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West Coast Main Line

Volume 552: debated on Monday 29 October 2012

With permission, Mr Speaker, I would like to make a statement on the progress we are making to put right arrangements for the west coast main line and rail franchising. First, I will update the House on the Laidlaw inquiry. Secondly, I will explain how we will ensure not only continuity of service on the west coast line after 9 December, but an enhanced service.

On 3 October I announced the cancellation of the competition to run the inter-city west coast franchise because of the discovery of unacceptable flaws in the procurement process run by the Department for Transport. I made it clear at the time, and do so again today, that this was a very regrettable decision prompted by mistakes that should never have happened. I also launched two independent inquiries, one of which has reported its interim findings to me, and which I am today delivering to the House.

I asked the first inquiry, led by Centrica chief executive Sam Laidlaw, to look into what happened and why, with the aim of establishing the lessons to be learned. I also asked the second review, led by Eurostar chairman Richard Brown, to focus on any lessons to be learned for the future rail franchising programme. I promised that both would conduct their investigations thoroughly, independently and urgently.

Given the public interest in this matter, the Laidlaw inquiry was asked to deliver an interim report to me by 26 October and a final report by the end of November. I am grateful to the inquiry for meeting the first deadline and for working tirelessly to meet the second. I stress that today’s findings are precisely that: an interim report. There is more work to do. These findings are clearly a first stage. As Mr Laidlaw explains, they set out what went wrong, and from that basis he will now carry out further investigations into why this happened.

From the start, my aim in dealing with this situation has been to be open and to come forward with information for the House at the earliest opportunity. It is in that spirit that I make this statement today. In the interests of complete transparency, I am publishing this interim report with its provisional findings, and placing copies of it in the Libraries of both Houses.

To be blunt, these initial findings make uncomfortable reading, but they provide a necessary and welcome further step in sorting this situation out. The Government will need to see the full and finished report before we can comment in detail on any conclusions. That is crucial because of the independent nature of the Laidlaw inquiry and the need for the Government not to prejudge its eventual findings, but it is clear that the inquiry has identified a number of issues that confirm that my decision to cancel the franchise competition was necessary. These include a lack of transparency in the bidding process, the fact that published guidance was not complied with when bids were being processed, inconsistencies in the treatment of bidders, and confirmation of technical flaws in the model used to calculate the amount of risk capital bidders were asked to provide to guard against the risk of default. The Laidlaw inquiry also mentions factors that

“appear to have caused or contributed to the issues raised”.

We will look at them with interest and care, although, once again, we will need to see the final report before we can comment further.

Secondly, I would like to update the House on the progress we are making to ensure continuity of service on the west coast main line once the current franchise expires on 9 December. As I have said previously, we will ensure that passengers continue to be served by the same trains with the same front-line staff, the same services and using the same tickets, and, I am pleased to say, with enhanced future timetables.

The Department is making good progress in its discussions with Virgin on how it will operate the line for a short period of up to 14 months while a competition is run for an interim agreement. We are discussing its proposals for improved services over this period and an enhanced compensation scheme for delayed passengers.

In dealing with this matter, my Department has been frank and open about its mistakes and is absolutely determined to find out exactly what happened. In the meantime, we will keep delivering for passengers, and continue with the unprecedented levels of investment in trains, stations and railway lines.

Combined with our decision to limit train fare rises to an average of inflation plus 1%, instead of RPI plus 3%, for the next three years, this demonstrates this Government’s total commitment to Britain’s railways. I commend the statement to the House.

I thank the right hon. Gentleman for early sight of his statement—it was a good job I had my mobile phone with me so that I could read it. I welcome his willingness to come to the House and his stated intention to be transparent, which I hope will translate into actual transparency.

However the Secretary of State spins it, the truth is that this is a franchise fiasco with not one but four Cabinet Ministers’ fingerprints all over it. Who designed the new franchising policy, building significantly greater risk into the process? It was the Secretary of State for Northern Ireland. Who reduced the Department’s capability to manage major contracts by cutting a third of the staff, including the directors of procurement, rail strategy and rail contracts? It was the Secretary of State for Defence. Who decided not to bother with an external audit, turning a saving of thousands into a cost of tens of millions, then delegated the entire process to her junior Minister and then failed to act on warning after warning about flaws in the process? It was the Secretary of State for International Development. And who declared himself satisfied with the whole process before the Transport Committee, despite the growing evidence that something had gone badly wrong, and then added to the chaos in the franchising system by replacing the costs of one competition with the costs of three? It was the current Secretary of State. This is a shambles involving not one but four members of the Prime Minister’s Cabinet, and it is about time they took responsibility for it instead of blaming officials.

After his last statement to the House, the Secretary of State failed to answer a single question I put to him, so perhaps today, in the interests of transparency, he can manage to give answers to five questions. The first relates to what Ministers knew and when. We know that his Department received a detailed report by Europa Partners five days before awarding the contract. Its author has said that a proper risk analysis was not at the centre of the appraisal. Can the Secretary of State now confirm that at least one bidder warned the Department of errors as far back as May 2011, with one executive telling the Financial Times:

“The spreadsheet contained certain assumptions that looked odd to our economic modellers, so we went back to the department and pointed it out”?

Again, why did Ministers not act on that warning? Can the Secretary of State tell the House who the senior responsible owner for this project was in his Department?

Secondly, on the cost to taxpayers, the Secretary of State doggedly sticks to his figure of £40 million, yet we know that that is just the cost of compensating the four west coast bidders. It does not include the cost of re-running the competition twice, of compensating bidders for the other stalled franchises or of preparing Directly Operated Railways to step in. So what assessment has he been given of the final cost of this Cabinet ministerial failure? How accurate are reports of a final figure of well over £100 million?

Thirdly, on his Department’s external advice, the Secretary of State has admitted in parliamentary answers that his Department paid £491,000 to Eversheds and £439,000 to WS Atkins for advice during the west coast tender process. Can he confirm whether those are the total amounts paid? What steps is he taking to secure a refund for taxpayers for any mistakes that may have contributed to this fiasco?

Fourthly, on the legal advice that the Secretary of State has received, what is his Department’s liability if the participants in any of these cancelled or stalled franchises take action against the Government? What advice did he receive on procurement and EU competition law before deciding to extend Virgin’s contract? What will be the cost of Virgin’s interim operation of the west coast main line until he can get to the first of the next two competitions?

Finally, on the review itself, does the Secretary of State not think it is extraordinary for his Minister of State to insist, in a parliamentary answer, that the Department for Transport board has no responsibility for this fiasco because it was delegated to one of its sub-committees? Surely the board is responsible for its own sub-committee. It is precisely this wriggling that makes people suspicious about the nature of this review. Will the Secretary of State, even at this late stage, think again and allow a genuinely independent review that can look at the role of the Department for Transport board and of Ministers?

The Secretary of State’s attempt to bury his franchise policy at midnight failed to cover up this nightmare on Marsham street that has rapidly become a nightmare for Downing street. Does the Secretary of State agree that

“Ministers must take responsibility for serious or systematic performance failures...flawed policy and poor design...Ministers must not be allowed to shuffle off responsibility”?

Those are not my words, but those of the Prime Minister. This is not just a faulty process; it is a faulty Government. It is time that the Prime Minister listened to his own words, followed his own advice and insisted on his Cabinet finally taking some responsibility for this franchise fiasco.

For the hon. Lady’s information, the Department is based in Horseferry road, not Marsham street.

Let me draw the hon. Lady’s attention to the final line of Mr Laidlaw’s letter to me today, which states:

“Firm judgments should not be made based upon what are provisional findings or wider conclusions drawn at this stage.”

I have been very open with the House about the problems we have encountered. She accuses the Government of wasting money, but she should perhaps look back at the previous Government’s record, particularly the decision by the then Deputy Prime Minister that wasted some £469 million on the flawed procurement of regional fire stations. I see that the shadow Minister, the hon. Member for Poplar and Limehouse (Jim Fitzpatrick), is rather amused by that, because he was directly involved.

I have come to the House and I have been open with the House. As far as the money is concerned, I talked about the £40 million that related to the bidding process and there will be some other costs. When I have those costs, I will inform the House. I will not judge them or estimate them; I will give the House the information when I have it.

The last time I gave a statement, the hon. Lady attacked us for not getting external advice. As the answers given by my right hon. Friend the Minister of State show, we did get external financial advice where necessary. Yes, some changes were made to the Department but they were well under way and being planned for before May 2010.

On the question of Virgin’s position, I made it perfectly clear the last time I made a statement that I intend to enter into an interim contract with Virgin until we can do a longer franchise. That first franchise will last up to 13 months. I did check it out, and have obviously had discussions with, the commission.

May I congratulate my right hon. Friend on coming to the House and being so transparent and open about what is obviously a very painful part of the Department’s dealings? Will he now translate that openness and transparency across all the modelling that is being used either by the Department for Transport or its subsidiary, HS2 Ltd, for HS2? Will he now put his words into action and publish the Major Projects Authority’s report on HS2, showing that he really is a transparent Secretary of State?

As I think I said to my right hon. Friend the last time we discussed this matter, a lot of work is being done on the planning of HS2 and there will be a number of opportunities for wide-ranging debates when we discuss that Bill, but today I am dealing with the west coast main line and franchising.

Will the Secretary of State tell us whether Mr Laidlaw considered the implications of the decision to make this a 15-year franchise? He will know that when I had his job I reduced the franchises to seven years, because after that time trying to speculate on the state of the economy, and therefore on what fair revenue is, becomes increasingly difficult, if not impossible. The problem is that the further out we go, the greater the probability is that the risk will fall back on the Government. Does not that policy decision, taken, I think, by some of his predecessors, need to be reconsidered if we are not to repeat some of the procedural problems that he has outlined today?

I am grateful to the right hon. Gentleman for that question. He has a distinguished record of being one of the longest-serving Secretaries of State for Transport, so I listen to him with the care and attention he rightly deserves. He raises a couple of points. He might not be aware that at the tail end of the previous Government they also talked about extending the franchises up to 20 years, which was seen to be a way of getting a better return overall for the huge investment from the taxpayer that goes into the railways. He makes an interesting point. As I said in my initial statement, I have asked for two reviews and I think that that is something that Richard Brown, the chairman of Eurostar, will be considering in his report, which I expect to see before the end of the year.

In the appraisals of the new competition being held for the west coast franchise, what will the role of Ministers be in setting the terms of the competition, supervising the arithmetic and making sure that a fair assessment is made?

I hope Ministers set out the policy. I am not sure that we are there to check every line of every spreadsheet. That is something that we should rightly expect officials to do for us at the request of Ministers, to ensure that we get the best value for the taxpayer out of what has been a huge amount of investment on this railway line, which has been made on behalf of the British public. It is one of the most important lines that serves the United Kingdom so I will certainly bear in mind what my right hon. Friend says, but part of the point of going for longer franchises was to try to deliver better services to the passenger.

The Secretary of State will be aware that the Transport Committee may have a few questions to ask him on Wednesday. Perhaps he could tell the House today why, if it is important that the outcome of the review should not be prejudged, he suspended three civil servants.

I am sure the Transport Committee will have a number of questions for me on Wednesday. I think I am looking forward to coming. The decision on suspensions of staff is not made by a Secretary of State; it is made by the permanent secretary. I have had no involvement with that process and it would not be right for me to do so.

Does the Secretary of State agree that one of the lessons that should be learned in relation to future franchising is the need to ensure that good performance as well as poor performance by an operator can be taken into consideration as part of the franchising process, notwithstanding the need for fair competition?

I entirely agree. That should certainly be taken into account, but so should the return to the taxpayer. The taxpayer has invested a huge amount of money in the line, which must be borne in mind as well.

Successive reports this year from the Transport Committee and a National Audit Office report last week have indicated that the Department is running a huge underspend on its capital programme. The NAO report last week talks about addressing

“£1.7 billion unexpected funds for infrastructure”.

I realise that the Secretary of State has been in office for only a few weeks, but can he say to what extent the slimming down of the Department and its preoccupation with the issue of rail franchising has meant that it lacked the capacity to ensure that funds properly allocated to it—for example, for road repairs and desperately needed regional rail infrastructure improvements—are spent, and what he is doing to address that?

The right hon. Gentleman’s question goes slightly wider than my statement this afternoon, but I point out that I made an announcement just a few weeks ago about a pinch-point plan to relieve certain areas of road congestion, which will cost £170 million. Wherever money is spent, I am determined to ensure that good value is obtained and that we do not waste public money. That is more important to a Minister than making sure he spends the money, come what may.

I congratulate the Secretary of State on the speed of the work that he is doing and his approach to this very difficult issue. My concern, however, is the potential loss of investment and innovation in the rail service in the short term. Will the Secretary of State assure me that everything will be done by his Department to ensure that no investment opportunity is lost and that any improvement to the service will go ahead if at all possible?

My hon. Friend make a good point, because the line is very important for his constituency. I know that he has already had a meeting with my right hon. Friend the Minister of State about rail investment in his constituency. I am keen to make sure that the benefits that people will get from the franchise are realised as soon as possible. There has been a necessary delay and I very much regret that.

In his statement the Secretary of State referred to discussions that he is holding with Virgin about extending its involvement for a short period of 14 months. Can he give some reassurance to travellers and also to the staff who work on the west coast main line that if it becomes necessary to extend that 14-month period, there is no in-principle reason why that should not happen?

Over the next eight months, which we are talking about as the extension to the franchise, and the following five-month changeover period, if that is necessary, we will obviously be talking with Virgin and other companies interested in running the interim two-year contract, but I think that the jobs of the people who operate the trains will remain the same under any operator.

Commuters in Tamworth will be relieved to hear that at least my right hon. Friend knows where his Department is. Will he make clear the steps he can take to ensure that the next round of franchises are not unduly delayed? In particular, can original requests for proposals made by bidders who choose to tender again be requested again so that that the review process is expedited?

I can assure my hon. Friend that I am very keen to get on with franchising, but he would expect me to wait for the recommendations of the Brown report and the Government to respond to it in a measured and appropriate way. I can give him the assurance he seeks: I am very keen to get on with franchising.

I join those Members who have complimented the right hon. Gentleman on his openness in coming to the House and his readiness to come here frequently. Is he aware that, as is shown in the book “How to be a Minister”, the incompetence, errors and blunders he listed in his statement should end up in the lap of his predecessor and that the Government should admit that? Will he also accept that those of us who travel twice a week on the west coast main line have seen the cloud that has hung over the train crews during this period lifted? It is up to him to ensure that the cloud does not return.

I am not sure who wrote “How to be a Minister”, but the right hon. Gentleman might like to inform me privately afterwards. I refer him to Sam Laidlaw’s letter, which I mentioned earlier. The fact is that this is an interim report and nowhere does it criticise Ministers.

I welcome the Secretary of State’s willingness to update us on the continuity of service on the west coast main line once the current franchise expires on 9 December. Has he noted recent reports suggesting that capacity could be reached well before 2026, undermining continuity of service? Consequently, will he bring forward plans for HS2, even though he said he would not talk about them today?

I am interested in the representation my hon. Friend has made, but perhaps we could leave it at that.

Why does the Secretary of State think that he will ever be best placed to decide competition between these companies? Does he not realise that we, the consumers and travellers, would like to decide competition between the companies ourselves? When will he realise that we are in a better position to decide which trains we would like to travel on, that those who are bidding for the contracts have huge skills in fixing them and that no amount of skill from the Secretary of State can overcome them fixing the market in the way they have succeeded in doing up to now?

I am not sure that I completely agree with the right hon. Gentleman, but I might want to reflect a little on what his question is in the longer term. The Government, on behalf of the taxpayer, have invested a huge amount of money in the west coast main line—some £9 billion—so it is right that the people who are served by the line get a good service, and we are trying to find how best to achieve that.

Over the past eight years, passenger numbers from Nuneaton station have increased by 77% to just under 1 million. On the basis of that growth and the huge growth in railway usage that we have seen across the country, does my right hon. Friend agree that it would be complete folly at this stage to revert to a nationalised railway, as has been alluded to by some Labour Members over the past week? May I also appeal to him to consider better off-peak fast services to Nuneaton station when he deals with the re-timetabling?

I am grateful to my hon. Friend. Requests for improved services often come my way whenever I appear at the Dispatch Box. That shows, to a degree, the importance of the rail industry to all our constituents and the demand that exists whereby people will use a service if it is available, so I take his representations very seriously. As for nationalisation, the railways could have been nationalised by the previous Government—they were in power for 13 years—and they decided not to do so, for very good reason.

I know that the Secretary of State is aware of the urgent need for improvements to Stockport station, so will he tell me whether capital projects are to be included in the interim agreement?

I cannot yet go into the full details of what will be in the interim two-year agreement. However, the hon. Lady has made the case for Stockport station not just today but on other occasions, and, knowing her, I have the feeling that she will continue to do so every time I appear at the Dispatch Box.

Stafford station is to receive a welcome £3 million upgrade, and my constituents are looking forward to several other improvements in fares and services, particularly—here is another bid for my right hon. Friend—later departures from London and Liverpool in the evening. Can he confirm whether these improvements will be possible under the two shorter franchises?

I am very pleased to hear that my hon. Friend’s station is being improved. I should like to point out that Derby station is being improved as well, but that was agreed some time before I arrived at the Department. On his request for further services to Stafford station, which I know well, I will certainly try to ensure that when the enhanced services are negotiated, Stafford also gets the benefit.

The Secretary of State mentioned the Brown review on more generalised lessons for franchising. Is he aware that some urgent lessons need to be learned and acted on straight away, particularly regarding routes to and from the west coast main line? I refer, of course, to the literally hundreds of train services that have been delayed or subject to cancellation by London Midland. The Secretary of State says that his officials are in daily contact on this. What are they doing? Will the problem be resolved? How did we get to the situation whereby London Midland appears not to have forward planned its driver requirements? What penalties are available to him and his Department?

I congratulate the hon. Gentleman; I think there were about six questions there. However, I will give him only one answer, which is that the Under-Secretary, my hon. Friend the Member for Lewes (Norman Baker), spoke directly to the managing director of that rail line. We are concerned about the deterioration of services, and I hope that measures will be put in place quickly to put them back to an acceptable level.

Notwithstanding my right hon. Friend’s reply to the hon. Member for Tamworth (Christopher Pincher) about the Brown inquiry, is he prepared to go a little further in outlining the consequences for other franchises and their timetabling, particularly the First Great Western franchise, which many hon. Members are very concerned about?

Yes; the hon. Gentleman’s points are well taken. However, I do not want to prejudge the Brown inquiry, nor the final Laidlaw inquiry. It is better that I wait for those reports to see whether they have any read-across. I assure him that, as I have said throughout the statement, we are very keen to see good, reliable railway services across the country.

I thank my right hon. Friend for his comments about the continuity of services on 9 December. He also said that he is in discussion with Virgin about enhancing services in December and an improved timetable. Can he give any more details about those discussions?

I am afraid that I cannot give those details at the moment, because we are in negotiations. I know that my hon. Friend wants a better service for Milton Keynes, because every time he talks to me he talks about exactly that. As a member of the Transport Committee, he is one of those people who keep an incredibly close eye on this issue and he will no doubt pursue me at every opportunity.

I welcome the speed and transparency of the interim Laidlaw report and endorse the calls of other hon. Members for lengthier franchises. Today the all-party group on rail in the north looks forward to meeting the Minister of State.

Yes, and I am sure that my right hon. Friend will be coming back.

Will the Secretary of State confirm that this Government’s increased investment in things such as the northern hub and the expanded service for the north will continue in the long term?

I am grateful to my hon. Friend for his question. My right hon. Friend the Minister has just told me that he looks forward to going back to the all-party group. My hon. Friend makes a very important point. Just before the summer recess we announced our plans for the railways from 2014 to 2019, which ought to have some very beneficial effects for all constituents. They include the largest electrification ever seen in this country—we are planning to electrify some 850 miles, which is a lot more than the previous Government achieved in 13 years.