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West Coast Rail Franchise

Volume 554: debated on Thursday 6 December 2012

With permission, Mr. Speaker, I shall make a statement on what went wrong with the west coast franchise agreement and what we are doing to put things right.

I shall begin by updating the House on the Laidlaw inquiry, and on the decisive action that we are taking in response. I shall then inform the House of the new deal with Virgin Trains—including an enhanced service—that will begin this weekend. My approach to all this, from the start, has been to come to the House to explain the situation openly, quickly and clearly, and it is in that spirit that I make my third statement on the subject today.

Let me deal first with the Laidlaw inquiry. 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 process run by the Department for Transport. As I explained to the House on 15 October, I launched two independent inquiries. I asked the first inquiry body, led by Sam Laidlaw, to look into what happened and why, and I am publishing Mr Laidlaw’s final report today. I asked the second body, led by the Eurostar chairman, Richard Brown, to focus on any lessons to be learnt for the purpose of future rail franchising. That inquiry is well advanced, and I expect to receive Mr Brown’s report by the end of the year. I shall publish it after that. I have placed a copy of Mr Laidlaw’s final report in the Vote Office, and I am placing a copy of my Department’s response to it in the Library. I do not hide from the seriousness of his findings. They make extremely uncomfortable reading for the Department. What happened caused serious problems for bidding firms, including FirstGroup, which was in no way at fault. Action must, and will, be taken.

Let me turn to the detail. Mr Laidlaw confirms much of what he first touched on in his interim report. He finds that the Department wrongly calculated the amount of risk capital bidders would have to offer to guarantee their franchise proposals against default, and he says that these incorrect figures were varied in ways that were wrong. Significantly, he also states for the first time that Ministers made the original 14 August provisional award without being told about the flaws and after being given “inaccurate reports”.

Mr Laidlaw also confirms that if his recommendations on strengthening the organisation are acted upon quickly, the Department will be able to do its job correctly in the future. There is nothing in the report to suggest that the flaws discovered in this franchise competition existed in other procurements in the Department.

Finally, Mr Laidlaw confirms that he has seen no evidence of bias against Virgin. He also offers a clear prescription, which we are already acting on. The Department will ensure that all future franchise competitions are delivered with a clear timeline, rigorous management and the right quality assurance. We will also create a simpler and clearer structure and governance process for rail franchise competitions. That will include the appointment of a single director general with responsibility for all rail policy and franchising, and we will ensure that we have the right mix of professional skills inside the Department and, where necessary, from professional external advisers.

I thank Mr Laidlaw for carrying out such a comprehensive review to such a tight timetable. Any specific personnel issues resulting from what has gone on are—and must, of course, remain—for the permanent secretary.

Secondly, let me turn to the future of the west coast main line. In all my actions, I have put the service to passengers first. That is why I am pleased to tell the House that my Department has negotiated terms with Virgin Rail Group to allow Virgin Trains to continue running the west coast service for up to 23 months. Our intention is to run a full competition for the longer term franchise to follow on from that.

The terms we have negotiated with Virgin secure a continued service for passengers at the same levels they enjoy today, and in some cases better. The timetable that was already agreed for December 2012 will operate, and today the last of the 106 Government-funded Pendolino carriages comes into service. That will allow more trains and longer trains on this vital route. That timetable includes a new hourly service between London and Glasgow.

I also want to see more improvements, including the introduction of new services from London to Blackpool and Shrewsbury. Subject to Virgin securing the track access rights to provide them and to our completing a value-for-money assessment, I hope that both of these new services will be introduced from December 2013.

The Laidlaw inquiry has told us that changes to the Department’s governance and structure are needed. We are carrying them out, and we have a new deal for the west coast main line. This has been an extremely serious issue for my Department and for the civil service, but I am determined that we learn the lessons and get on with the job we are here to do. With our commitment to High Speed 2 and the increase in capital spending on roads announced by my right hon. Friend the Chancellor of the Exchequer this week, the Government are committed to improving our transport network and backing our railways. I commend this statement to the House.

First, may I thank the Secretary of State for early sight of his statement and the report?

The Secretary of State conceded to the Transport Committee that what had been uncovered even in the Laidlaw inquiry interim report was “damning”. It is, indeed, damning, and the final report is even more so.

For all the efforts by the Government in briefing after briefing to pin the blame on just three civil servants and to hide behind an internal human resources process, the results of which will never be made public, some things are very clear. It was decisions and failures by Ministers that led to the collapse of rail franchising, at huge cost to the taxpayer. The Laidlaw report is clear. It was Ministers who decided to change franchising policy; they decided not just to move to longer franchises, but to replace a revenue-risk sharing mechanism that had worked for many years with a complex new model requiring a best guess at GDP 15 years ahead. It was Ministers who oversaw a bizarre structural reorganisation of the Department that left no one in charge of rail. The Secretary of State has now said he will reverse that—finally, we have an acceptance of ministerial responsibility. It was Ministers who chose to axe more than a third of the staff at the Department in a year, with little thought for the consequences of the loss of expertise. And it was Ministers who axed external audits, removing quality assurance from the process. These were deliberate decisions taken by this incompetent Government.

It was also Ministers who failed to act when warning after warning was flagged up to them as this franchise unravelled. Why did alarm bells not ring at the fact that this process had not one but three senior responsible owners? It is not surprising that the Laidlaw report proposes just one in future—that is the whole purpose of a senior responsible owner. Does the Secretary of State not accept that Ministers have an obligation to ask questions and not just rely on what they are being told, not least when they are spending hundreds of millions of pounds of taxpayers’ money? It is clear from this report that they failed completely in their responsibility to do that.

The Secretary of State must now give taxpayers and fare payers some straight answers. First, has he received clear legal advice that will reassure taxpayers that he has not left the Department open to legal challenge as a result of his decision to hand out a two-year contract with no competition? Secondly, are reports correct that he has agreed a quid pro quo deal with First, whereby it will be granted an extension on its First Great Western franchise on a similar basis? Thirdly, the Government expected to receive tens of millions of pounds in dividend payments over the next two years from the west coast franchise and would have received more than £800 million from the great western franchise had First not exercised its right not to extend that contract—can the Secretary of State confirm that, under the management contracts he has been forced into, taxpayers will receive none of those payments? Fourthly, the terms of the deal that has been struck with Virgin allow the margin of 1% on revenue agreed for the first year to rise for the second—by how much could it rise and at what cost to the taxpayer? Finally, will the Secretary of State now come clean with the House on the full cost to taxpayers of the collapse of the Government’s franchising programme? There are media reports from the industry that the final cost could run into not tens of millions but hundreds of millions of pounds. Will he tell the House, taxpayers and fare payers what figure he has been given by his officials?

Despite all the Secretary of State’s efforts, no one is going to fall for the Government’s attempt to wriggle off the hook and evade responsibility for this shambles. They can devise a complex process of multiple reviews, they can hide behind confidentiality and legal privilege, and they can reshuffle Ministers as many times as they like, but the truth is that when commuters go back to work in the new year and find that their fares have gone up by as much as 6% above inflation they will know that it was Ministers from this incompetent Government who, instead of imposing a strict cap on fare rises, blew taxpayers’ money on this franchise fiasco.

I had hoped that I had given the hon. Lady adequate time to read the report, but it seems that I did not. First, I will deal with her points about Ministers. I refer her to page 44, where paragraph 4.118.2 says that

“inaccurate statements were made to the then Minister of State in writing as to the manner in which the CAC”—

the contract award committee—

“had approached the SLF sizing process in respect of First’s bid at its meeting on 27 June”.

If inaccurate information was given to Ministers, a fact stated in the report, Ministers would have acted in good faith on the information they were given.

May I also make the point that is made on page 63 of the report? It states that

“in implementing substantial cost savings required by the Government’s spending review in 2010, the DfT significantly reduced its headcount, the number of contractors used and its use of external consultants.”

Mr Laidlaw goes on to say:

“That is not to say however that, with appropriate escalation…of the issues, sufficient resources could not or would not have been found.”

There was no significant escalation of the issue, so I think there is truth in that.

A number of parts of the report refer to the Minister of State, the Secretary of State, the Prime Minister and the Under-Secretary of State for Transport, my hon. Friend the Member for Lewes (Norman Baker), asking questions and I am afraid that there was a damning failure by the Department that must be put right. The hon. Lady says that I seek somehow to blame three civil servants. I have never, in any of the statements I have made in the House or privately, mentioned the names of any civil servants. That is a matter for the permanent secretary. We now have the HR report and the permanent secretary is considering that and what will happen in the future. I would have hoped that the hon. Lady would welcome that.

The hon. Lady talks about the position with First Great Western and its contract to run its railway line. May I remind her who negotiated that contract? It was inherited by the Government and was not our contract at all. If she feels that there are any problems with it, then excuse me but it is not the responsibility of the Government. She asked a specific question about the second year of the contract with Virgin Trains and I will write to her with the answer.

The Secretary of State read two quotations from the report, which both implied to me a severe organisational failure. Did Laidlaw have anything to say about the position of the permanent secretary in all this?

As I think I said to my hon. Friend when I made my first statement on this matter, there are obviously serious questions to answer. The present permanent secretary took his post in April, when many of the incidents to which we are referring had already taken place.

The Secretary of State acted decisively when he became aware of these issues, but the standing of the Department has been severely damaged by this episode. Three franchises were postponed and the £40 million is simply the first stage of the cost to the public purse. What lessons does the Secretary of State take from this incident for future ministerial responsibility?

I am grateful to the hon. Lady and I know her Committee will see Mr Laidlaw and no doubt others during their deliberations on this subject. There are a number of lessons not just for Ministers but for the civil service as a whole and on closer reading of the report they become apparent. I hope that this sort of episode will not happen again to any Government.

The Secretary of State will be unsurprised to hear me welcome the news about direct services to Blackpool. Does he agree that any infrastructure investment is only as good as the economic planning by local stakeholders? Will he encourage local councils and the local enterprise partnership to meet local MPs urgently to discuss how to take advantage of that announcement and not wait until December 2013 to decide what to do about it?

I am grateful to my hon. Friend, particularly for the way in which he has campaigned for this service. I know that he will be pleased by the intention I have announced today. As I have said, it is an intention and is not absolutely tied down as there are a few processes to go through. Given the way in which he has shown leadership, I very much hope that he gets that message across to the stakeholders involved so that we can make progress.

Is it not clear that the right hon. Gentleman is doing his very best to clear up an appalling mess that he inherited from his predecessor? Although of course matters of personnel in his Department are, as he says, the responsibility of the permanent secretary, the overall administration was the responsibility of his predecessor and it is unacceptable that she complacently remains a member of the Government having left this expensive mess. I am travelling up to my home in Manchester this afternoon. What am I to say to the excellent train crew who will be looking after me and all the other passengers about the security of their jobs, in which they have the right to be confident and which has been left in total dubiety by what happened before the Secretary of State took over?

I think I am grateful for the conservative way in which the right hon. Gentleman made his point. What he can say to the crew on the west coast main line is that both this Government and, in fairness, the previous Government have invested huge amounts of public money in that line—some £9 billion. I am glad to be able to say today that we have completed the delivery of the 106 new Pendolino carriages to show our support for that line. I hope that my announcement today and the fact that I have not done what I initially said I would do, which was a short-term contract, then a medium-term contract, gives train crew security and that they can work with their company for the future franchise.

I was disappointed with the shadow Secretary of State for Transport. When we called Sir Richard Branson into the House of Commons, he and his officials specifically stated that they had first raised concerns about the bidding process with the Labour Government and Lord Adonis. I welcome the announcement of a direct service for Shrewsbury. My hon. Friend the Member for The Wrekin (Mark Pritchard) and I have long campaigned, along with other Shropshire MPs, for this vital service for Shropshire, which will be a great boost for tourism and business for Shrewsbury, the county town. When we finally have that service I will invite the Secretary of State to join me on the train from Shrewsbury to London and I will buy him a drink on that journey.

My hon. Friend is getting into the Christmas cheer a little early. He, along with my hon. Friend the Member for The Wrekin (Mark Pritchard), have been vociferous in making the case for a service to Shrewsbury and other stops on the way. There is still work to be done, but I very much hope we can get that service by December next year.

I have not seen the report so perhaps the Secretary of State can answer this question. He refers to the risk capital that bidders had to put forward as a guarantee and says that Laidlaw said that Ministers were not told about the flaws after being given inaccurate reports. What questions did Ministers ask about the capital that bidders would have to offer to guarantee the bid?

I was not in those meetings, for obvious reasons, but I know that Ministers were constantly probing. Mr Laidlaw saw the former permanent secretaries at the Department—not just the present one, but the former ones—and spoke to former Ministers there too.

I welcome the Secretary of State’s decision to award an interim franchise to Virgin Trains, as this provides a great deal of stability for passengers up and down the country. Will he join me in paying tribute to the Virgin staff on that line, who throughout this very difficult time have always acted with great professionalism?

I had a meeting just the other day with some disabled people. They sang the praises of Virgin Trains as providing some of the best services to disabled people. I was pleased to be able to pass that message on to Sir Richard Branson when I met him yesterday.

The Secretary of State said that the Brown report would look at the lessons learned for future rail franchises. Perhaps the biggest lesson is that the whole system is a shambles, but given that the report is due shortly, what process does he have in place for taking account of its lessons in the negotiations with Virgin for the franchise in the immediate future?

The truth is that what both Governments have recognised about franchising is that it has brought massive passenger growth on the railways and the railways have flourished since franchising has taken place. The hon. Gentleman asks me to say what implications the Brown report will have for franchising. I think I had better wait till I receive it before I answer.

I welcome the degree of transparency that Ministers have brought to these matters. What plans is the Secretary of State making to foster a culture in which admissions of fault are freely made in the Department and processes paused and rectified where necessary? Is it not right that if mistakes are found, hands must be held up?

I am pleased that my hon. Friend welcomes the transparency that I have demonstrated today. I hope I do not have to do it too often.

Edinburgh is served by both the west coast main line and the east coast main line services, and between the two there have been three occasions in recent years when the franchise process has gone wrong. Given that the Government will have to sort out the franchise system, not just for the west coast main line, would it not make sense now to decide to keep services on the east coast main line operated by the current operator and allow it to get the benefits of closer co-operation with Network Rail, rather than force it to go through a franchise process again?

The hon. Gentleman is jumping to too many conclusions at the start. When the previous Government brought in Directly Operated Railways to run the east coast main line, they made it very clear that they would want to move to a franchise process and re-let the franchise, and that is certainly the position that this Government take.

The welcome announcement of extra capacity and services on the west coast main line drives a coach and horses through one of the prime reasons for High Speed 2, which is to reduce overcrowding on the WCML. Given the stark warnings of the Laidlaw report, particularly chapter 7, which identifies failings in the capability and capacity of the Department for Transport, how can anyone trust the Department with what will be the largest peacetime spend on a project? Is it not time the Secretary of State took another brave decision and consigned this poorly managed, ill-conceived and increasingly thinly justified project to the waste paper basket?

My right hon. Friend is vociferous on this issue on behalf of her constituents. She is asking me to prejudge announcements that I will make next year. The Chancellor of the Exchequer made it clear yesterday that we will be moving forward with HS2. I look forward to welcoming her to the Department next week.

Further to the previous question, will the Secretary of State clarify whether there are any implications for the value-for-money exercise that was carried out on High Speed 2 and, if there are, whether he will be asking the civil service to go back over them again?

That is a valid question, but of course, as I have said, this is a franchise exercise that went wrong. High Speed 2 is a capital project that I think will benefit the United Kingdom and our long-term capacity. No railway line has been built north of London for over 100 years, so it is about time we increased capacity.

The Secretary of State said that there were no implications from the Laidlaw report for any other procurement in his Department, but the interim findings clearly set out that there were concerns about the Department’s management structure and the quality assurance process. Is he still confident that there is no need to review the Thameslink rolling stock contract to ensure that no mistake was made in it as well?

I can assure my hon. Friend that I have of course looked at that situation. I believe that the contract that was announced some time ago will be coming to a conclusion in the near future.

The failure of the franchising system, at a cost of £40 million, compares with how the east coast franchise has been taken in-house, saving nearly £200 million. Is it not time that consideration was given to bringing the west coast franchise, and every other franchise, back in-house in line with the successful model used for the east coast franchise?

I think the hon. Gentleman, in a rather convoluted way, has called for the renationalisation of the railways. That is certainly not something this Government will do. If he can convince his Front Benchers that that might be the right way forward, we will be interested to see that development.

I very much welcome the additional services and carriages that the Secretary of State has announced. In addition, both Virgin and FirstGroup pledged in their bids significant long-term enhancements to services on the west coast main line. Whatever conclusions are reached following the Brown report, will he ensure that these additional benefits are still secured for passengers?

I am sorry, but I missed the last part of my hon. Friend’s question. I know that he, as a member of the Transport Committee, will continue to press for a very good service through his constituency.

The Secretary of State will be aware that the three civil servants suspended over this fiasco have this morning been reinstated. What does that say about the judgment of leading officials and Ministers in the Department for Transport, and can he elaborate on the reinstatement?

Staffing is a matter for the permanent secretary, who received the Stow report, which dealt with human resources. The suspensions took place as a precautionary measure while the report was being produced. Obviously, consequences will flow from the permanent secretary receiving that report, and those will become public in due course.

I congratulate the Secretary of State on the decision on the west coast main line, but has he considered the Essex Thameside franchise and whether C2C should be given a similar concession?

I am waiting to receive the Brown report, which will, I hope, take us further on lessons to be learned for future franchising. I will be most insistent on passengers receiving the services that they are currently getting, and, where possible, an enhanced service.

Has the Transport Secretary assessed the potential for running the west coast main line under public ownership and what the benefits might be?

I believe that the way in which the west coast main line is run by Virgin has been very popular with Members, not on the Government Benches but on the Opposition Benches, who have announced their intention to support that franchise.

I thank the Secretary of State for the speed with which he has dealt with this and the integrity that he has shown throughout in dealing with this difficult problem. My constituents are still seeing much needed improvements, with extra carriages and the line to Blackpool, but I hope he will forgive me if I remind him that Fleetwood remains a town with a railway line but without a railway service.

I do not mind my hon. Friend reminding me of that, and I know that he will do so on many occasions when he gets the opportunity. I look forward to having discussions and conversations with him about how we can possibly improve the situation in which his constituents find themselves, but I hope that he welcomes the fact that the line has come part of the way to his constituency, if not yet all the way.

The west coast main line is of huge importance to the Scottish economy, as it carries half a million passengers a year along its whole length for business and tourism purposes. What assurances has the Secretary of State received this morning from Virgin trains about whether the 248 workers who are employed by the company in Scotland will have security in their jobs for the future?

I am not responsible for the personnel decisions of Virgin trains, but I am sure that the hon. Gentleman will make representations to the company. I hope he welcomes the fact that I have announced today the completion of 106 new Pendolinos and the hourly service to Glasgow, which are substantial improvements in this service for people in Scotland.

May I praise my right hon. Friend for launching these inquiries so soon after he took office? However, while Parliament holds Ministers to account, who holds the Sir Humphreys to account? There is a stink about this process among the permanent secretariat in our civil service. What has happened to the previous permanent secretary in the Department—is he or she still in the civil service? Is the current permanent secretary going to take any responsibility?

My hon. Friend says that Parliament holds Ministers to account. In fact, it is not only Parliament that holds Ministers to account, because that also happens through the Select Committee procedures, on which I will certainly not lecture my hon. Friend, and that applies to permanent secretaries and officials as well. There will undoubtedly be other reports not only by the Transport Committee but by other Select Committees and by the National Audit Office. Various reports will come out on this subject.

Will the Secretary of State agree to meet staff representatives through their trade union to discuss and consider the ongoing uncertainties and concerns about this contract?

I am always happy to meet various bodies, and if the hon. Gentleman puts a proposal to me I will certainly consider it.

I congratulate my right hon. Friend on using the interim finance to bring forward further service improvements on the west coast main line. He will know that we are meeting next week to discuss some of these issues, but will he take my comments as a bid for the return of some of the Virgin off-peak services that the previous Government took away from Nuneaton in 2008?

My hon. Friend has just given me a taster of what our meeting next week will be about. I will no doubt have a better explanation for him then. He has been a very strong voice for Nuneaton in trying to get extra facilities for his constituents.

It is now clear what a complete shambles this whole affair has been and how much time and money has been lost. Fast, frequent and reliable trains are critical to the Greater Manchester economy, but with nearly three years’ delay until the new franchise comes on track, vital investment decisions will put the reliability and speed of this service at risk, which our economy can ill afford. How will that be addressed and where will the money come from for this much needed investment?

I welcome the hon. Lady to this place. I am sure she will be a prominent speaker on transport issues over the years to come. I would point out to her that the levels of investment that we are putting into the railways are as impressive—if not more so, given the financial situation the country finds itself in—as what the previous Government put in. I met council leaders in Manchester a few weeks ago and talked about a huge amount of investment that is going into the Manchester area. I have already mentioned the completion of the Pendolino trains, and the purchase of new carriages will enhance the service for her constituents and the people of Manchester.

I welcome the Secretary of State’s statement, particularly the announcement that a new direct rail link from Shropshire to London will start from next December. I pay tribute to him and the Minister of State for all their work. I also pay tribute, in a cross-party spirit, to the hon. Member for Telford (David Wright) and to my right hon. Friend the Member for North Shropshire (Mr Paterson), my hon. Friend the Member for Ludlow (Mr Dunne) and my hon. and dear Friend the Member for Shrewsbury and Atcham (Daniel Kawczynski) for all their work. In the ongoing discussions with Virgin, could the important Shropshire market town of Wellington and the important town of Telford also be considered for the timetable?

I did not actually announce the confirmation of that service, but I very much hope that it will be confirmed. I accept my hon. Friend’s bid for it to stop at other stations on the way, but we will just have to see what progress we make.

When the direct line from Euston to Shrewsbury was withdrawn, it was a huge blow to the whole of central Wales—to the tourism industry, the economy and the travelling public. Will the Secretary of State accept my constituents’ appreciation of the fact that that direct link has been restored by today’s announcement, a full two years before it would have been if the FirstGroup bid had gone ahead? Will he also join me and my hon. Friend the Member for Shrewsbury and Atcham (Daniel Kawczynski) on the first trip, on which I will buy coffee for both of them?

By the sounds of it, we will have a full train on that particular trip. I had better talk to my right hon. Friend the Chief Whip to make sure that the timetable is conducive to the House’s sitting times.

I remind my right hon. Friend of the chaos, cost and uncertainty that resulted from the east coast main line collapsing not just once, but twice under the previous Government. With that in mind, will he update the House on the progress of that franchise?

I am grateful to my hon. Friend for rightly pointing out that mistakes and things that go wrong in franchising are not new and that they have happened in the past. As I said, I am awaiting the Brown report, which will tell us about future franchising and will be an important part of our debate on it.

The Secretary of State’s decision today will provide welcome stability to the many users of the west coast main line in my constituency. I know that they will be pleased to be able to continue to travel on Virgin trains. I welcome the fact that, under the interim contract, he is not just maintaining the status quo, but providing improvements, such as a new direct service to Rugby from Scotland for the first time since 2008.

I am grateful to my hon. Friend for welcoming the new services. The simple fact is that the train operators are very much aware of the demand for new and regular services. As anyone who has witnessed today’s statement will know, we are coming under increasing pressure to expand them and certainly not to decrease them.

On behalf of the House, may I thank the Secretary of State for coming here for the third time to make a statement on this matter? In all my time in the House, this has been a unique experience. For the first time, something has gone wrong in a Department and a Minister has had the courage to come here to admit it and to do something about it. I have never seen that before. With regard to his former role, will the Secretary of State encourage other Ministers to do the same thing?

I think Ministers are always ready to hold up their hands when something goes wrong. We need to be straight with the British people. I would not have expected such applause from my hon. Friend, bearing in mind the occasional crossed words that we may have had when I was in my previous role.