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House of Commons Hansard
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05 February 2018
Volume 635

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With your consent, Mr Speaker, I will make a statement on rail franchising. I apologise to the two Opposition Front-Bench spokespeople for the slightly late delivery of copies of the statement—the speed with which we took this afternoon’s urgent questions caught us all a bit by surprise.

I informed the House on 10 January that my Department was preparing contingency plans for running train services on the east coast main line in the event of the existing franchise failing. Despite delivering significant returns to the taxpayer and having some of the highest passenger satisfaction scores in the country, the lead operator of the franchise, Stagecoach, has been incurring significant losses. During that debate, I promised to return to the House to provide an update on the situation, and I am doing so today.

Since 2015, the franchise has met all its financial commitments to the taxpayer, returning nearly £1 billion to the public purse, but that has come at a substantial cost of nearly £200 million to Stagecoach. I have already informed the House that the franchise will, in due course, run out of money and will not last until 2020, but it has now been confirmed that the situation is much more urgent. It is now clear that the franchise will be able to continue in its current form for only a very small number of months and no more.

Last week, following detailed analysis, my Department issued the franchisee with notification that the franchise has breached a key financial covenant. It is important to make it clear to the House, and indeed to the public, that that will not affect the railway’s day-to-day operations. The business will continue to operate as usual, with no impact on services or staff on the east coast, but it does mean that in the very near future, I need to put in place a successor arrangement for operating the railway and to end the current contract.

Given the imminent financial pressure that the existing franchise is under, I am taking action now to protect passengers who depend on these train services and to ensure continued value for taxpayers’ money. Given the urgency of the situation, I would like to take this opportunity to update the House on my plans.

It is worth remembering that our franchising system, as a whole, has delivered great benefits to passengers. New private investment has totalled £6.4 billion over the past 11 years, passenger journeys on the rail network have more than doubled and the private sector is paying for new trains all around the country. There are those who want that to stop, because of a dogma that the state could run the railway better, but we see the fruits of private investment all around the network.

There has also been much misinformation about the franchise, so it is worth stressing again at the outset that, because payments to the Government have been subsidised by Stagecoach, the taxpayer has continued to profit financially from this franchise. Passenger satisfaction is high, and preparations are well under way to deliver state-of-the-art new trains on this railway.

The problem is very straightforward: Stagecoach got its numbers wrong. It overbid and it is now paying the price. Contrary to widespread speculation and rumour, no deal has been done on this railway, and I have not yet made a decision on the successor operator to run the east coast railway until the longer-term plans for the integration of track and train can begin in 2020. There is no question of anyone receiving a bail-out. Stagecoach will be held to all its contractual obligations in full. But, as the Brown review said five years ago, this is what we expect in a competitive franchise system: private businesses risk substantial amounts of their own capital, and if they fail to live up to their stretching targets, they lose out, not the taxpayer. For anyone who thinks that the nearly £200 million that Stagecoach will lose is insignificant, let me put it into context: the combined profit of every train operator in the country was only £271 million last year, and the loss equates to more than 20% of Stagecoach’s total market value. So this is a significant amount of money by any measure, and it should also act as a stark warning to any company tempted to overbid in future. Moreover, the franchising system has now been adjusted to deter further optimism when bidding.

The priority now is to ensure the continued smooth running of the east coast franchise for its passengers. I have therefore asked my officials to conduct a full appraisal of the options available to the Government to ensure continuity of service until we implement the east coast partnership on the route from 2020. My decision on which option to choose will be made in accordance with the key principles set out in the statement on how I use my rail franchising powers. These include: protecting the interests of passengers; preserving the interests of taxpayers by ensuring value for money; and supporting investment and improvement in the railway, including through the deployment of new inter-city express trains on the east coast line.

In order to inform this decision, the Department will assess the extent to which each option performs against those principles. Our value-for-money assessment will be based on a number of criteria, including which option returns most money to the taxpayer, the risks attached to each, and the value of any improvements in passenger services. I will also have regard to the effect of my decision on other franchises. The decision will be taken in a transparent way; the Department’s assessment of the option will be published and it will be properly validated.

At this stage, one of the options is to consider the possibility of Stagecoach continuing to operate services on the east coast line under a very strictly designed short-term arrangement. The current management has a strong record of customer service and to rule out its involvement now would go against the principles I have outlined. However, given the circumstances in which the Government are having to step in to protect passengers on this line, I am prepared to consider that option only on the basis that the franchise would be operated on a short-term, not-for-profit basis. The only acceptable financial reward for Stagecoach could be received at the end of the contract—and only in return for the delivery of clearly specified passenger benefits and improvements. The company cannot be allowed to continue to run this franchise and simply make a profit, given what has happened. It got its sums wrong, and it will pay the price for that, not the taxpayer.

The second alternative is for the east coast franchise to be directly operated by the Department for Transport through an operator of last resort. My Department will subject that option to the same rigorous assessment to establish whether it would deliver value for money for taxpayers and protect the interests of passengers. This option is very much on the table and will be selected if the assessment that I have set out determines that it offers a better deal for passengers and taxpayers than the alternative.

In either scenario, the east coast main line is expected to deliver substantial revenue to the taxpayer. The line will also continue to deliver premium payments to the Government once the east coast partnership is in place in 2020. So let me be clear that the east coast franchise will continue to offer and deliver a healthy operating profit for taxpayers. It has done so over the course of this franchise so far and it will do so in future.

There will be those who claim that because Stagecoach overbid, it should be excluded from bidding for future franchises. I have to be clear that the legal advice on this is clear. As the company is meeting its financial obligations to support the franchise, including with the full parent company’s support, and because it has operated services on the east coast line successfully, the Department has concluded that there are no adequate legal grounds to restrict it from bidding on current and future franchise competitions on this basis. Members will understand that it is my duty to follow legal advice, but let me be clear that we will keep its eligibility for current and future bids under close scrutiny and constant review.

It is vital that we continue to focus our attention on delivering benefits for passengers across the network and on securing the genuine benefits of privatisation, so in addition to the transparent, rigorous process for the east coast line that I have set out, I am making some additional franchising announcements that will deliver benefits to passengers on the west coast and east midlands routes. In December 2016, we set out our plans to award the west coast partnership—the franchise that will deliver the first High Speed 2 passenger services. In that announcement, we made clear our intention to agree a short direct award with the current incumbent to allow the time necessary to design the west coast partnership. The negotiations have been completed and we have agreed a direct award with the existing operator, Virgin Trains west coast.

Let me be absolutely clear that the east coast and west coast franchises should not be confused. As with the east coast franchise, the west coast operator is meeting all its financial obligations, but the west coast franchise has a completely different corporate structure, in which Virgin Trains is the majority shareholder. As was set out 14 months ago, the direct award is a sensible bridge between the existing contract and the west coast partnership. Once that partnership is ready, the direct award will cease to exist.

Virgin has transformed the west coast franchise from a poorly performing service that required a subsidy of more than £75 million a year into a franchise that has one of the highest passenger satisfaction rates, at 91%, and which returns more than £200 million per year to the taxpayer. The transformation has included: the introduction of trains every 20 minutes between London and Manchester and between London and Birmingham, and hourly services between London and Scotland; the installation of wi-fi on every train; the lengthening of the Pendolinos to 11 carriages to accommodate growing passenger numbers; and the introduction of free at-seat entertainment services.

My decision is in keeping with the three key principles that I set out earlier: protecting passengers, ensuring value for money and supporting investment. I look forward to the release of the invitation to tender for the west coast partnership in due course and am confident that we will see strong competition for this exciting new franchise, which will help to transform rail travel in this country through to and including the delivery of the first HS2 services.

In the coming years, we will also transform the east midlands franchise, with the biggest investment in the midland main line since it was completed in 1870. Passengers will benefit from more seats, new trains and dramatically reduced journey times from Nottingham and Sheffield to London. Once the work is complete, there will be almost twice as many seats into London St Pancras during the peak compared with today.

The next operator will be required to deliver many of the improvements, so I shall set out today the next step of the competition that will award the contract. Abellio, Arriva, Stagecoach—the incumbent—and a joint venture between First and Trenitalia have all been shortlisted to run the east midlands franchise that will deliver improved services. As I have said, the Government have no adequate legal grounds to restrict Stagecoach from bidding, but the completion will be run on a fair and transparent basis, with new safeguards against over-bidding. Ultimately, the winner will be the firm that offers the best service to passengers and the best value to the taxpayer.

In a competitive market, franchises will sometimes fail. When that happens, my duty is to protect passengers and taxpayers, and to ensure continued investment in the railway. Stagecoach has paid the price for failure, as stipulated in its contract. Passengers on the east coast main line can be assured that services will continue as normal. The Government will undertake a transparent appraisal of the options available to ensure that passengers and taxpayers are protected.

I know that I will hear a lot about nationalising everything. It is worth remembering that, as we have heard today, renationalising our water companies would cost £90 billion. We have heard nothing about the cost of renationalising the railways—due to not just losing the private investment that is bringing in all those new trains, but the billions that would have to be spent to bring those trains back on to the public books. We remain committed to the success of a private railway. Over the past 20 years, passenger numbers have doubled. We have one of the safest railways in Europe, passenger satisfaction is high across the network and other countries are now adopting Britain’s model for running the railways. The plans I have set out will allow the British public to continue to benefit into the future from an ever-improving railway. We have challenges to meet, but we will meet them. I commend this statement to the House.

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I would like to thank the Secretary of State for advance sight of his statement, but as I was given it just 15 minutes before he started to speak, I am not sure that I need to be over- grateful. Given the content of his statement, I am not surprised at his reticence. Let us see whether the markets deliver the sort of share value boost that his last statement secured.

Today’s announcement is yet another monumental misjudgment to add to a growing list of miscalculations by this Secretary of State. It is increasingly clear that he does not care about taxpayers, rail passengers or the rail industry itself, but will do everything in his power to protect and support Virgin, Stagecoach and their ilk, and the failed franchise system.

Members on both sides of the House can be in no doubt: the bail-out culture at the Department for Transport is alive and well—it has never been better. Virgin-Stagecoach failed to deliver on its contract on the east coast route. No problem—the Government will step in and bail it out, kissing goodbye to the £2 billion that Virgin had previously agreed to pay. But, guess what? Let us just give both companies a new contract to run the west coast line as well.

Listening to the Secretary of State’s statement, I did not know whether to laugh or cry. His argument that a direct award to Virgin-Stagecoach for the west coast and east coast represents a good deal is truly laughable. The idea of more profits and less risk for those companies is an insult to Members and their constituents. What makes me want to weep is that he is giving yet more gifts to Richard Branson and Brian Souter. What is more, he is using our public money to fund his failure. Let us not forget that Virgin and Stagecoach are companies that extracted hundreds of millions of pounds in rigged compensation payments from taxpayers during the upgrade of the west coast main line between 2002 and 2006—£590 million to be precise. [Interruption.] Similar tactics are now being deployed on the east coast, as the companies blame Network Rail for their failure to deliver on their contract.

Virgin Group games the system in rail and Virgin games the system in health. It has done it before, and it is doing it again: Virgin Trains is a company that shakes the system down. The Secretary of State’s failure to stand up to Virgin and Stagecoach is a disgrace. He is supposed to protect the taxpayer interest, not to sacrifice it to Branson and Souter, yet he stands by this model. Companies are not bidding for franchises, which makes a mockery of competition, and his taxpayer bail-outs make a joke of train operating companies paying premiums to the Treasury. What does this Secretary of State do instead? He just gives train operating contracts without competition. Since 2012, there have been more contracts directly awarded than franchises let after competitions. Why? Because he is ideologically opposed to running the railways in the public sector. He just will not do it. He cannot do it, even when the clear majority of the public are in favour of bringing the railways into public ownership. His solution is more taxpayer support and ever higher fares for passengers.

The Secretary of State refused to answer my questions about these contracts in a debate in this House on 10 January. He does not do long-term thinking, only crisis management. Franchise failure should mean forfeit. If a private train company cannot deliver on the contract, it does not deserve the contract. That was what the Labour Government did in 2009 with the east coast line. This Government’s failure to grasp reality is costing passengers and taxpayers dear. That is why a Labour Government will bring in a railway for the people and businesses that it is intended to serve, and put a stop to this appalling, profiteering racket.

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Order. Just before the Secretary of State responds to the shadow Secretary of State, I must say to the hon. Member for Kingston upon Hull East (Karl Turner), who, in his usual fashion, yelled, “It’s a disgrace,” from a sedentary position, that this morning I conducted my weekly Skype session with school students from the Education Centre. They were students of the Herne Bay primary school, one of whom asked me, “Mr Speaker, is there a Member who is particularly cheeky in terms of loud and repeated heckling?” I said, “Well, seeing as you ask, there is a chap called Karl Turner, who is a very agreeable fellow, but he does tend to go from nought to 60 in about five seconds.” I proceeded to educate the pupils of that primary school class in the favoured expressions of the hon. Gentleman—“Shocking” and “It’s a disgrace”—and his ritual exhortation, which fortunately I have not heard today to a Minister, to wit “be’ave”, which he makes while conspicuously failing to do so himself.

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As we were caught short by the speed of the urgent questions, I know that the hon. Gentleman did not have as much time as he might have wished to prepare, but I am not sure that he listened to a word I was saying. He talked about a bail-out culture, gifts and standing up to people, but I have just announced that we will terminate a contract and that we may bring the operation of this railway back into the system of operator of last resort, which is, if I recall correctly, what Labour did in 2009.

I intend to ensure that I do what offers the best value for the taxpayer and the best option for the passenger at a time when exciting things are happening on this railway. New trains arriving in the coming months will transform the journey for passengers on the route, and that is long overdue. In the next control period, there will be investment in different parts of the route in order to improve performance in places where it is desperately overdue. The future is promising for the passengers on this railway, as they will have a better travel experience in the months to come.

The hon. Gentleman talked about long-term thinking, which is precisely what the east coast partnership is about. It is about unifying track and train in a way that I believe the public of this country want, and people on the railway believe that this will lead to a more efficient railway. The more that we can reunite the day-to-day operation of the track and trains right across the network, the more reliable a railway we will have.

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Nationalise it.

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The hon. Gentleman says from a sedentary position, “Nationalise it.” But this country has done that before. It was called British Rail and it became a national laughing stock. Whatever else we may do, I have no intention of leading our railway system back into the days of British Rail, when lines were closed, routes were axed and the system received a lack of investment year on year because it was competing with schools and hospitals for the capital available. I have no intention of recreating British Rail, although Labour may do. I have a strategy that involves bringing together track and train, a long-term vision of investment, expanding our network and new trains. That is what passengers want.

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The west coast main line is a vital railway service for my constituency. Virgin has indeed transformed that service over the duration of its franchise. Will my right hon. Friend say a little bit more about the duration of this direct award? What additional features can my constituents expect during that time?

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My expectation is that it will last no more than two years—possibly only one year. It is important to get the west coast partnership structure in place to go through the bidding process, and we will shortly be issuing the invitation to tender. I can only reiterate that there is a clear corporate difference between the east coast main line, which is 90% owned by Stagecoach, and the west coast main line, which performs well and is majority owned by a different company, Virgin Trains. Whether the brand is used on both is neither here nor there; it is a different corporate entity. There is no possible legal benefit or passenger benefit from somehow ripping this up for an interim period, rather than moving seamlessly into the future and the path towards HS2.

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Despite what the Transport Secretary says, the franchising system is quite clearly not working, especially given today’s further announcement. When all these announcements are made, we keep hearing about the private investment that privatisation of the railways has brought in with the increasing passenger numbers. The reality is that all that new investment is paid for by the rail users. Sure, it might make the railways more attractive, but it is being paid for by those who use the railway. It is not magic money; it comes out of our pockets. It is quite clear that the parent company guarantee system is not working. If it were working properly, the east coast franchise would continue until the end, so there is clearly a failure in the system.

The Secretary of State did the usual bluster, but he mentioned water companies when he was talking about nationalisation. Well, I have news for him: in Scotland, the water company is a national company. It is owned by the public and operates successfully. The Scottish Government are also looking into a public sector rail bid, so these things can work. If the Transport Secretary’s defence is that Stagecoach got its sums wrong, what does that say about the Government’s due diligence on the tenders that were submitted? The fact is that the Government followed through and awarded the tender to a company that got its sums wrong. That is another reflection on his Department.

All this follows the west coast main line tender farce—the franchise deal collapsed in 2012, resulting in the direct award to Virgin, which is now going to get another direct award. There are way too many direct awards in the franchise system, and that kind of goes against the ethos of competition that a franchise is supposed to bring, which again highlights that the system is not working. What will be the duration of the next award and what impact will that have on the timescales for HS2? Will the Secretary of State give us accurate timescales for the HS2 tender process?

On the east coast and west coast awards, will the Secretary of State follow the Scottish Government’s lead? All employees on the ScotRail franchise are paid the real living wage, there are no compulsory redundancies and ScotRail is operating at a higher satisfaction level than the companies in the rest of the UK. For once, will he seriously consider the devolution of Network Rail to Scotland? That would save his Department money, take away some responsibility—given that it is a failing Department—and perhaps make up for a £600 million shortfall in maintenance monies allocated for the next control period in Scotland.

I have one final question. [Hon. Members: “Oh!”] How is the Secretary of State’s new railcard system working? What funding has been put in place for it? Does the inflation-level rise he has agreed cover the new railcard?

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I simply advise the hon. Gentleman, in all friendliness and candour, that he was only 43 seconds over his time.

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It seemed longer.

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I do not know how long it seemed to the right hon. Gentleman, who is usually quite a patient fellow. Not everybody, I am afraid, is as succinct as the right hon. Gentleman, who has developed it into an art form, but the hon. Member for Kilmarnock and Loudoun (Alan Brown) must do better.

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We are going to hear a lot today about the public versus private argument. What SNP Members, and indeed Labour Members, have not remembered is that if the investment has to come from the public sector, it competes with money for schools, hospitals and the armed forces. That means that, as happened in the days of British Rail, our rail network is starved of investment, and we saw the consequences. By contrast, the new trains that are shortly going to be arriving in Edinburgh Waverley and going up the east coast to Aberdeen are paid for by the private sector.

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They are paid for by the customers!

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Of course they are paid for by the customers. The private companies make the investment and they make the return on that investment because the passengers pay for fares. That is the way that business works. Perhaps Labour Members do not understand the way that business works. Customers buy something they want to buy. I am absolutely certain that customers want to travel in brand-new trains. That is long overdue on the east coast main line, where they have regularly failed to do so. However, there are clearly lessons to learn on this. That is why we have moved much more towards a quality basis for new franchises. I want an increased quality of service delivered to be the basis for the allocation of new franchises.

The hon. Member for Kilmarnock and Loudoun (Alan Brown) asked about the west coast main line direct award. As I said, it will run for between one and two years. It will finish as soon as possible. I want this up and running. We are going to issue the ITT for the west coast partnership very shortly.

The hon. Gentleman raised the issue of staffing. The private sector-run east coast main line is today employing more people than it did in the public sector. As somebody who believes passionately that we need more customer service staff on the railway rather than fewer, I think that is a good thing.

The hon. Gentleman asked again about the devolution of Network Rail. I simply reiterate that I think that the SNP Government have quite enough to do without going beyond the devolution recommendations that we have put in place.

As regards the travelcard, it is being issued by the industry, which is moving ahead quickly with preparations for it.

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The last time the Secretary of State stood at the Dispatch Box, I asked him about open-access rail and competing rail firms. He rightly waxed lyrical about the benefits to customers in terms of choice and value that open-access rail can produce. As he looks at the options for the east coast main line, will he consider, in addition to the two options he has laid out for the House, an open-access alternative so that we can get away from the state-led and potentially even nationalised set of alternatives that we are otherwise being pushed towards?

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I know that my hon. Friend feels very strongly about this. He is right about the benefits of open access. My view is that open access holds the existing operator’s feet to the customer service fire to make sure that it delivers. It would not be realistic to do this in timeframes available to me for making the change that we are going to need. However, I am very clear that the rules around the creation of the east coast partnership must and will leave room for open access.

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The reason given for not providing residents of Grimsby and Cleethorpes on the east coast a direct service to London was the impact on Virgin’s profits. Will today’s announcement see any progress on a direct rail link line for my constituents, or perhaps a cut in the amount they are shelling out for their fares?

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I very much hope and believe that we will be able to create opportunities for more direct services to east coast towns in the years ahead. There is no reason why this route cannot be used for further open access, if the Office of Rail Regulation judges that the capacity is there. It is very much down to the regulator to decide what is realistic and what is not. It is as much about whether it can be done logistically as anything to do with profitability. [Interruption.] The hon. Member for Middlesbrough (Andy McDonald) says, “Easy get-out.” There is only so much capacity available. I hope, however, that the investment going into the east coast main line during the next control period will free up additional train paths and additional capacity. Of course, when HS2 arrives it will create a complete step change for the east coast main line and allow for services to a whole range of new destinations.

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With Stagecoach remaining on the shortlist for the East Midlands franchise, which serves my constituents, will my right hon. Friend keep the bid under review and revisit the legal advice he has received over the coming months?

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I will be immensely careful about both the legal position and what is right for the midland main line. We will take the bid that will deliver the best outcome for passengers, and we will do so in a way that fulfils the legal advice. I am not interested in a second-rate solution for passengers. We will be providing much upgraded services and new trains, and the people who operate those new trains have to be the right ones.

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Is the Secretary of State aware that I am very disappointed he did not inform me he was attending a well-publicised meeting in the centre of Huddersfield in my constituency on Friday? He had the opportunity to talk to me and some of my constituents about the deterioration of the east coast line over recent years and the fact that not only the east coast line but the network across the north of England is a very great concern for my constituents who use it to get to work.

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Just to reiterate, I did make sure that my office contacted the hon. Gentleman’s office on Friday morning to tell them I was going later in the day to meet Conservative councillors ahead of the council elections—an event that I would not normally invite him to. I was particularly struck by how thoughtful the Conservative team in Huddersfield is about the potential transport improvements for that area. It was a very valuable set of discussions.

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On a point of order, Mr Speaker.

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Not in the middle of the statement.

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Is it not right that Members should be told of another Member visiting their constituency?

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I am extremely grateful to the hon. Gentleman for his point. The Secretary of State says that the hon. Gentleman was notified and his office was informed. I must say, I think the spirit of the requirement is not always honoured. It is quite important that a genuinely conscientious effort is made to contact the Member concerned, but, to be fair, the Secretary of State did start by saying, “I informed his office.” That may or may not be entirely satisfactory, but we will have to leave it there for now, because notwithstanding the hon. Gentleman’s considerable perturbation about what he regards as late notification, other hon. Members are now waiting to ask their questions and will become very perturbed if they do not have the chance to do so.

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We will start with one that I feel sure, from experience and precedent, will be very brief. I call Sir Desmond Swayne.

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How good is Lord Adonis’s memory?

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I am not a doctor, but I know that there is no record whatever of any ban on National Express continuing to bid for franchises after 2009. I am sure that the legal advice then was the legal advice I have now. Whatever one may say in public, the reality is that no legal constraint was placed on National Express from further bidding for franchises.

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I think it is the Secretary of State who has the short memory, so I will remind him that this is the third time in 11 years that a private sector franchise on the east coast line has failed. Can he explain to the House why his Department prevented East Coast, a public company that ran the railway superbly for both passengers and the taxpayer, from bidding for this contract? Will he today commit to changing the rules so that public sector companies can bid for these franchises?

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The key point to remember is that this is a franchise that has increased the number of services, increased the number of staff it employs, improved its passenger satisfaction rating and is providing a larger payment to the taxpayer, notwithstanding the troubles I have set out today. That, to me, suggests that it is getting something right. I want to be absolutely clear—[Interruption] Notwithstanding the sedentary comments, it is really important for me to pay tribute to the hard work of the staff who work on the east coast main line, who have done a good job in improving the quality of service for passengers. It is not their fault that their company got the financing of this wrong.

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Can my right hon. Friend confirm that every penny of the £165 million guarantee that was insisted on in the franchise agreement will be reclaimed by the taxpayer?

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Absolutely, and indeed, that has already happened. I am absolutely clear that Virgin-Stagecoach will fulfil this contract to the letter.

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What about the £2 billion?

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The shadow Secretary of State has failed to understand what I keep saying, which is that this railway every year continues to generate a substantial contribution to the taxpayer, and that will continue right the way through until 2023 and beyond.

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May I ask the Transport Secretary for an update on station accessibility improvements? Hither Green in my constituency was due for a major upgrade in this control period, but that was kicked into the long grass by his predecessor. How much has been allocated for these improvement projects in the next control period, and will projects that were priorities last time around but lost out continue to be priorities?

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There will be a continuation of the accessibility fund in the next control period. We have not decided exactly how much it will be, but I can give the hon. Lady an assurance that I will want to make sure that where commitments have been given in the past, we will seek to fulfil them in the next control period.

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Will the Secretary of State confirm that privatisation has brought investment of £6.4 billion to our railways over the past 10 years, and that when awarding franchises both on the east coast main line and on the Cotswolds line—the GWR franchise, which is being consulted on at the moment—his guiding light will always be the quality of service provided to passengers?

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This is now very much my approach. My view is that if the service is really good, revenues will follow. While it is absolutely essential that one seeks to achieve best value for the taxpayer in a bidding process, there is already a different balance between the amount of money bid and quality, and the balance will continue to evolve towards quality. That is what matters to passengers, and what drives revenues.

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If the Secretary of State rushed, he would just about get the 6.10 from Euston to Flint in north Wales, and it would cost him £283 for a return ticket. In the next two years of the direct award franchise for the west coast main line, does he expect prices to stabilise, or indeed fall?

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The right hon. Gentleman is an astute Member of the House, and I have no doubt that he would have bought an advance ticket for a fraction of the sum he mentioned. Really good value is available on the west coast main line, although for those who turn up at the last minute—as, indeed, is the case with airlines and many other forms of transport—there is a higher price to pay. I believe that since the passenger numbers on the west coast main line continue to rise and services continue to be rated good, the current operators must be doing something right.

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It seems clear that Stagecoach miscalculated, overbid and is now paying a £200 million price. Can anything more be done to avoid private sector companies overbidding and setting themselves up to fail, and can those lessons be learned in time for the GWR extension, which will affect my constituents in Cheltenham?

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It is really important that we do so. We have in fact already changed the way the franchising structure works for the most recent franchise. The south-eastern franchise, which is out to tender at the moment, has a different approach to the issue of risk sharing. We have to be careful: on the one hand, we must seek to get best value from the franchises, but on the other hand, we need to make sure that they are resilient. It is a balance, and we have to try to get this right, but we are seeking to improve the balance between the risk to quality and the revenue we receive.

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While the east coast main line was under public ownership between 2009 and 2015, passenger satisfaction, punctuality and reliability reached record high levels. Has the case not therefore been made for renationalisation based on these principles?

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Except that since the line returned to being operated by Stagecoach, passenger satisfaction levels have risen, the number of employees has risen, the return to the taxpayer has risen and the number of services has risen. In my judgment, the day-to-day operation of this railway has proved very successful over the past two or three years, even though its finances have been disastrous.

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In my right hon. Friend’s statement, he said that the financial reward for Stagecoach at the end of its contract would be set on the basis of the achievement of “specified passenger benefits”. What does he have in mind?

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I want continued improvements of the kinds committed to in the original franchise documents —better services, more services. If there is to be any payment at all at the end of this direct award, it has to be on the basis of an improved situation for passengers and better services. As far as I am concerned, this will be a not-for-profit award on a year-by-year basis if—if—we go down this route. Such a decision has not been taken, and I will not take it until I have seen the evidence on either side; and I will be completely transparent about it. Any payment at the end of a direct award has to be linked to a much better deal for passengers.

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Can the Secretary of State confirm that if any Virgin or Stagecoach directors receive any bonuses in relation to the east coast project, they will have them clawed back?

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Given that the company has lost nearly £200 million over time and has, I believe, effectively wiped out all its profits from rail operations for the past four years, I would be extremely surprised if its management wanted to pay any bonuses at all. If they do, they will not be paid for by the taxpayer, but out of the company’s reserves, but I will be gobsmacked if they are paying bonuses on this at the moment.

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I welcome the general tone of the Secretary of State’s statement, in particular the emphasis on Stagecoach taking the hit rather than the taxpayer. Can he tell me what lessons will be learned for the great western railway franchise from what has happened with the east coast franchise?

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I am very clear that when the great western franchise is let, it has got to be based to a much greater degree on quality. As my hon. Friend will be aware, we are consulting on the possibility of having a separate south-western franchise. I am looking forward to hearing responses on that—I am open-minded about it—but I am clear that the next great western franchise has got to deliver better and more innovative services for people in the south-west. It is why, for example, we are now working with Great Western with a view to reintroducing a passenger service to Okehampton, which is something there is a clear opportunity for.

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The Secretary of State was very casual in dismissing the comment of my right hon. Friend the Member for Delyn (David Hanson). People who use the west coast main line feel that it is very expensive, because there is so little competition. During this period, when he has imposed a new contract, what will he do to guarantee that there is value for money and that we will not simply see ticket prices go up, when they should be going down?

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All I can say, again, is that this railway line is well used and has seen an increase in passenger growth and customer satisfaction—it is the highest-rated railway in the country. I never want to see fares go up, but pay rises happen each year and there are costs to meet. Therefore, I am not offering a cut in fares, but we will operate a tight regime around the franchise to make sure it is not abused.

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May I thank the Rail Minister for agreeing to meet the formidable Kettering rail users group this coming Wednesday in his office? They are going to bring with them constructive proposals for how the rail service to and from Kettering might be improved. May I urge the Secretary of State to recognise that Kettering is the most northerly junction from London between the Corby-to-St Pancras service and the midland main line itself? Thus, Kettering’s status during the next franchise should be enhanced.

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Both my hon. Friend and the Kettering rail users group are powerful advocates for Kettering. I am sure they will be pleased by the investment going in. I was on the line the other day, and I could see all the engineering work taking place north and south of Kettering. There will be much better train links into London and, importantly, far more seats at peak times from Kettering, and we will be looking carefully at how we can ensure that passengers from Kettering have the best possible experience.

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With the collapse of this contract and the collapse of Carillion recently, is this not a moment for us to be clear with the public that we are learning the lessons of these contracting exercises? People are coming in, overbidding or undercutting —or however one likes to put it—to kill off the competition and yet cannot afford to provide these public services. We need to be really clear with people that we have learnt the lessons and understand and that this will not happen going forward.

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Actually, I absolutely agree with the hon. Lady. We do need to learn the lessons—that is absolutely clear. That is one reason why we have shifted much more clearly towards a different risk-based approach on current franchises and why we are moving towards a greater element of quality on current franchises. It is worth saying that the winning bid for the new south-western railway franchise was not the highest bid; it was the highest-quality bid. That is important. We can never militate against corporate failure. What has happened with Carillion has been tragic, but we took a lot of precautions on the rail network and HS2 to make sure there was not a significant impact if the worst happened, which it did; but, yes, of course lessons have to be learned.

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While privatisation has certainly resulted in more investment in the network, it is also clear that the existing franchise system needs reform. At the moment, we have competition for gaining the franchise, but very little competition in the actual provision of rail services. If we are to have improvements to services such as the direct service to Grimsby and Cleethorpes, which has already been referred to, we need to look again at the franchise system. Does my right hon. Friend have any plans for longer term reform?

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We are looking at the way the franchise system works to try to make sure it is as effective as possible for the future. However, as I discovered, things I would like to do at a number of places on the network are constrained just by the limitations of what is there. My hon. Friend would be surprised by how often it is impossible to deliver a service improvement I would like to deliver, because, in the days of British Rail, a length of track was taken out, a station was closed or whatever. I would not want to go back to the days when services were being axed; I want to be part of a railway and a transport system that is actually expanding and growing, and that is our ambition.

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On passenger satisfaction, is the Secretary of State aware that, this morning, every service on the east coast main line from my constituency to London was either delayed or cancelled? There is no competition on the line, and this is the third time the franchise has failed. Does he not understand that passengers and staff on the line just want certainty, and that is why they are keen on having a public sector body managing the franchise?

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I do not know for certain the cause of this morning’s incident—

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Signalling.

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Of course, signalling is the responsibility of the public sector Network Rail, so there is a gentle suggestion that the hon. Lady’s proposal may not be the all-encompassing panacea. What our signalling needs is what we are giving it, which is £20 billion of investment over the next four years to renew infrastructure that is old and, in many places, worn out. We are still dealing with the years of under-investment before this Government took office.

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rose—

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rose—

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I call Mr David Linden.

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Thank you very much, Mr Speaker. You are far too kind.

The Secretary of State spoke in his statement about protecting the interests of passengers and taxpayers. When will he look at the example being taken forward in Scotland, where Scottish Government Minister Humza Yousaf has said he is minded to accept a public sector bid to run the railways? What is the Secretary of State’s objection to that? Is it ideology or just an obsession with corporate recklessness?

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As I said earlier, my ideology is very straightforward: I want more investment in the railways, I want more trains and I want newer trains and new opportunities. Of course, the model the hon. Gentleman is articulating would mean less investment in the railways, because we would lose all the private investment in new trains, for example. I do not believe that that is what the public want.

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rose—

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We shall now hear from a Kingston and Surbiton knight—Sir Edward Davey.

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Thank you, Mr Speaker—that was a difficult choice for you.

The Secretary of State has today acted when a franchiser overpaid, hitting its shareholders. Will he commit to the House that when a franchiser under-delivers, hitting the passengers, he will also act?

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If a company is systematically failing to deliver, yes. However, in many cases—indeed, I suspect I know precisely what the right hon. Gentleman is talking about—the infrastructure is the problem, rather than the train company. I cannot blame one person for another person’s failings; what I can do is try to sort out the failings that lead to these problems in the first place. If we look at the Waterloo line, for example, where the problems last autumn were caused by a technical problem around the Waterloo works, which took about two months to get rid of, that is a good example of where Network Rail problems caused the issues. That is why we need that £20 billion investment in renewing those parts of the infrastructure that are too prone to fail.