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East Coast Main Line Call Centre

Volume 528: debated on Thursday 19 May 2011

Motion made, and Question proposed, That this House do now adjourn.—(Mr Dunne.)

It is timely that on the day Sir Roy McNulty’s report on why Britain’s railways cost more than other European railways is published, and on the day he recommends yet further fragmentation of our rail network and fails to consider seriously the benefits of reintegrating the railways under public ownership or why billions of pounds are drained from the industry in profits to the train operating companies, we have this opportunity to consider East Coast’s decision to threaten the future of 180 jobs on Tyneside by transferring an important customer service part of its operation to Mumbai in India.

As Members will be aware, the east coast main line service is wholly owned by Directly Operated Railways Ltd, trading under the name East Coast. DOR Ltd is, in turn, wholly owned by Her Majesty’s Government in the guise of the Secretary of State for Transport. I know the Minister will argue that it is not appropriate for the Government to seek to intervene in operational matters of this type that are properly for East Coast to address, but I am a little incredulous about that.

The Minister will probably argue that as the east coast main line service is owned by DOR Ltd and not the Government, the Government have no right to intervene. However, I listened very carefully to the Secretary of State’s statement today, during which he said: “The Government want Britain’s railways to continue to prosper and have demonstrated by their actions their commitment to them. Despite the difficult fiscal climate, we have allocated funding to complete Crossrail and Thameslink, and to support the upgrade of the London underground. We have announced electrification on the great western main line and in north-west England. We have resumed the intercity express programme to improve reliability, comfort and journey times on the east coast and Great Western main lines.” The Secretary of State therefore plainly takes credit for investment in the railways that, we hope, will improve the service, but he will probably in due course deny any responsibility for, influence over, or right to interfere in the affairs of, East Coast and its decision to close a call centre in Tyneside. The use of the term “we” in the statement followed by a list of all the actions taken proves that the Government can intervene. That leads me to raise the issue of Ministers taking the practice of using smoke and mirrors to evade responsibility to new heights.

The purpose of this debate is absolutely clear. I want to ensure that the Secretary for State cannot evade responsibility on this issue. I want to defend 180 local jobs in Tyneside, where unemployment is already well above national averages. I want to highlight the ridiculous scenario whereby a state-owned company—supported by millions of pounds of taxpayer subsidy—is pursuing a policy of exporting jobs to exploit cheaper labour market conditions abroad and throwing local people on to the dole in an unemployment black spot. I want to highlight the false economy savings for both the railway and the United Kingdom Exchequer. I want to highlight that this is simply the latest train franchise cut, in order to make it more attractive to potential bidders when it is put up for re-privatisation. Finally, I want to highlight the context of Sir Roy McNulty’s report and the east coast main line’s place in the chaotic structure of the public and privatised railways.

East Coast intends, via a re-tendering process, to move the work currently undertaken at the customer contact centre in Baron house in Newcastle upon Tyne away from the north-east to Mumbai in India, Plymouth and Wolverhampton—but mostly to Mumbai in India. The following jobs are currently performed at Baron house: customer contact centre and associated services; inquiry and booking services for telesales, group travel, assisted travel and business travel; ticket fulfilment; web support; and customer relations activities. This action will culminate in the loss of 180 jobs on Tyneside, which will be a bitter blow for the people in a region that is already reeling from the impact of this Government’s economic policy, where between 28% and 32% of the work force depend on the public sector for employment, and which is already braced for the disproportionate impact of the Government cuts, especially in local authority expenditure. The work will now be undertaken outside the north-east of England and a high proportion of it will be undertaken outside the UK, in Mumbai.

The following operations will now take place in the following locations: group and assisted travel and ticket fulfilment will go to Plymouth; public telesales will go to Mumbai; web support and ticket fulfilment will go to Wolverhampton; business travel services will cease as a telephone service and will be online only, supported in Wolverhampton; East Coast customer relations will go to Intelenet in Plymouth; delay repay, processing only, will go to Intelenet in Mumbai; and lost property will go to Plymouth.

Does my hon. Friend remember the Prime Minister suggesting, before the election, that the north-east would be hit hardest and first? Does my hon. Friend agree that this is just another case—a shining example—of an attack on decent hard-working people in the north-east and that that should not be tolerated any more?

I am grateful to my hon. Friend for raising that issue. Members from the north-east of England have mentioned on numerous occasions how the cuts imposed by the Department for Communities and Local Government in particular have disproportionately hit the north-east of England. Councils in our region have lost four times the measure of public finance from the central Government grant than those in the south-east outside London. The impact is disproportionate on an area that is already struggling in this economic climate.

Staff have been advised that they will lose the benefits that would normally accrue to people working in the rail industry and that their rail travel facilities will be retained only until 31 December. The transfer of work is being phased and will begin on American Independence day, 4 July, with the last shift work to be done on 23 July. Over those three weeks, the work will gradually be moved from Baron house in Newcastle.

Surely it is totally unacceptable for a state-owned company such as East Coast, supported by taxpayers’ money, to export jobs abroad.

My hon. Friend says that the company is supported by taxpayers, but does he agree that it has also been supported under GNER and now as a state-owned company by many people in the north-east who have loyally given their custom to the railway? Does he think that because of these moves they should perhaps consider alternative forms of travel?

I am grateful to my hon. Friend for that comment. I have been in discussions with people from East Coast about a range of problems on the east coast main line service. Normally, by this time on a Thursday evening, we are travelling on the east coast main line on our way home. We are very familiar with the levels of service and the investment—

Exactly—and with how bad it has become.

Next week will see the implementation of a new timetable, but it will also see the downgrading of a number of services that East Coast has been supporting. People in the north-east are asking why we should support East Coast when there might well be better alternatives for travel across the country. That is not good from an environmental perspective.

I thank my hon. Friend for giving way and for obtaining this Adjournment debate on an important issue. The centre at Baron house is in my constituency and it is true that the people of the north-east have always given significant support to the east coast rail service. Has there been any criticism of the work at Baron house? Is it not the case that it has always been performed well and that its performance is not the reason for moving the contract?

My hon. Friend is absolutely right. The call centre at Baron house has provided an excellent level of customer service. Nationally, people regard the north-eastern accent as reliable—

The accent is regarded as reliable and trustworthy when it comes to providing call centre services, and that is why the north-east has become a centre for call centre operations. Conversely, it is sad to reflect that unfortunately British customers are averse to call centres based offshore.

I, too, compliment my hon. Friend on securing a debate on this issue, which is important to the north-east and has some national significance. In view of today’s statement on the McNulty report and the arguments being made by Ministers about needing to reduce the public subsidy to the rail industry, is this not another example of false economy if the method of reducing the subsidy is to transfer overseas UK jobs that support the economy, particularly in areas such as the north-east?

My hon. Friend makes a very good point. At a time when the Government claim that supporting growth in the UK economy is their priority, surely exporting good quality jobs from the north-east to India cannot be defended. There is also the issue of the public’s perception of the level of service they will get as a result.

The Secretary of State denies responsibility for this while passing on millions in public subsidy. The company received £40 million in direct funding from the taxpayer in the nine months to 31 March 2010 by way of a working capital loan facility agreed with the Secretary of State. Given the investment from the UK taxpayer, surely there must be a moral obligation for a state-owned company to retain jobs in the UK. There should at least be some consideration given to those jobs being taken in-house by the operator. That work is not going to go away. It is a much-needed, public-facing aspect of the train service operation and there is no evidence that the transfer will improve the service afforded to the public.

The Government’s stance could be regarded as hypocritical. They declare their commitment to growth and rebalancing the economy, and day after day they preach to private business about the need to help the economy to recover by creating new jobs, but in the case of East Coast—a company that we fully own—they sit back and permit the export of jobs from a company that belongs to the taxpayer. Let me be clear: my primary concern is for the people whose lives are affected by this, but equally important is the impact on industry of exporting real jobs, particularly customer contact jobs, to another country, which represents a retrograde step away from an integrated transport policy. Despite the McNulty report’s failure seriously to consider the benefits of reintegrating the railways under public ownership, many in the House are convinced that the evidence demonstrates that the reason why railways in Europe are cheaper for the taxpayer and the fare payer is that on the whole they are in public ownership and are less fragmented.

There is a wealth of evidence to show that overseas call centres are not the answer for companies that are looking to cut costs. In May 2004, a Department of Trade and Industry study found that work force costs that had not been fully factored into business evaluations of offshoring included the additional costs of employing local law specialists, consultants and accountants, as well as the cost of redundancies, redeployment and reskilling displaced UK workers. It revealed that staff turnover at Indian call centres in particular was about 25% compared with about 15% in the UK, with an average job tenure of about 12 months compared with three years in the UK. Higher attrition rates surely cannot be beneficial to good-quality customer service.

In July 2009, there was a huge outcry when the Association of Train Operating Companies moved 200 National Rail inquiries jobs from the UK to India. Subsequently, it was widely believed that the quality of service to the British travelling public had decreased. At the same time, BT decided to move 2,000 call-centre jobs back from India to the UK as part of a long-term strategy to cut costs by £1 billion and to reduce dependency on third parties. In 2005, the Select Committee on Trade and Industry reported that customer satisfaction surveys found that UK consumers did not like businesses they believed had offshored their services, preferring to deal with call centres in the UK.

In subcontracting jobs abroad, the company has made a narrow, short-term financial decision. No account has been taken of the impact that the loss of skills and jobs will have on the north-east region, its community and the local economy. Nor has any account been taken of the obvious cost to the UK in benefits of whose who will be made redundant as a result or of the reduction in tax revenue for the Exchequer. The McNulty report states that value for money is not just about pounds and pence, but about how the railway realises its wider benefits to society. Through fragmentation and privatisation, those benefits will be lost.

The industry’s most valuable asset is its work force. These redundancies mark a wasteful loss of knowledge and skills that have been honed through years of experience. They damage the shared commitment to the overall service that a proper public service ethos can bring. They impose a hidden cost of increased interfaces in the industry, blur transparency and accountability and de-clarify lines of responsibility, which would be the hallmark of a more efficient railway.

The blow to the economy of the north-east cannot be overestimated. The loss of these jobs to the region is yet another blow to the local economy and to our local communities. Tyneside already suffers a level of unemployment above the national average. The growth in call centre work has been an important factor in providing new employment in the north-east after the decline of manufacturing and, in particular, heavy industry, which arguably was caused mainly by a previous Government of the same nature.

As we all know, the Government are determined to reduce workers’ rights in the UK. They call it removing red tape and are strongly tempted to try to remove the rights of workers through Transfer of Undertakings (Protection of Employment) Regulations. However, TUPE has been rendered irrelevant in this situation. A worker having the right to follow their work to the new company is simply not a realistic or viable option for those at Baron house, who now face the complete closure of their workplace, with a move for a few possibly to Plymouth or the bulk to India of course being impractical.

The awarding of this customer contact centre contract to a company with operations in Mumbai should not be seen in isolation. It is the next stage in trying to make the company more attractive to potential bidders in preparation for the eventual re-privatisation of the franchise in 2013. Already this week we have witnessed the end of a buffet car service on the east coast main line and the direct service from London to Glasgow has already been greatly reduced. Clearly the aim of the game is not customer service, or even value for money.

Despite the overwhelming social, environmental and economic benefits of retaining services from London King’s Cross to Glasgow, the direct services have been dramatically scaled back from 13 trains a day to just two, one in each direction—the 6.50 am service from Glasgow to King’s Cross and the 3 pm service heading in the opposite direction.

In the context of the McNulty report, clearly the east coast main line has a troubled history. I will not go into that now, but it is important that we think about the Government’s responsibility to manage that franchise. They do have a responsibility and they can change this decision.

I congratulate the hon. Member for Gateshead (Ian Mearns) on securing the debate and on his speech. I completely understand the concerns of those working at the Baron house call centre. It is clear that job losses are a very harsh blow to the people concerned. That is one of the reasons why the coalition Government are working so hard to try to create the right conditions for growth and the creation of new jobs.

Absolutely, in the north-east and right across the country.

Before responding to the hon. Member’s questions, I must first clarify and reiterate the relationship between the Government and the east coast main line operator. East Coast Main Line Ltd is wholly owned by Directly Operated Railways Ltd, which is, as he pointed out, owned by the Government. East Coast and DOR are companies registered under the Companies Act and operate in accordance with their own articles of association and governance. This provides a framework for the operation of the franchise as a free-standing entity in readiness for the return of the franchise to the private sector, a return that was envisaged by the previous Government as well as the current one.

I am slightly perplexed by that explanation and tempted to think of the situation with the banks. The Chancellor and the Prime Minister have told us that influence is being exerted on the state-owned banks to ensure that they lend to small and medium-sized enterprises. Is the Minister suggesting that such influence cannot be applied on this company with regard to jobs?

I will explain the relationship between East Coast and the Secretary of State. The aim is for that relationship to replicate the arrangements for franchises elsewhere on the network in order to ensure that the principles of private sector operation are embraced and maintained. The reason for that approach is so that the Secretary of State is able to protect the value of the franchise and the taxpayer gets value for money when the franchise returns to the private sector.

If the Department or my right hon. Friend the Secretary of State were to start intervening in the way the operator runs East Coast, for example by overturning decisions based on commercial considerations, they might well have to answer for their decisions in front of the Public Accounts Committee. I am afraid that we do not believe it a viable option to intervene on the basis of political or non-commercial considerations, even if the Secretary of State were minded to do so.

On the threat that the Public Accounts Committee is going to question what the Minister does, may I just say as a former Minister that it can question anything a Minister does? So, that argument is a complete nonsense.

The Secretary of State is under a duty to safeguard the assets vested in the Department for Transport. The East Coast operation happens to be one of those assets, so it would be irresponsible to intervene and overturn the operator’s commercial decisions.

I share the consternation and concern of my hon. Friend the Member for North Durham (Mr Jones) at the approach that the Minister has outlined. East Coast clearly does not have shareholders, as the other franchises do, but a shareholder could and, we hope, would respond to public pressure and outrage if decisions were made that went so against corporate responsibility, so it is only just that the Secretary of State should play a similar role.

As I have made clear, the coalition Government’s adopted approach, which the previous Labour Government espoused, is that the franchise should be operated on a commercial basis by East Coast Ltd. It should not be the subject of political direction from the Secretary of State.

That is a crucial point if we are arguing about commercial decisions. As my hon. Friend the Member for Gateshead (Ian Mearns) said in an excellent speech, is there not a weight of evidence from banks, insurance companies and various private sector companies that overseas call centres are becoming less and less popular, including with customers, and that therefore any move would damage the potential to sell the franchise to the private sector? Is there not an argument that it would be beneficial to the future sale of the company to keep the call centre at least in the UK, but certainly in the north-east, where it is?

The people best placed to make the decision about what is best for the East Coast operation are the specialist practitioners who run East Coast Ltd, not Ministers, not Members. Those practitioners are the best people to make the best decision about what is in the interests of fare payers and taxpayers. East Coast is confident that the new arrangements will deliver better services for passengers and far better value for money.

As I will outline, should I get the opportunity, the options were fully explored in relation to continuing the relationship between the Baron house call centre and the East Coast operation, but it was found not to be viable in terms of value for money. If East Coast were to ignore value-for-money considerations, not only would the taxpayer suffer, but the fare payer would as well.

Has the right hon. Lady, as a Minister, looked at the case in detail, taking into account not only the value for money for East Coast, but the cost to the taxpayer in terms of redundancy payments directly from the company and the unemployment benefit that will have to be paid in the north-east of England? Has she actually looked at the case in detail?

I can assure the hon. Gentleman that East Coast has looked in detail at the viable option for the operation of the franchise.

The Minister is saying that the people best placed to make those decisions are the people in charge of the commercial considerations at East Coast—the very people who have overseen the running-down of the service and the provision of a very poor service along the east coast main line.

Of course I am well aware of the performance issues on the east coast route at the moment. However, I draw the hon. Gentleman’s attention to the improving performance of the train operator. The bulk of the problems that are currently being experienced are the result of problems with the infrastructure, over which East Coast has no control. I hope that in future, with the McNulty-style reforms, we will see shared incentives and improved performance from Network Rail. It is a mistake for the hon. Gentleman to blame those running the East Coast operation for the current performance problems. They bear a share of the responsibility, but the bulk of it, I am afraid, is Network Rail’s.

Turning to the facts of the case, National Express Services Ltd, or NXSL, was providing call centre services to National Express East Coast—NXEC—before its franchise terminated in 2009. NXSL is a separate commercial entity from NXEC and therefore was not taken over by Directly Operated Railways—DOR—at the handover. To ensure business continuity, contact centre services continued to be provided from Baron house to East Coast Ltd on a temporary basis, but two major problems stood in the way of this arrangement continuing on a longer term basis: first, the cost base of the Newcastle call centre; and secondly, the fact that telesales volumes have been falling rapidly across the rail network as customers switch to internet buying.

I am going to continue for a moment.

In 2006, 11% of East Coast ticket sales were made over the telephone—today, that figure has fallen to just 1.9%—and 50% of East Coast advance ticket sales are now made via the internet.

Following the failure of the NXEC franchise, the services provided by the customer contact centre were reviewed by East Coast and by National Express. That review concluded that it was not commercially viable for the call centre to continue to provide telesales services to the new east coast operator.

No, I have been very generous.

Greater flexibility was sought to enable a better response to sudden peaks in demand for call centre services—for example, as occurred over the winter. A priority for East Coast Ltd was to ensure a stable future for its contact centre services. Due diligence was conducted to establish if it was feasible for DOR to purchase NXSL and the contact centre and operate it as a subsidiary. However, this proposition was not viable because of the significant liabilities associated with the call centre. A working capital injection of approximately £2 million would have been required, plus further investment to turn around a loss-making business.

East Coast worked with National Express to see whether the Newcastle operation could be sold to a third-party expert in call centre services. Bids were received, but they faced the same purchase problems identified by East Coast and fell through when it proved impossible to agree a price. East Coast also considered whether some of the services could be provided in-house, but it is not a telephone contact centre specialist, and it concluded that it did not have the capacity or expertise to provide in-house services to the high standards that its customers wanted and that it was possible to get from a third-party supplier.

Having exhausted all possible options, East Coast concluded that the only viable way forward was to seek a new specialist supplier to provide call centre services. In parallel with National Express’s efforts to secure a third-party purchaser, East Coast initiated an Official Journal of the European Union procurement process to invite bidders to provide contact centre services. The legal requirements of that process meant that East Coast was not permitted to specify the location from which these services were to be provided. The Utilities Contracts Regulations 2006 prevent this unless a particular location is essential for the provision of the service. As the hon. Gentleman said, the outcome of the process was a contract with Intelenet UK for public telesales, group and assisted travel, ticket fulfilment and customer relations, and a further contract with Atos Origin for web support and web ticket fulfilment.

I appreciate that this process has a downside and is a real blow for those working at the National Express call centre, but there is an upside for passengers. I am advised that East Coast believes that the new contract—

House adjourned without Question put (Standing Order No. 9(7)).