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Railways: East Coast Rail Franchise

Volume 756: debated on Tuesday 28 October 2014


Asked by

To ask Her Majesty’s Government what discussions they have had with the rail unions regarding the future of the east coast rail franchise.

My Lords, levels of engagement with the rail unions have increased since the launch of the rail franchising programme in March 2013. On the intercity east coast franchise competition, this engagement has included a number of face-to-face meetings at official and ministerial level and correspondence covering most aspects of the competition.

My Lords, while I am glad that such meetings have taken place, does the Minister appreciate that many of us who use the east coast rail service regularly are dismayed that the Government have refused to allow the current publicly owned operator—which has greatly improved the service, to the benefit of both passengers and UK taxpayers alike—even to bid for the franchise and to be able to continue to run a good service? Does it not seem odd that the Government allow foreign state-owned enterprises to run our rail services in part, yet refuse to allow a successful home-grown public enterprise to do so?

My Lords, noble Lords will be aware that Directly Operated Railways that took over the running of the east coast service after the failure of the previous franchise was always anticipated to be temporary; I am sure that the noble Lord, Lord Adonis, will confirm that. It has done an excellent job; I would not wish to understate that. It is important that the Government have the capacity to step in when something happens within a franchise that makes that necessary. Now, however, we need very significant new investment; there needs to be a long-term partner taking this franchise forward, so it is right to go into the franchising process. I would be glad to address questions on whether we should have our own franchising entity, but I do not want to take too long on a single answer.

My Lords, will the Minister think about the fact that this franchise has failed twice and that the present competition is very uncertain because of the threat of open access operation to whomever the franchise is let? If any of the franchise bidders bid less than what the taxpayer gets from Directly Operated Railways, will the Government allow the latter organisation to continue to run the railway?

My Lords, the franchise process is in train. The award will come in February, so I obviously cannot comment on the competitors’ offers at this time. That would be entirely improper. It is certainly true that DOR returned profits to the Government—not to the department. It is also important to understand that it has not had the demands that are placed on many franchises in the level of investment required. We will have new equipment coming on to the line and new rolling stock, too. That will mean significant new burdens and we have many greater requirements now in terms of customer service so there is a need for significant investment. That is why a new player needs to come in at this time. It is obviously open to any Government to own companies and use them in various ways. This country used to have an airports industry and ran steel mills and car companies. However, we have found that the franchising system has offered us excellence. Train-operating companies have delivered very good service at very good prices. We have seen the response to that from passengers who have doubled in number in the past 20 years.

Can the Minister say why the company currently running the franchise is not being given the opportunity to bid or to test itself against the conditions that the Governments are considering?

As I said, the company currently operating this is a government entity. It was designed as a company that could step in when something went wrong. That remains important within the arsenal of our tools. There is a very different set of skills when one is looking at significant new investment and growth. This is the point that we have reached with this franchise, so it is very important that the opportunity is, as I say, open for the train operating companies to bid on this and offer a high-quality service. We will be looking for a very effective winning bidder.

Does my noble friend acknowledge that there are deficiencies in the present service? Does she know, for instance, that while it is possible to have a day in London from Lincoln using direct trains, one cannot do the reverse? As we have one of the most important years in Lincoln’s history coming up next year—2015, the anniversary of Magna Carta—can she will follow up on the conversations I have had with the Secretary of State and try to ensure that next year we have a direct service between London and Lincoln?

My Lords, I cannot comment directly on an issue that will obviously be under consideration but I will take back my noble friend’s comments with pleasure.

My Lords, the Minister may have sought to reassure the House that she had some form of consultation with the trade unions but did she have any consultation with the half a million additional passengers that are being carried on the line under the successful operation of DOR? Surely she will accept that only a Government who are addicted to dogma would dispense with a company—an organisation that has run the line so successfully—and put it out to bidders, of which the successful one may well be the state-owned company of another country’s railway.

My Lords, it is certainly true that other countries have chosen to invest and own companies across a wide range of industries. This is a particularly difficult industry in which to do that. Its fixed costs are extremely high. It costs something like £7 million to £10 million to put in a bid, with no assurance of winning. It is certainly a high-risk industry and the margins, as the noble Lord will know, even for an effective and profitable company, are quite fine. It is an entirely valid decision not to enter into actually running companies when there are private options that have delivered very successfully up and down the country.

Surely my noble friend would recognise that the whole point of competitive tendering is to get the best value and the best deal for the taxpayer. If she is right that the state-owned company would not be able to compete, why is that a reason to exclude it from the process?

Again we can see the complexities of a state-owned company being involved in this. Would we give it preferential financing or would it go out on the market? Let me make this point: do we want to set up a company and pay its senior management very high fees for the possibility that, with bids ranging from £7 million to £10 million apiece, it might eventually achieve a franchise? We have a long history and I have to suggest that the history of companies run over the long term by the UK Government has not been one of outstanding success. We know that we have very successful franchises across the country, so let us take advantage of them to make sure that we get the best opportunities for the many passengers using these services.