I say with all respect to my hon. Friends the Members for Hayes and Harlington (John McDonnell) and for Luton, North that if the only thing to be gained is the ticking of an ideological box to say, “We are on the left; we are a socialist party”, I am not convinced that moving into the public sector would achieve anything except the wearing of our left-wing conscience on our shoulders.

I shall be brief. On a number of occasions, I raised the problem of costs with the previous Secretary of State for Transport. Costs have been massively increased under privatisation. That is the key.

Costs have increased, but standards have also increased. It is clear that, even if British Rail were still in the public domain, the money to be spent on the infrastructure would also be increased, not only because of higher standards but because, as my hon. Friend rightly says, the railway network was deprived and starved of investment for many decades. For the first time, the Government are putting record investment into the railways, which is why—