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Rail Update

Volume 788: debated on Monday 5 February 2018


My Lords, with the leave of the House I shall repeat a Statement made by my right honourable friend the Secretary of State for Transport in the other place. The statement is as follows:

“On 10 January, I informed the House 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. In that debate, I promised to return to the House to provide an update Statement 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 this has come at a substantial cost of nearly £200 million to Stagecoach. I already informed the House that the franchise will in due course run out of money and will not last until 2020. It has now been confirmed the situation is much more urgent. It is now clear that this franchise will be able to continue in its current form for only a matter of months, and no more. Last week, following detailed analysis, my department issued the franchisee with notification that the franchise had breached a key financial covenant.

It is important to be clear with the House—and, indeed, the public—that this will not impact on 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 I will need to put in place in the very near future a successor arrangement to operate this 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 ensure continued value for money for taxpayers. 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. There has been new private investment totalling £6.4 billion over the past 11 years, and passenger journeys on the rail network have more than doubled. The private sector is paying for new trains across the country. There are those who want this stopped because of a dogma that the state could run the railways better, but we see the fruits of private investment all round the network.

There has been much misinformation about this 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 is now paying a 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 line until the longer-term plans for the integration of track and train can begin in 2020. There is no question of anyone receiving a bailout. Stagecoach will be held to all its contractual obligations in full. As the Brown review said five years ago, this is what you would 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.

To anyone who thinks that the nearly £200 million that Stagecoach will lose is insignificant, let me put it into some context. The combined profit of every single train operator in the country was only £271 million last year. The loss equates to over 20% of Stagecoach’s total market value. So it 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 been adjusted to further deter over-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. This includes: protecting the interests of passengers; preserving the interests of taxpayers by ensuring value for money; and supporting investment and improvement in the railway, including the deployment of the new intercity express trains on the east coast.

In order to inform this decision, the department will assess the extent to which each option performs against these 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. This decision will be taken in a transparent way. The department’s assessment of the options will be published and 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 under a very strictly designed and 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 that I have outlined above. However, given the circumstances in which the Government are having to step in to protect passengers on this line, I am prepared to consider this option only on the basis that the franchise will be operated on a short-term, not-for-profit basis. The only potential financial reward for Stagecoach would be received at the end of the contract and only in return for clearly specified passenger benefits and improvements being delivered.

The second alternative is that the east coast franchise would be directly operated by the Department for Transport through an operator of last resort. My department will subject this option to the same rigorous assessment to establish whether it will 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 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 from 2020. Let me be absolutely clear: the east coast franchise will deliver a healthy operating profit for taxpayers. It has over the course of this franchise so far, and it will in the future.

There will be those who claim that because Stagecoach overbid, it should be excluded from bidding for future franchises. The legal advice on this is clear. As Stagecoach is meeting its contractual obligations to support the franchise, including with the full parent company support, and because it has operated the services on the east coast 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. It will be understood that it is my duty to follow that legal advice, and I will therefore do so. But let me be clear: we will keep its eligibility for current and future bids under close scrutiny and constant review.

It is not just me who has encountered this restriction. Following the failure of National Express in 2009, the NAO report on the issue made it clear that the then Government and Secretary of State agreed that the company would not be precluded from bidding for future franchises. Indeed, it went on to win the c2c franchise in subsequent years. It is vital that we continue to focus our attention on delivering benefits for passengers across the network and secure the benefits of privatisation.

So, in addition to the transparent, rigorous process I have set out for the east coast, 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 passenger services on HS2. In that announcement, we made clear our intentions to agree a short, direct award with the incumbent to allow us the time necessary to design the West Coast Partnership. These negotiations have been completed and we have agreed a direct award with the existing operator, Virgin Trains West Coast. As set out 14 months ago, this is a sensible bridge between the existing contract and the West Coast Partnership, and once that partnership is ready, this direct award will cease to exist.

Let me be clear, the east coast and west coast franchises should not be confused. The west coast franchise has a completely different corporate structure, where Virgin Trains is the majority shareholder, and is meeting all its contractual obligations. Virgin has transformed the west coast from a poorly performing service requiring a subsidy of over £75 million a year to the franchise with one of the highest passenger satisfaction rates, at 91%, and returning over £200 million per year to the taxpayer. This has included introducing trains every 20 minutes between London and Manchester and London and Birmingham, hourly services between London and Scotland, installing wi-fi on all trains, lengthening Pendolinos to 11 carriages to accommodate growing passenger numbers, and introducing a free, at-seat entertainment service.

My decision is also in keeping with the three key principles I set out earlier in 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 I am confident we will see strong competition for this exciting new franchise, which will help transform rail travel in this country through the delivery of the first HS2 services.

We are also transforming the east Midlands franchise in the coming years, 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 complete, there will be almost twice as many seats into London St Pancras in the peak compared with today. The next operator will be required to deliver many of these improvements, so I am today setting out the next step of the competition that will award this contract. Abellio, Arriva, Stagecoach and a joint venture between First and Trenitalia have all been shortlisted to run the east Midlands franchise that will deliver these improved services. As I said, the Government have no adequate legal grounds to restrict Stagecoach from bidding. The competition will be run on a fair, transparent basis, including new safeguards against overbidding. Ultimately, the winner will be the firm that offers the best service to passengers and 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 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. This Government will undertake a transparent appraisal of the options available to ensure that passengers and taxpayers are protected. We remain committed to the success of a private railway. It is vital we remember the benefits that privatisation has brought to our 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 today will allow the British public to continue to benefit from an ever-improving railway into the future. We have challenges to meet, but we will meet them. I commend the Statement to the House”.

I thank the noble Baroness for repeating the Statement made in the other place earlier today. Railways were privatised in 1994. Whatever we think of privatisation—there was lots going on at that time—it is fair to say that it has not gone well over the last few years. There were problems with Railtrack, Network Rail and various companies, and here we are again with another problem with the railways.

Today’s announcement by the Secretary of State, repeated by the noble Baroness, is just another monumental misjudgment, and adds to a growing list of miscalculations by the Secretary of State. I do not think that taxpayers or rail passengers are at the heart of this, or the rail industry itself. The culture in the Department for Transport is not serving the taxpayer or the travelling public well. I regularly use the railways in and around London as well as to and from the Midlands and the north of Scotland. With all the times that I have been detrained at Doncaster and elsewhere, and the problems and frustrations on the east coast line, it is really just not good enough.

It is frustrating to hear in the Statement what the Minister said about the new tender, that of course we cannot prevent the provider from actually tendering, because legally we are not allowed to do that. That is fair enough, but I recall the public sector being prevented from tendering for this contract; it was running it very well but was not even allowed to tender, which is very frustrating. If we want to get the best value for taxpayers, you want to get the best service possible.

I just do not believe that making direct awards to Virgin/Stagecoach on the west coast or east coast represents good value for money at all. I am really not convinced by that one little bit. We now have a number of train companies getting contracts without competition; many of our routes are now run that way—west coast, Great Western, east Midlands, CrossCountry and now east coast. That is because the Secretary of State is ideologically opposed to the public sector running railways; that is the political dogma that we have here today in front of us.

The Statement from the Minister is lengthy, and I have a couple of questions. The Statement said that the problem was that Stagecoach got the numbers wrong, that it overbid and is now paying the price. Maybe the Minister can explain to the House whether, when the bid was submitted—I assume that it was analysed and looked at—anybody anywhere thought, “Oh, maybe they’ve got their figures wrong here”. At the end of the day, of course you want to get a lot of money for your contract but, if it was actually not going to work, why did nobody spot that? Were any questions raised anywhere, when that contract came in? I would be very interested to hear what happened with that contract. Also, with regard to contracts in future, what is going to happen there?

The Statement talks about ensuring the,

“smooth running of the east coast franchise for its passengers”.

Can the Minister say a bit more about that? How will the Government ensure that it will be a smooth operation with no problems for passengers? I like the idea of this short-term, not-for-profit basis for a railway. That is the policy of the Co-operative Party. I have been a member of that party for many years, and we have a policy for a people’s railway, with the whole railway run on a not-for-profit basis. So I am delighted to see that, even if it is only in one small part of the policy, the Government have actually taken that point on board.

Can the Minister say a bit more about the operator of last resort? Who would that operator actually be? How would it actually be done? On the legal advice, the Minister said that they could not actually exclude Stagecoach or anyone who failed. Would it not be wise to draw up the contract in such a way that, if an operator fails to deliver on it, they cannot come straight back in and have that contract again? They may need to look at that as well because, if they cannot get the bid right, what is the point of having people running it who cannot get it done properly?

I shall leave it there and look forward to the Minister’s response on the issues that I have raised.

I start from a rather different position, as I do not believe that the answer lies in renationalisation—but I am sure that the Minister will accept that things are not going well. We have had the fiasco of Southern and we have had Carillion being given more and more contracts, despite the profit warnings. We have had HS2 and the unauthorised payments, and now we have the east coast. The DfT seems to be presiding over a tale of muddle and huge commercial misjudgment.

The Secretary of State in his Statement says that Stagecoach/Virgin overbid. We all knew that it had done so; there was commentary in the commercial press at the time by other operators that this was a hugely overoptimistic bid. Why did the DfT allow that bid to go ahead if it was unrealistic?

The Statement says that,

“the franchise had breached a key financial covenant”.

Can the Minister please explain to us what that is, and why they are stepping in now as opposed to at any other point?

Much is made in the Statement of the £1 billion return to the public purse, but does the Minister accept that the railways are run as a service to passengers and that maybe the DfT is expecting far too great a return to the public purse, and the whole concept on which this is based is unrealistic? The Government are slowly reducing the percentage subsidy to our railways at a time when the railways are expanding and the number of passengers is generally increasing. Does the Minister accept that this is actually unrealistic as a way forward?

I am glad that the Statement includes options for the future and that among them it has the DfT as the operator of last resort. When that happened before, rather a good job was done by the state stepping in, and I urge the Government to do that in the case of Southern. Does the Minister consider that the concept of a franchisee needs to be expanded so that it includes public/private partnership and public sector bodies? Maybe mutual models, which involve staff and passengers, could be allowed to bid as well.

I also want to ask about the knock-on effect on other franchises. It is known that other franchisees are having a tough time. We need only a small hint of further problems in the economy and those franchisees could say, “The Government stepped in this time—why can they not step in and help us?”.

Finally, how is it that there is no adequate legal ground to exclude Stagecoach from further bids at this point? Surely the DfT should be writing the franchises more tightly than this.

My Lords, as the Statement set out, our priority is to ensure the continued smooth running of the east coast main line for the passengers who use the service. As the Statement said, it has a 90% passenger satisfaction score, and we are looking at the future options for either direct operation through the DfT or Stagecoach continuing to operate. We will look at each of those options and work out the best solution to match the three principles set out. As the Statement says, it is a profitable line and we want that to continue in future.

On the franchising system and privatisation, the franchises will maintain an element of risk because they are run by private companies, and the success of the franchise is down to how they run the service. I think that the benefits of privatisation have been made clear in the Statement. I could add that, back in the mid-1990s, taxpayers paid out £1.8 billion in subsidies to the operators, and now the operators invest in the railways and pay premiums to the taxpayer—of £763 million last year. We have also seen investment of more than £6 billion from private investment over the last 11 years.

We are continuing to improve and refine the franchising model. Obviously there was an overbidding in this case, and we look at the performances of all franchises closely. In recent franchises, we have looked to take a different approach to the risks and are now moving more clearly towards the offer which will provide the highest-quality service for passengers and away from the highest bidder. The noble Baroness was absolutely right that passengers should be put first.

To address some of the lessons that we have learned from previous franchise evaluations, we have introduced new measures to deter overbidding as well as improving on our financial modelling and stress testing. With this added testing, the department will be able to forecast bids that are likely to default and exclude them in future. We have engaged with the market about those changes and continue to highlight to prospective bidders the more rigorous testing that bids will be subject to on the upcoming franchise competitions.

On the operator of last resort, there will be a team within the Department for Transport, supported by specialist advisers, to maintain continuity of passenger services. As I say, the changes in the rail strategy last year are designed to ensure that we get the best of both public and private sector worlds, and the new model will keep the benefits of privatisation while maintaining vital infrastructure in public hands. We have already begun this process of evolving how we run the railway.

My Lords, there is a huge amount of waffle in the Statement that the noble Baroness has just repeated. But I shall cut through it: Chris Grayling, the Secretary of State, is undertaking another unjustified bailout of Virgin and Stagecoach at the expense of taxpayers. I would like to ask the noble Baroness a few questions about this bailout. First, will she confirm that Virgin has been awarded its new contract for the west coast main line without any competition whatever? Secondly, will she confirm that Stagecoach is being allowed to bid for the next three franchises despite walking away from the east coast main line? Thirdly, will she confirm that Mr Grayling appears, astonishingly, to be prepared to allow Stagecoach to continue operating the east coast line despite walking away from it, and that he has not ruled this out, although he is putting in place legal procedures that look to me to be the prelude to re-awarding it the contract? Fourthly—this affects my tenure in the office of Secretary of State personally—will she confirm that it is quite wrong to say that National Express was not banned by me from bidding for future contracts in 2009? It was banned. The incoming Conservative Government in 2010 lifted that ban, which is a fundamentally different point. I believe that that was a mistake and that it has prepared the way for the problems that we face today.

Finally, will the noble Baroness confirm that the reason for these disgraceful bailouts which we have seen from Mr Grayling is because he simply is not prepared to contemplate putting his duty above ideology and substituting for failing private companies a state company? This is not a matter of being left-wing or right-wing; it is a matter of him performing his duties as Secretary of State for Transport, which he is declining to do because, as we heard in the Statement, he wants to make a whole set of cheap points about “private good, public bad”, which I think demean his office and are costing the taxpayer very dearly indeed.

I will attempt to answer the questions the noble Lord raises. If I do not manage to answer all of them, I will certainly follow up in writing.

I am afraid that we do not recognise the bailout accusation. As I said, Stagecoach will be held to all its contractual obligations in full. It has returned nearly £1 billion to the taxpayer and resulted in a nearly £200 million loss to the parent company. On the west coast line, it was a direct award and no other bidder was involved. As we stated in December 2016, we set out the plans to award the West Coast Partnership with that direct award. It is a short-term award and there was no other bidder involved. It was put in place before the new West Coast Partnership was awarded. On whether Stagecoach was allowed to bid for continued franchises, as we said, it will bid for the new east Midlands franchise. We are keeping the legal advice on that under review, and we will see what happens in the coming months, but as things stand Stagecoach is bidding for future franchises. The Secretary of State quoted the 2009 NAO report. I will send the noble Lord a copy.

It is not correct for the noble Baroness to say that National Express was not banned from bidding. It was banned from bidding.

My Lords, there is a conflict in the Statement between what it is stated in paragraph 7:

“The business will continue to operate … with no impact on services or staff on the East Coast”,

and what is stated in paragraph 18:

“I have … asked my officials to conduct a full appraisal of the options available to the Government to ensure continuity of service”,

until the fresh start in 2020.

The noble Baroness may well recall that I tabled a Written Question last week, which she kindly answered on 1 February. I had had a look at the press release that was put out by Stagecoach when it got the franchise in the first place. It said that it would give us direct services from Middlesbrough to London, two-hourly direct weekday services between Bradford, Harrogate, Lincoln and London, and a new direct peak-time service between Huddersfield and London, to be established by May 2019. The noble Baroness answered that the Government:

“expect to provide additional services between Lincoln, Harrogate, Bradford and London from May 2019. It remains our intention to deliver additional services to Middlesbrough and Huddersfield”.

She does not say when. She continued:

“Virgin Trains East Coast has contingent rights to run services from London to Middlesbrough from May 2020 and firm rights from May 2021”.

I do not know how strong they will be now. I do not know when all this brewed up, but does she still stand by these services commencing in May 2019 that she signed off on 1 February?

I thank the noble Lord for his question. On the issue of making sure that we get the decision right for passengers, as the Statement said, protecting the interests of passengers is the first principle which we look at and we will be looking at the comparison between the two on that basis. I have a copy of the reply to the noble Lord’s Question as I thought that he might bring it up; he helpfully read it out. We absolutely expect to meet those commitments. Whatever decision the Secretary of State makes on the running of the franchise up to 2019, whoever gets it will inherit those. Again, with the new partnership in 2020, they will be expected to deliver that.

I for one am rather relieved and reassured that the Government are stepping in before the situation adversely affects passengers. This is not a bailout if Stagecoach is losing £200 million. However, I am delighted to hear that this line makes a net contribution to taxpayers. It is a line well known to many in your Lordships’ House. However, I would be most grateful if my noble friend the Minister could give further details on how the Government will maintain the current high levels of customer satisfaction on this line.

As I pointed out, there is a high level of passenger satisfaction on this line and we aim to continue to keep that. I reassure noble Lords that there will be no impact on the running of the trains and the services will continue. Tickets are valid as normal. The Secretary of State has today set out the options being considered for the future. We are working to ensure that passengers continue to receive the service they expect.

My Lords, I detect a certain amount of ducking and diving in this very long Statement. I congratulate the Minister on keeping a straight face on some of it. However, the role of Network Rail is not mentioned at all. My understanding from several sources is that Stagecoach’s contract was based on Network Rail undertaking a large number of enhancements on the east coast main line so that Stagecoach could run more trains, and, presumably, get more revenue. This has not happened because, apparently, Network Rail has run out of money. Surely the answer is to give Network Rail the money to do that and not blame Stagecoach for everything that has gone wrong, as I think that most of the blame lies within the department and its own infrastructure manager, Network Rail. Perhaps the Minister would like to comment.

My Lords, I agree that there is no simple reason why the franchise has failed; there are a number of reasons. The east coast has not performed as expected. It can be attributed to external factors which were not predicted. For example, the decrease in petrol prices resulted in increased competition. On the enhancements, from the start of this franchise to date all the infrastructure upgrades planned for the east coast have been delivered. Further upgrades for the route are planned but were not due to be completed by this stage. It is clear that Network Rail’s overall performance has not been satisfactory in recent years and we need a change within the business to deliver a more customer-focused policy. Network Rail has committed to transformation and an efficiency programme of change. That will see it judged on the performance it delivers for passengers in partnership with train operators. We continue to push Network Rail to devolve to ensure that there is one route managing director directly accountable to passengers.

My Lords, the noble Baroness says that on a franchising system such as this operators will sometimes fail; I think those were her words. This is three times on the same route. I fancy that if GNER had been allowed to exit its contract on a basis as favourable as Stagecoach has been allowed to, with the possibility of rebidding, it might not have left the line in the first place, which would have been helpful as it was probably the best of the operators that we have had. But each time we are told, “Oh, the department is refining its system. It is all going to be better next time”. Given the three failures, is there really a system in place which can judge bids at all?

My Lords, on the failure of franchises, the Statement quoted the Brown review, which identified that it is neither sensible nor realistic to design franchise structures that seek to completely eliminate the risk of default. At the time, the department carried out an assessment to ensure that the bid was realistic and in the best interests of taxpayers and passengers. However, Stagecoach rightly took a degree of risk with its assumptions. I do not recognise the noble Lord’s view that this has been a favourable exit for Stagecoach. As I said, we are holding it to its obligations, and this has cost it dearly. It has lost almost £200 million running the service—a big sum for a company which is worth less than £1 billion.

Does the Minister accept that, contrary to what my noble friend said earlier, she did not keep a straight face while reading the Statement and grinned on a couple of occasions? This was entirely to her credit because she must know, in her heart, that the Statement is absolutely preposterous. This House is being asked to believe that the franchising system on the east and west coast has been perfect, yet a Statement is being made that both are being scrapped. The Minister said that there are no other bidders for the west coast, but no one has been asked to bid for it. If the late Brian Rix were still alive, he could have a Whitehall farce about the whole franchising business. Does the Minister accept that the Government have not come out of this business with any credit, either on the east or on the west coast? Can she confirm that whoever bids for the Midland main line will not be running electric trains to the great cities of Leicester, Nottingham and Derby but to the town of Corby, which until recently was not even on the railway map? That is not a railway project; it is lunacy.

My Lords, I apologise if I did not keep a straight face throughout the Statement. I was a little distracted by the noise from the Benches on the other side. On bidders for the west coast and east coast, the noble Lord is absolutely right that there was a direct award for the west coast and we are considering the options for the east coast. Those are both short-term plans and in 2020 we will be opening them up to further bids. We look forward to receiving them to deliver what the passengers need.

My Lords, it seems to me that there is the past and there is the future, and I know that there has been a lot of agonising in the department on the future of franchising. Will my noble friend summarise the improvements to the franchising process that the Government are planning, including Network Rail’s role, to avoid the kind of problems that have been identified in relation to National Express, Stagecoach and so on? Can we look forward?

My Lords, I would absolutely love to look forward. As I set out, we are making improvements within the department. There was, obviously, a problem; the franchises failed and we are learning those lessons. We are introducing measures to deter overbidding and looking at our financial modelling and stress testing. We hope that, with this added testing, we will be able to forecast and exclude bids which are likely to default. We are continuously improving our risk-assessment process to reduce the likelihood of overbidding in the future. As I said, we are working with Network Rail to ensure that it devolves its services and performs better in future.

My Lords, I declare an interest as a regular passenger on Virgin west coast, a not infrequent user of east coast and someone who, from time to time, has to make use of the services from St Pancras. What has been sadly lacking in these exchanges is a tribute to the staff: the train drivers, train staff, platform staff, clerks and people operating the signal system, without whom the railways simply would not operate. We are blessed with an incredibly committed and, on the whole, cheerful staff who make sure the railways are a success. Do all these shenanigans, uncertainty and financial confusion give them the kind of support and structure they deserve? They are about serving the nation, not making profits. In that sense, will the Minister please accept that we have heard enough about the private sector being the right way to deliver public services? Look at the prisons, the probation service, and now the railways. Where is the practical, pragmatic evidence that what the Government claim is true, as distinct from ideological fulfilment?

I am pleased that the noble Lord’s experience of staff on the trains is positive. He is absolutely right to say that they are committed. When we are making decisions about future franchises, we are also trying to provide consistency and structure for them, so that they have the security of knowing that the services will continue. I am afraid that I do not agree with the noble Lord on privatisation. I have spoken before about the amount of investment it has brought in. Passenger numbers have doubled; we have one of the highest satisfaction levels and safest networks in Europe. New trains would not have been delivered without private investment from rail franchising. Some 7,000 new carriages will be introduced to the rail network between now and 2021.

My Lords, I share the interests of my noble friend Lord Judd as a regular traveller on Virgin trains and agree with his kind remarks about the staff. I seek a point of clarification from the Minister about what she said in the Statement and in answer to questions. Is she saying that the Secretary of State has no legal power to ban Stagecoach from seeking to operate this franchise in future? Is it being seriously suggested that if Stagecoach tried to take the Government to court, because it was not allowed to bid, a judge would uphold its right, given the way it has let down the taxpayer in this instance?

My Lords, as Stagecoach is meeting its contractual obligations to support the franchise, including full parent-company support, and because it has operated the services on the east coast, there are indeed no adequate legal grounds to restrict it from bidding in future franchise competitions. That is the current situation: we will continue to look at it as the months progress and we look at future franchises.

My Lords, the Minister in the other place set out some admirable principles that should be observed: protecting the interests of passengers; preserving the interests of taxpayers by ensuring value for money; and supporting investment and improvement. Looking to the future, the Minister has indicated a possibility that the current east coast franchise may stay with Stagecoach, under a very strictly designed and short-term arrangement. Will she spell out with more clarity what that involves? Unless there is some easement on the money side, the three principles which the Minister has set out cannot be met and there must be some give on at least one of them. What is likely to happen if we do go down that avenue?

My Lords, if Stagecoach continues to run the service and it is decided that this would be the best option for taxpayers and passengers, then that would be on a not-for-profit basis. By operating a not-for-profit service, VTEC would only receive a performance-related payment at the end of the contract, assuming that it met the stretch target set out by the department. That would ensure that VTEC would be wholly focused and incentivised to achieve excellent performance and would, consequently, provide a better experience for passengers over the life of a contract, but would not receive any moneys unless those targets were reached.