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Wales and Borders Franchise

Volume 630: debated on Tuesday 7 November 2017

I beg to move,

That this House has considered the devolution of the Wales and Borders franchise.

It is an honour to serve under your chairmanship, Ms Dorries, for what I believe is the first time.

The comedy of holding a debate on the delayed devolution of the Wales and Borders rail franchise will not be lost on the thousands of passengers who rely on the consistently tardy rail operator in Wales. In reality, however, it is no laughing matter. It is a tale of how an uncaring Westminster and incompetent Welsh Government have already cost taxpayers millions of pounds and could derail the whole franchise procurement process.

My speech will have three central elements. First, I will outline the development of a distinct Welsh rail franchise. Secondly, I will trace in, I hope, forensic detail how we got into the current mess. Finally, I will seek clarity on the next steps for the franchise and what passengers can expect.

Let me begin by setting the scene. Until the current franchise started in 2002, Wales was covered by myriad different operators. One franchise covered south Wales and south-west England, while mid-Wales and north Wales were linked to larger franchises based in Birmingham and Manchester respectively. Three inter-city franchises also served Wales.

Despite rejecting the idea of devolving the franchise, the British Labour Government did recognise that the Welsh rail network should form one unified system. The 2002-03 franchise competition was managed by the UK Government and the now defunct Strategic Rail Authority. In 2002 the British Labour Government awarded the first Wales and Borders franchise to the German state-owned train operator Arriva, and for the last 15 years we have been stuck with a service unfit for purpose. The Arriva Trains Wales-run Wales and Borders franchise has been dubbed the “no growth” deal. In effect, the poorly procured franchise failed to account for any growth in passengers. It was a franchise procured on the cheap and fundamentally not fit for purpose.

As would have been obvious to anyone with the semblance of an understanding of transport policy, passenger numbers continued to grow, and in the desperate scramble to keep up with the growth, money meant for devolved services was ploughed into the franchise. Sprinter units from the 1980s were bought using the Welsh block grant as a substitute for the increased UK Government subsidy that Arriva had originally envisaged. In fact, passenger numbers continued to grow, with overcrowding becoming “a daily struggle”, according to Transport Focus. In the last four years, 250,000 extra commuters have been using rail services in south Wales alone.

The 2002 franchise agreement is widely seen as one of the worst and most unimaginative since privatisation of the railways. It is unsurprising, therefore, that support for devolution of the franchise is overwhelming. The 15 years of chaos on Welsh railways lies at the door of the Department for Transport, and if something is not done soon, the next 15 years could be the same.

Does my hon. Friend agree that the previous franchise emphasised punctuality above all else in terms of success, and that for the next franchise to be a success, it must also include customer satisfaction in its criteria?

I am grateful for that intervention. My hon. Friend, who is the parliamentary leader of our party, serves on the Select Committee on Welsh Affairs, which has done very detailed work on this issue and specifically on the initial franchise procurement. The Committee, which consists of members from across the House, was especially damning of how that franchise was constructed.

Let us fast forward to 2015, when the story of this not-so-great train robbery steps up a gear. The then Prime Minister, David Cameron, and his deputy, Nick Clegg, graced Wales with their presence to announce a new devolution deal. As part of the so-called St David’s day agreement, we were told that powers over the procurement of the next rail franchise would be devolved. The cheers at our national stadium, where they made the announcement, were reminiscent of those at a Six Nations match. Finally, we thought, Wales would get the power to create a rail system fit for our people. Sadly, as is often the case, that optimism was misplaced.

In the next section of my speech, I will try to piece together what is a complex picture of confusion, chaos and ineptitude by Governments at both ends of the M4. As is often the case with such matters, each individual element of the story seems unremarkable—inconsequential even. However, in the round, we see an intriguing episode of incompetence, which has already cost millions of pounds and could mean chaos for rail users in Wales.

The story starts just over a year ago, in September 2016. Combing through what was then the Wales Bill—it is now the Wales Act 2017— I spotted what I assumed was an error. Despite the Government’s boy scout promises, devolution of the franchise was not included in the Bill. Being the assiduous and diligent parliamentarian that I am, I decided to flag up that omission to the Secretary of State for Wales. Following the appropriate procedures, I tabled an amendment to the Bill that would devolve the franchise. On 12 September, in a Report Stage debate on the Wales Bill, I sought the Minister’s assurance that the error would be rectified. I said:

“Before I get into my speech, may I say that I will gladly not say a word”—

regarding devolution of the franchise—

“if the Secretary of State or the Minister intervenes to say that they will proceed with that promise and if they outline the legislative vehicle whereby these powers will be devolved to Wales?”

The Secretary of State replied:

“We are negotiating with the Welsh Government over the use of a transfer of functions order under the 2006 Act.”—[Official Report, 12 September 2016; Vol. 614, c. 671.]

The more naive may have thought that that was job done, but as a veteran of many a Wales Bill, I know that devolving powers is not such a simple task, so we continued to push. During the Welsh Affairs Committee inquiry into procurement of the next Wales and Borders franchise, my hon. Friend the Member for Dwyfor Meirionnydd (Liz Saville Roberts) repeatedly asked how the Welsh rail responsibilities would be devolved. Every time she asked the question, whether to a UK or Welsh Government representative, she met with the same complacent response, “It’s just a technical thing; it will all get sorted,” yet everything seemed not to add up. Why wait to devolve the franchise if we could already do so? Why risk waiting? Why circumvent parliamentary scrutiny? Why be so complacent about the powers required for a multibillion-pound contract? Was the reason ignorance, incompetence or something more sinister?

Thanks to my hon. Friend’s excellent work, people will find on page 13 of the report two recommendations calling on the UK and Welsh Governments to update the Committee on the progress of the talks on the transfer of functions and to ensure that there is effective scrutiny of the transfer of functions and the way in which the Governments have agreed to devolve the powers. Of course, neither of those recommendations has been followed.

On 13 October 2016, despite still not having any powers actually to procure the franchise, the Welsh Government announced four shortlisted operators for it: KeolisAmey, a joint venture between French transport giant Keolis and public service provider Amey; MTR Corporation, which has interests globally from Australia to Sweden and is based in Hong Kong; Abellio Group, which operates bus and rail networks across Europe and is the international arm of the Dutch national rail operator; and the existing German state-owned operator Arriva. Those were the only four to enter a bid to run the next franchise.

According to the original plan, the four bids would be assessed by Transport for Wales, a Welsh Government-owned company. Through a process of “competitive dialogue”, the four bidders would work to create one of the most ambitious franchises ever, with the south Wales metro and the rest of the Welsh network covered by a single operator.

I am listening carefully to what the hon. Gentleman is saying. He referred to the 2016 Bill. He will remember that both he and I supported amendments for a not-for-profit franchise. Does he believe that that is now possible? In 2017, both his party and mine, in our manifestos, asked for that. The Conservatives were soundly beaten in Wales, so they should not pursue this. There should be secondary legislation to add that to the Bill, so that Wales can have a fall-back situation.

As ever, the hon. Gentleman speaks with great experience and makes a very valid point. With the two major parties supporting such a policy, it is clearly the will of the National Assembly. I am not sure whether that is the reason why the UK Government are delaying the transfer of functions. Is ideology driving what we are seeing at the moment?

Let me reiterate that on 13 October 2016, when the shortlist was announced, the Welsh Government had no authority to procure a Welsh rail franchise. That still remained in the gift of the Department for Transport and the Minister. Now let me pull focus back to Westminster for a moment. On 6 December 2016, I asked, in Transport questions,

“now that the UK Government are devolving responsibilities for the Welsh franchise to Wales, is it not logical to devolve responsibility for the Welsh network?”

The Secretary of State’s response was dumbfounding. He said that

“we are not devolving responsibility for the whole Welsh franchise as he describes; we are doing so in part. I have said to the Welsh Government that I am happy with their taking control of the Welsh valleys lines, with a view to developing the metro system that they hope to put into service, but the Welsh franchise is not purely Welsh; it runs through large parts of England as well. We cannot have a situation where we, the Government in Westminster, give up control over services in England to the Welsh Government without checks and balances. That is not going to happen.”—[Official Report, 6 December 2016; Vol. 618, c. 128.]

Whether it was ignorance or incompetence, the UK Government and the Welsh Government were saying and doing diametrically opposed things. In fact, the UK Government, in the form of the DFT, and another bit of the UK Government, the Wales Office, were saying and doing diametrically opposed things. The Transport Secretary’s response set alarm bells ringing in Cardiff. As a result, later that day, Plaid Cymru forced an urgent question in the National Assembly. On 6 December, the very same day, the Welsh Government Cabinet Secretary responsible for railways, Ken Skates, assured the Senedd that everything was on track. He said that the Welsh Government

“have agreed with the UK Government that all services operated under the current Wales and Borders franchise will be included in the next Wales and Borders franchise and that we”—

the Welsh Government—

“will lead in the procurement of these services.”

Mr Skates’ response clearly stated that the Welsh Government continued to believe that responsibility for the procurement and management of the whole of the next Wales and Borders franchise, which covers all of the existing routes, will be devolved in time.

It is clear that the Wales and UK Governments have a fundamental difference of understanding. I wrote to the Secretary of State to notify him of this confusion and continued to raise the issue in Westminster, and my colleagues did the same in Cardiff Bay, in the hope of shunting them along the track, but still there is nothing: no clear plan, no public timetable, no parliamentary scrutiny of how the devolution of rail was—or more correctly, was not—happening.

It was only a few months before the snap election. Over this period we continued to raise concerns regarding the devolution of the franchise with questions in the National Assembly. From our conversation with industry we knew that deadlines were drawing closer. On my return to Parliament, I therefore tabled written question 3534, seeking clarity on when the devolution of powers over the rail franchise will take place. This clearly acted as a catalyst, as a few days later, on Sunday 13 July, Pandora’s box was opened. The UK Government confirmed that the necessary transfer of functions will not take place until autumn 2017. This meant the 18 August date set for the official tender submissions would be missed. However, the Department for Transport said that all would be resolved by moving that date to 26 September. What transpired, however, was hardly a simple procedural matter. An exchange between the Secretary of State and the Cabinet Secretary in the Welsh Government came to light, which showed a plethora of unresolved issues, including disputes over the ownership of the valleys lines infrastructure and how the Welsh Government will exercise powers over English railway stations served by the Wales and Borders franchise.

Most startling, however, was a £1 billion dispute over funding. A rebate, which is linked to track charges, is passed to Network Rail via a grant for improving railways. For the Wales routes, that amounts to £1 billion over the 15-year span of the contract. Due to a catastrophic breakdown in communication, the Welsh Government had been procuring the franchise in the belief that this was there to be used as they wish, but the Department for Transport believed that as the Welsh Government had no responsibility for the actual rail infrastructure, this money should remain in Whitehall. You could not make it up, Madame Chair, but what does all that mean for Welsh passengers?

According to Welsh Government, the delay in procuring the franchise in August cost around £3.5 million. Further delays could cost tens of millions of pounds and put the whole procurement process at risk. Surely that was all resolved by the time we got to the later September deadline I referred to earlier. Not this time. In a committee meeting with the Cabinet Secretary and his officials at the National Assembly for Wales on 27 September, it was confirmed that powers necessary to decide who runs most of Wales’ rail services may not be given to Wales until 2018. In fact, the official tender published the same day was made by the Department for Transport and not by the Welsh Government.

I appreciate that this is a long and complex narrative, but only a few twists in the track remain. Eight days ago the latest bombshell dropped: Arriva, the current franchisee, pulled its bid. Few tears will be shed at this revelation. Some commuters might even rejoice at the news, but it speaks to a deeper problem with the handling of the procurement process. The only reasonable conclusion is that Arriva’s decision to pull its bid to run the next Welsh rail franchise is largely due to the whole bungled process. Rumours are circulating that other companies are also teetering on the brink of pulling out of the franchise bid. To be fair, who can blame them? They do not know who they should be dealing with, the timetable of the process and, to put it frankly, whether this franchise will even go ahead.

In this final part of my speech, I want to understand what the next steps might be and seek clarity for commuters, train companies and perhaps even for Labour Ministers back home, as they seem incapable of getting these answers from the Department for Transport themselves. Devolution of the franchise was first on the list of hurdles in the Welsh Assembly Infrastructure Committee’s June report. Let us be frank: we are approaching a situation where the whole thing could collapse. I do not want to see that and I am sure the Minister does not want to either. I hope in his response he will be able to offer assurances that the powers will be devolved in the coming days, but contingencies must be made clear. Can the Minister confirm whether there has been any exploration of an interim arrangement with the existing operator to continue running their franchise under a direct award or—as is written into this franchise contract—there is an extension of seven “reporting periods” at the end of the franchise, which could take the existing franchise into spring 2019?

The option which I prefer, and I am sure the hon. Member for Ynys Môn (Albert Owen) would prefer, and which has always been the policy of my party, is a truly nationalised rail operator. Under the Railways Act 1993, it falls on the relevant authority to run franchises where there is no franchise agreement in place. These are known as the operator of last resort powers. The botched devolution job means there is no clarity on who exactly the relevant authority is in this case. Can the Minister confirm whether he understands the Welsh Government or Westminster to be the relevant authority?

On a more general point, my speech has been peppered with technicalities, dates and jargon, but the events surrounding the devolution of the franchise are symbolic of a wider and more fundamental symptom suffered by my country. Westminster does not care about Wales and a lethargic Labour party passively watches our managed decline. The examples can be technical, but the effects are tangible. Our society suffers at the hands of an apathetic Westminster and an inert Labour Welsh Government. The handling of the devolution of the franchise is yet again a reason for Wales to wonder why Westminster clings so tightly to our reins, when all we want is the ability to stand on our own two feet. Diolch yn fawr.

It is a pleasure to serve under your chairmanship, Ms Dorries. I congratulate the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) on securing this debate. He has taken a long-term interest in this issue, as indeed have the hon. Members for Dwyfor Meirionnydd (Liz Saville Roberts) and for Ynys Môn (Albert Owen). I hope that I can provide some reassurance. I realise it is tempting to provide a running commentary on these issues, particularly when one is not involved in the negotiations, but I hope that I can set the mind of the hon. Member for Carmarthen East and Dinefwr at rest. He has asked many questions on the issue, both of me and in the House more generally, so I know he is very knowledgeable on these matters.

I start by reassuring the hon. Gentleman that we are committed to devolving rail powers to the Welsh Government, as we stated in 2014. The devolution of these powers takes forward one of the Silk commission’s recommendations and is an important part of the St David’s day Command Paper that he referred to. Like him, I want improved rail services for passengers in Wales. I always focus on the output for the customer, not just the input into the train set.

Last month, we saw the launch of the invitation to tender for the next Wales and Borders franchise. I agree with the hon. Gentleman’s comments about the previous franchise. It was a very good example of some of the flaws of the earlier franchising models, and one that we hope to learn from in setting out what we aim to do with this franchise. I am sure he will recognise that it is one key milestone among many on the journey towards a new franchise.

It may help if I set out the other milestones that we seek to achieve. First and foremost, we hope that bidders will respond by 21 December this year to the ITT. The evaluation will take place over January and February, and between March and June 2018 there will be a contract award by the Welsh Government, signed on 13 June 2018, we hope, with a new franchise commencement date of 18 October 2018.

We have a clear set of timelines ahead that we are looking to achieve. I remain committed to supporting the Welsh Government in progressing with the procurement of the next Wales and Borders franchise to make sure that it does indeed commence in October 2018. I also repeat our commitment to progressing with the procurement of an infrastructure provider for the south Wales metro. I am sure that the hon. Gentleman would agree that devolution cannot be a simple task, and it is worth reminding ourselves of what the Government are actually doing. We have seen tireless work by officials, both here and in Cardiff, to give effect to the formal transfer of powers, which had required the resolution of a number of very detailed policy and practical considerations, particularly around cross-border services, but I am pleased that we have been able to agree the broad principles under which that devolution should happen. This will see Welsh Ministers’ statutory powers in Wales supplemented by powers exercised on behalf of the Secretary of State.

These proposed arrangements will, for the first time, enable Welsh Ministers to procure a franchise that, like the current one, includes important cross-border services to and from parts of England, as well as services entirely within Wales. I am sure the hon. Member for Carmarthen East and Dinefwr will agree that it is in Wales’ economic interests to have a strong set of cross-border connectivity, not least to Manchester airport to the north of Wales, and to London along the Great Western main line to the south of Wales.

Both the hon. Gentleman and the hon. Member for Ynys Môn raised the point about not-for-profit services. As they will understand, because this franchise involves cross-border services, the nature of the contracting vehicle cannot be a decision solely for the Welsh Government. That is why a not-for-profit solution, tempting though it may be to hon. Members, is not necessarily appropriate in this case.

I will give way just once, but I am keen to make sure that I answer the hon. Gentleman’s questions.

I am grateful to the Minister for giving way. Can he explain why, if it is indeed his Government’s intention to improve the transport links between Wales and England, they have taken the treacherous decision to cancel the electrification of the main line all the way to Swansea?

The hon. Gentleman is almost tempting me to give another 10 minute speech on how to improve rail services for passengers. I am afraid, as ever, that he falls into the trap of focusing on how we power the trains, and not the benefits for the passengers. As he will be aware, if the 40 miles from Cardiff to Swansea were to be electrified, that would have a cost-benefit ratio of less than 0.3, with no added benefits for passengers—not a single extra seat, mile per hour of the train, or minute off the journey time. As he will also be aware, the National Audit Office and the Public Accounts Committee have been clear that the Department needs to consider each electrification project in isolation to ensure that it still represents good value for money.

It is my duty as Rail Minister to focus on how to deliver the benefits for passengers in south Wales, including in his constituency, and to bring those benefits forward as soon as possible. That is what we are doing with the Intercity Express Programme trains that are already in operation. When electrification to Cardiff is complete, that will save 15 minutes on the existing journey time. Electrifying further to Swansea would not reduce that journey time by a single minute; nor would it add a single seat to any one of those journeys.

The Minister makes an important point on the not-for-profit issue. He will know that the Secretary of State for Transport has the power, if a franchise were to go wrong, to operate it directly from the Department for Transport, which would run the franchise. Are those safeguards in the devolution settlement, so that the Welsh Government could take over if the franchise were to go wrong? That is very important. They could be a not-for-profit organisation, and that could lead to investment back into the railways.

The hon. Gentleman is right to identify the importance of the operator of last resort. Discussions are still ongoing with the Welsh Government, but those will need to be concluded before we lay the transfer of functions order before Parliament, which I am about to come to. If he bears with me, he will find out the answer shortly.

I reiterate the importance of ensuring that the Secretary of State has some duties relating to journeys in England. English passengers will be travelling on those trains, perhaps even between two English stations, so it makes sense for the Department for Transport to have a degree of oversight. It is worth further recognising efforts on both sides, in Cardiff and Whitehall, to make sure that we continue to draft the transfer of functions order appropriately. This very detailed set of functions—I gather more than 40—will need to be transferred under existing railway legislation. Technical work is progressing well, and I anticipate that the order will be laid before Parliament early next year. The proposed order will be subject to the affirmative resolution procedure in both Houses, so Members of this House can be assured that they will have the opportunity to scrutinise the detailed provisions. I am confident that we are on track to complete the transfer of franchising powers in Wales and other necessary agreements over the next few months, in good time for Welsh Ministers’ planned award and commencement of the new franchise contract.

Much positive and practical work has been done by both Governments in readiness for these responsibilities. As the hon. Member for Carmarthen East and Dinefwr identified, Transport for Wales has been established to help deliver both the new franchise and the south Wales metro project. As a Department, we are providing extensive support to help to progress all its aims and ambitions. He will no doubt be aware that the procurement process is already well underway. He referred to some of the bidders, and mentioned Arriva. It might be worth my explaining to hon. Members that every owning company in the country has only one bid team. When there are multiple franchise competitions at any one time, it can stretch the resources of individual owning groups, which may be participating in more than one competition at any one time. So I would caution against reading too much into Arriva’s specific decision on the Welsh franchise.

Both our Governments have worked together to deliver a series of milestones, most recently the ITT. Importantly, this has been facilitated by an agency agreement with the Secretary of State, whereby the Welsh Government published the ITT on behalf of the Secretary of State. Over the coming months, my officials will continue to work with Transport for Wales to develop the day-to-day franchise working arrangements to ensure that they are fit for purpose under the new contract.

I recognise the ambition that many stakeholders in Wales have to discover more about what the invitation to tender will contain and what the likely shape of the future franchise will be. I share that ambition; I am always keen to look at what the outputs for passengers are, and not just at the inputs might be. The hon. Gentleman will be aware that the Transport for Wales document, “Rail Services for the Future”, gives some indication of the future direction the franchise will take; but I am sure that like me, he would welcome more information from the Welsh Government about service enhancements that may or may not be proposed as part of the future vision.

I recognise that concerns exist that the rolling stock is not as good as it could be. That is always an important part of any part of franchise consideration, but I must reiterate that decisions about rolling stock will now be taken by the Welsh Government. I share the hon. Gentleman’s frustration about the fact that Pacers remain on our network. I very much hope that we take this opportunity to see the back of them, as we are doing on the northern franchise, for example. They are long past their sell-by date. I recognise the need for new rolling stock, but that will have to be a decision taken by the Welsh Government.

I continue to urge a collaborative approach with the Government in Wales. I am sure that the hon. Gentleman, as a Plaid Cymru Member, will judiciously judge both sides’ performance with equal criticality of eye. All options need to be considered in the development of future services, and I remain optimistic that passengers will see big improvements delivered in the next franchise, which will have to include devolution of the core valley lines infrastructure in some way, shape or form. We are committed to £125 million of investment as part of the wider deal in south Wales. I recognise the importance that the Welsh Government attach to their ambitions in this regard, and hope that we do all that we can to support them in that. I also recognise the ambitions for Cardiff station. Although predicted passenger numbers to 2043 show an increase, there is a particular issue in Cardiff around sporting and entertainment events, and I know that more thinking is going on in that regard.

We have already discussed Cardiff to Swansea, but it was important that our decision on that be accompanied by a commitment to work with Network Rail on how we can deliver further journey time savings both on the line out as far as Pembrokeshire and on the north Wales line, and to look at what other improvements we can make around the Swansea-Cardiff corridor.

It is worth stating clearly that we recognise that electrification can bring benefits to passengers; therefore, we do not rule it out on any stretch of the network, but it has to deliver benefits for passengers. There has been a tendency to regard electrification as the gold standard, but that is not always the case. Often, the benefits that accrue from electrification are because parallel infrastructure works deliver the journey time savings instead. I caution all hon. Members about assuming that if somewhere is not on an electrified line, it is a second-class destination in some way. That is very far from the case. Anyone who has travelled on the new IEP trains will see that they are very much state of the art. I do not think passengers on them notice when they change from diesel to electric power. They are high-quality rolling stock with 130 more seats per service and, when electrification is complete, journey time savings of 15 minutes.

I hope I have explained where I believe the process of the franchising and devolution to be. I have no doubt that the hon. Gentleman will come back with more questions in due course—I would expect no less from him—but I hope that that gives him enough to work on for the moment. I thank him for his time, and thank you, Ms Dorries, as well.

I thank the Minister for his comments. There was one area of concern in his comments: he said that the franchise would be devolved but under the supervision of the Department for Transport. That indicates to me that there would be a Westminster veto over the actions of Welsh Ministers. I am sure that that would be an area of high contention back home in the motherland.

Question put and agreed to.

Sitting suspended.