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Welsh Ministers (Transfer of Functions) (Railways) Order 2018

Volume 790: debated on Monday 16 April 2018

Motion to Approve

Moved by

My Lords, this order will transfer certain railway functions of the Secretary of State relating to the Wales and borders franchise to Welsh Ministers. The devolution of these powers takes forward one of the Silk commission’s recommendations and is an important part of our commitments in the St David’s Day Command Paper on a lasting devolution settlement for Wales. My noble friend Lord Bourne assured the House in November 2016 that the UK Government were committed to giving the Welsh Government greater control over their trains and that amendment to the Wales Bill was not required to ensure that a transfer of franchising functions would be taken forward. With this statutory instrument we are delivering on that commitment.

We have agreed with the Welsh Government that the draft order will transfer franchising functions to Welsh Ministers only in so far as they relate to Wales and borders services and stations wholly within Wales, and certain ancillary and related matters. Welsh Ministers’ statutory powers in Wales are to be supplemented by agency powers exercised on behalf of the Secretary of State for services in England up to the first station in Wales. These proposed arrangements will enable Welsh Ministers to procure and manage a replacement franchise that, like the current franchise, includes important cross-border services to and from English towns and cities, as well as some services entirely within England, while also providing appropriate accountability for the Secretary of State for rail services within England.

Much positive and practical work has been done by both Governments in readiness for Welsh Ministers taking on these greater responsibilities. Transport for Wales has been established by the Welsh Government to help to deliver the next Wales and borders franchise and the South Wales Metro project. My department has provided extensive support to help progress their franchising and metro proposals. The procurement process for the next franchise is already well under way. Both Governments have worked together to successfully deliver a series of procurement milestones, most recently the issuing of the invitation to tender in September.

By the time of the planned award of the new franchise later this year, both Governments intend to conclude a suite of devolution arrangements that will supplement the draft order. A series of agency agreements will set out conditions on the specification and management of the English part of the franchise. This will include a requirement for the Wales and borders franchisee to set up a separate borders business unit to manage services and stations in England and act as a focal point for liaison with relevant local authorities, subnational transport bodies and user groups.

Further agreements will set out arrangements for partnership working in respect of the management of the new franchise, the relevant funding and outputs to be provided, and the terms under which the Welsh Ministers will for the time being subcontract to the Secretary of State the exercise of the operator-of-last-resort responsibilities transferred to them by the draft order.

Department for Transport officials are working with the Welsh Government to finalise the day-to-day franchise working arrangements to ensure that they are fit for purpose. With the interests of both the Secretary of State and the Welsh Ministers at play, clear working principles and collaboration will be key to this process. A joint strategic board will be established to ensure that both Governments are working constructively in respect of the Wales and borders franchise, and they consult each other before exercising their respective functions under the Railways Act on matters of mutual interest.

We recognise the importance of ensuring that English residents and those who use parts of the Wales and borders franchise that are solely in England continue to have a mechanism to make their views known to their elected representatives following devolution. Both Governments have agreed a protocol whereby MPs for English constituencies can write to Welsh Ministers on behalf of constituents using Wales and borders franchise services in England with an expectation that they will receive a substantive response within a reasonable period. Welsh Ministers will also brief the department on the volume of correspondence from English MPs, the matters or concerns raised and how Welsh Ministers have responded to such correspondence.

On funding, I restate my department’s commitment to the spirit and terms of the devolution agreement secured with the Welsh Government in 2014. We have agreed in principle that the present franchise funding levels and agreements between the department and the Welsh Government are to continue. The UK Government are also providing £125 million of funding towards upgrading the Valley Lines as part of the Welsh Government’s ambitious metro project for the people of south Wales.

In giving effect to the transfer of functions, we sought to reconcile the need for appropriate accountability for both the UK and Welsh Governments for rail services solely in their territories, while ensuring that the experience of passengers in terms of connectivity and quality of service will be maintained and improved. Welsh Ministers have formally approved this draft order. I beg to move.

My Lords, it would be very strange if I did not welcome a devolution order, but in extending that welcome I have some grave reservations and three questions I wish to raise with the Minister.

First, on achieving some integrity of service, surely the infrastructure of the railway system should be devolved to Wales alongside appropriate funding to ensure a holistic approach to railway services in Wales. The position in Wales is in stark contrast to that in Scotland. Can the Minister tell us why?

Secondly, why has there been such an inordinate delay? I understand that the order is 12 months behind schedule. The blame may be at one end of the M4 or the other, but it lies somewhere, because we are now coming right up against the deadline. The new franchise has to be up and running less than six months from now. Only two of the four companies remaining are bidding for it, and it is totally unsatisfactory that the two contenders should not have known sooner. Is it technically possible to carry out all the aspects of the new agreement within that timeframe, in fairness to the companies which take on the responsibility? Also, which department will take responsibility if there is a failure to deliver the franchise in that time?

Thirdly, regarding the powers and timescale, do the Welsh Government include as part of the franchise a requirement to negotiate with one of the two successful bidders the remaining development of the proposed Cardiff valley metro lines to which the Minister has referred? Has that been accepted as part of the contract requirements? Will it be the responsibility of the Welsh Government or the Department for Transport to make sure that that is rolled forward after this measure comes into operation?

My Lords, there are several questions I should like to address to the Minister. First, I offer her a caution against the bureaucracy she has described. I have managed a Wales and borders franchise; I began my career on the railway at Shrewsbury, which is right in the middle of it. It does not need a lot of civil servants to manage a railway. The people who are going to take on the Wales and borders franchise will, we hope, be experienced railway managers who are able to deal with their customers and will expect to satisfy the rail regulator that they are doing so correctly. I find it very difficult to know what a joint board is going to do except add to the bureaucracy. The new Wales and borders franchise management will of course be accountable to the elected representatives in Wales and I am sure that people in places such as Ludlow will be able to write to their MP, who will take up any reservations they have with the department. Most respectable operators do not expect much involvement by MPs in the decisions about how to run their franchise: the competition is to determine somebody who is capable of running a franchise.

More specifically, I want to ask the Minister to make it clear whether investment in the railways in Wales forms part of the settlement between Westminster and Cardiff, or what happens if there are funds for which people have to bid? This Government have often, in all sorts of places, had a fund which has been open to all people. If such a fund has in the future to be the responsibility of the Welsh Government, does the money entirely come out of what Wales gets?

Secondly, I turn to the question of safety. I want an assurance that the regulations that apply to the railways are going to be handled evenly across Wales and England. I give as an example the recent failure of the much-vaunted signalling system on the Cambrian line, when two trains were found to be able to go into a section of signalling. Will that sort of thing still be the reserve of the regulators at the Office of Rail and Road across the UK, rather than a separate body of any sort having to be set up in Wales?

Thirdly, is there any variation in the arrangements for pensions, promotion, conditions of service, travel or other concessions which apply to people engaged in the franchise? That needs to be clarified. These are some of my concerns and I note that the noble Lord, Lord Wigley, has raised others. We can probably leave the question of the management of the franchise to the new franchisees, but we want it to be made quite clear how it is going to work and how issues such as investment will be determined in future.

I am glad to follow the noble Lord, Lord Bradshaw. I recollect that in another place he gave helpful replies to a number of queries. I thank the Minister for her very competent outline of the order. I draw attention to my entry in the register of interests and welcome the additional executive functions.

On investment, which the Minister referred to, I ask when and how the Wrexham-Bidston rail line will obtain more investment and, particularly, more frequency of services. There is an urgent need for a spur from the Wrexham-Bidston line into the giant Deeside industrial park, which employs more than 9,000 people.

Is the Minister able to say when there will be more investment in signalling from Bangor to Holyhead—indeed, from Crewe to Holyhead? In the planned HS2 investment, positive consequences for the rail line from Crewe to Chester, Bangor and Holyhead are undoubtedly required.

There is an urgent need for a better local service from Crewe to Chester. Passengers who pay a lot of money for their seat often do not gain a seat, the rolling stock is ancient, and the conditions for passengers are just not good enough. Many complaints have been made. Perhaps the intervention of the Minister or the new dispensation can help.

What plans are there to upgrade the facilities and status of Chester railway station? It has an honourable status in terms of architecture but it is showing its age and would be grateful for investment.

There is a Minister in Cardiff, Mr Ken Skates, who shrewdly and positively co-operates with the Minister in London. Mr Skates is a breath of fresh air as a Minister. He is ubiquitous, inclusive, very intelligent and co-operative. It seems he is developing a good relationship with the department in London. I ask the Minister to enable Mr Skates to have full consultation and more powers if they are available.

The direct service from Chester to Euston is very good and very frequent. But when you travel on that service, you realise how poor the other services are from Crewe into Wales as far as Holyhead. Please can we have investment and improvement? The cross-border economy is remarkable. In north-east Wales, which is served by the Wrexham-Bidston railway line, and Cheshire West and Chester Council, the cross-border economy is going very well. Its GDP percentage of manufacturing is very high and arguably it rivals any other part of the kingdom. But we are hobbled by the inefficient railway service. There is heavy traffic on the roads and at various times we see very serious traffic jams. There is a very good case for investing in rail so that this cross-border economy can advance further.

Finally, I emphasise the remarkably good work done by a local government alliance between north-east Wales, greater Chester, and Wirral and Birkenhead. Much of what it claims from government is investment in rail. The Mersey Dee Alliance is a remarkably good example of cross-border co-operation between local government in England and in Wales.

My Lords, I am happy to join the chorus of broad approval for the order, which follows an undertaking given by the noble Lord, Lord Bourne, and helps to implement a key part of the recommendations of the Silk commission. It is a practical, pragmatic way of dealing with the fact of rail lines which straddle the border, dealing therefore not only with those lines wholly within Wales but those which extend to England. I also congratulate those responsible on a clear Explanatory Memorandum —one of the best I have seen, in fact. Even I could understand every word in it.

It is clear that the process of devolution is incremental and that its context has changed remarkably from that of the 1970s, when I found myself on a different side from that of my noble friends Lord Wigley and Lord Morgan. I am not wholly sure where my noble friend Lord Jones was on it—

The context was certainly very different at that time. As I recall, there were a number of voices calling for complete independence for Wales. There was a lack of precedents for devolution within a unitary context; therefore, many could plausibly argue that more care needed to be taken about the constitutional checks and balances, where there could be what was often called a slippery slope. That danger has disappeared and I am delighted to find myself on the same side as my noble friends, at a time when we are looking at this issue in a pragmatic and practical way. We can ignore those concerns of the 1970s, although it is fair to say that they were shared by a large swathe of the people of Wales. In the referendum of 1979, which we often forget, there was a 4:1 majority against the then devolution proposals.

The Government have mentioned the Scottish precedent and sought to draw a distinction between the position in Wales and the more advanced settlement in Scotland. I accept, of course, that the popular pressure is different in Scotland but I expect that we in Wales will move more and more, if perhaps more slowly, towards the Scottish precedent. That is why I was a little dubious about the wording of the March 2015 Command Paper, with its sub-heading Towards a Lasting Devolution Settlement for Wales, as if there was an end station or terminus. My own view is that it is unlikely, given the dynamic nature of the process, that there will be an easy terminus and certainly not one that we can foresee at the moment.

This emphasises the need for partnership and co-operation across the border. One feature which becomes clear in the Explanatory Memorandum is the close working relationship between the Department for Transport and the Government of Wales, which has led to this outcome. There will be increasing co-operation and I note also the provisions in the order relating to the closure and discontinuance of lines. This is an excellent movement because it places the decisions within the Welsh Government; if you have the responsibility for decisions, that leads to greater responsibility overall.

This is not a constituency matter but the Minister mentioned the Valley Lines. Yes, they are important, but the line which is most important to and most used by the people of Wales is the Paddington-Fishguard line. It will be helpful to know what, if any, implications there are for that line. Certainly, the previous decisions by the Government were wholly unwelcome and unhelpful to west Wales. It looked as if the world ended at Cardiff when the Government decided that the electrification which had been planned for a long time between Cardiff and Swansea would be ended. I will not develop this theme, save to say that part of the continuing problem of Swansea is that of attracting industry and development, and the perception of many people that west Wales is not worth looking at.

It must cause damage to Swansea and west Wales generally that the Government at Westminster decided not to continue, as promised, with the electrification of that line. Will there be any changes in relation to that important line? I hope that there will at least be a greater degree of consensus and of working together in the spirit of this order, but I end with this: the decision to end the electrification project was damaging and I hope that ultimately it will be reversed.

My Lords, I, too, thank the Minister for introducing this order. We on these Benches welcome the order, but we welcome it noting that it is fundamentally somewhat second best in the eyes of the Welsh Government in the sense that they would have liked a settlement much closer to the Scotland model than this order provides. I cannot remember which noble Lord mentioned it, but there is an implication that there is a journey and a terminus on devolution. I think that over the next few years, as this order and its effects play out, we may see renewed pressure that railways in Wales should be managed on the Scotland model.

The order is précised in paragraph 7.2 of the Explanatory Memorandum. It is:

“to devolve executive franchising functions to the Welsh Ministers so that the Welsh Government could lead the procurement of the next Wales and Borders franchise, due to commence operations on 14 October 2018. This formed part of a wider agreement that included revised arrangements to enable the progression of two proposed rail electrification schemes in South Wales”.

This is no ordinary franchise. My judgment of its importance is very much built around the admirable objectives set out in the South Wales Metro proposals. They are somewhat flatteringly modelled on the London experience and envisage a totally integrated railway system around Cardiff and Newport using the Valley Lines. Therefore, the aspiration of the franchise is much wider than any previous one. The franchisee is to be called,

“an Operator and Development Partner”,

and will undertake,

“The operation of the Wales and Borders rail franchise … The design and the management of the development and implementation of capital works to deliver a Metro style service on the Core Valleys Lines … and subsequent infrastructure management of the Core Valleys Lines … The operation of rail and related aspects of the South Wales Metro service”,


“The design and development of further schemes to improve rail travel in Wales”.

My understanding is that that will mean that the ownership of the infrastructure, as referred to by the noble Lord, Lord Wigley, will transfer from Network Rail to either the Welsh Government or their agency, Transport for Wales. Essentially, there will be a change of ownership and responsibility. Could the Minister explain where the powers to make this transfer lie? In which particular Act are they, and who is exercising what powers under it? I remind the House that Network Rail was probably the most undramatic nationalisation in history, brought about by the Office for National Statistics, which said, “It’s yours, Government, and you’d better run it”. Perhaps the Minister would like to reflect on the joys of running a railway.

Has the transfer has taken place and, if it has, what are the details? A number of noble Lords have asked detailed questions about it, but the key issue in the transfer is what the associated financial arrangements are. I think the Minister referred to them in her speech, but I would be grateful if she could spell them out at a bit more length. Do the UK Government have any ongoing responsibility for revenue support, particularly to the railways in the South Wales Metro and the Wales and borders franchise in general? Do they have any responsibility for supporting the capital programme in any way?

The aspect that frightens one when one looks at the aspirations of the South Wales Metro is that it involves some electrification. I have personal experience of exceeding my budget: if I remember correctly, I spent about £1.4 billion more than I was supposed to, but that was only 70% over budget. Network Rail, in its electrification of the Great Western main line, managed to drive the budget up from £2.6 billion to £5.7 billion, which is pretty heroic—about 120% again. Surely one of the problems of taking ownership of these lines, which by implication are not in great shape now, is that the Welsh Government will be exposed to possible significant increases in the project.

In a sense, my final question is: who will be responsible for these overruns? These sums of money are not insignificant for the UK Government but could be crippling for the Welsh Government.

My Lords, I thank all noble Lords for their comments. I recognise the significant experience of the noble Lords, Lord Bradshaw, Lord Wigley and Lord Anderson, and many others in this area over many years. I will aim to address the questions that have been raised, but if I fail to do so I will follow up in writing.

The noble Lords, Lord Tunnicliffe and Lord Wigley, raised the issue of the wider devolution of infrastructure funding. The Government believe it is not desirable to reopen general discussion on Silk recommendations around which there is no consensus, so we do not intend to revisit the question of devolving Network Rail funding. As part of Network Rail’s devolution arrangements, the Welsh Government will be represented on the Wales route supervisory board, and the board will work in partnership to drive improvements for customers in the Wales and borders area and hold the industry to account.

The noble Lord, Lord Wigley, raised the issue of the delay in this order. I acknowledge that delay but reassure him that the delay in transferring the rail powers to Welsh Ministers has not adversely affected the procurement process for the next franchise. The formal transfer of powers has required the resolution of a number of detailed policy and practical considerations around cross-border services, which has taken longer than anticipated. However, we have been working closely with the Welsh Government to ensure that they can proceed in a timely manner with the franchise procurement. The ongoing procurement of the next franchise is being facilitated through agency agreements, enabling Welsh Ministers to exercise the Secretary of State’s relevant functions in advance of the order being made.

The noble Lord, Lord Bradshaw, asked about wider government spending in Wales. The department will continue to liaise closely with the Welsh Government on the specification funding of Network Rail’s operations in England and Wales for each of the five-year railway control periods to ensure that the requirements for Wales for increased capacity on the network are reflected. We are investing a record amount in Wales infrastructure and our spending goes where it is most needed, where it delivers the greatest value for money and we make decisions for both England and Wales based on a rigorous and fair appraisal process that ensures that.

The noble Lord, Lord Tunnicliffe, and others mentioned the Cardiff Valley Lines, and I will go into some detail on that. As part of the procurement, the Government are leading on the development of proposals for the creation of the South Wales Metro and, alongside refranchising Wales and borders services, the Welsh Government seek to take ownership of the core Valley Lines infrastructure from Network Rail. They then intend to vertically integrate the core Valley Lines by contracting a supplier to run trains and manage the infrastructure.

The Secretary of State has been very clear that he wants the rail industry to work more closely together to deliver better services for passengers and is pleased that the Welsh Government Cabinet Secretary for Economy and Infrastructure, Ken Skates, supports that. Following the comments of the noble Lord, Lord Jones, I am pleased to confirm that we work very closely with Mr Skates and will continue to do so.

The Welsh Government are working closely with Network Rail to agree the principles for the proposed transfer of the core Valley Lines infrastructure. Although the Government support the proposal in principle, it will be subject to final agreement and recommendation of approval by Network Rail. If agreed, it is expected that the ownership of the core Valley Lines infrastructure would transfer between autumn 2019 and spring 2020.

The Cardiff region is benefiting from millions of pounds of UK Government investment. This includes £125 million towards upgrade of the Valley Lines, which has been incorporated in a wider contribution of £500 million to the Cardiff capital regional investment fund. The agreement in principle to provide funding towards the upgrade of the Valley Lines was conditional on the Welsh Government taking over sponsorship of the project and being liable for costs and risks of all elements of the project, so the Welsh Government will have full freedom to optimise the final scope of the scheme so as to achieve the best value for money but, in direct answer to the question of the noble Lord, Lord Tunnicliffe, they will be responsible for any overspend there. The Welsh Government agree that this is a final settlement between the two Governments in relation to the costs, so they will not subsequently seek further UK Government funding for that.

The noble Lord, Lord Jones, mentioned HS2 and Crewe. HS2 will significantly benefit Wales through faster journey times between north Wales and London via Crewe. We continue to support the vision for a Crewe hub station. He also raised some issues that passengers face. I am pleased that he enjoys the Chester to London line and very much hope that the new franchising agreements will improve services across Wales and in the cross-border areas. On his specific questions about the Wrexham-Bidston line, the Secretary of State has agreed to fund the development of a strategic outline business case for improvements to line speeds on that line, and on the north Wales main line. We are working closely with the Welsh Government to assist them in their development work on that. On Chester station, again, we are providing assistance and advice to Cheshire West and Chester Council as it develops a business case for Chester station for consideration for DfT funding.

The noble Lord, Lord Bradshaw, asked about variation of terms and conditions and pensions in the new franchise. Employment terms and conditions are not directly impacted by the order. It will be a matter for Welsh Ministers and bidders to address in the context of the procurement process. In the normal course of events, the employees of a train operating company which ceases to run a franchise will be protected by the transfer of undertakings regulations, and their employment contracts will transfer to the new train operating company by that operation. Safety is of course paramount, and I assure the noble Lord that the Office of Rail and Road will remain the safety and economic regulator for infrastructure in Wales.

The noble Lord, Lord Anderson, highlighted the cancellation of electrification. We remain committed to delivering outcomes for rail transport in Wales but will commit to electrified lines only where they provide a genuine benefit for passengers. As the noble Lord will know, the recent reappraisal found that that would be poor value for money.

The introduction of bimodal intercity express trains means that journey times have improved, and we are working with the Welsh Government, who are taking a similar passenger benefits-focused approach to the procurement of the South Wales Metro. Once the whole new fleet is introduced and electrification to Cardiff is complete, passengers will benefit from 40% more seats in the morning peak and journey times between Swansea and London and other stations along the route will be approximately 15 minutes shorter. We will continue to work with the Welsh Government to make improvements where we can.

I hope that that has addressed all the questions. If I have missed anything, I will follow up in writing.

The devolution approach that we have chosen recognises the inherently joint nature of a significant proportion of the Wales and borders franchise and ensures that the current extensive cross-links will be maintained and developed for the benefit of passengers and Welsh and English border economies. I hope that noble Lords will agree that the devolution of these rail powers is an example of effective co-operation between the UK and Welsh Governments. We will continue to support the Welsh Government to enable them to achieve the successful procurement of the next franchise, and expect that the new franchise will improve rail travel in Wales and the English border areas in the coming years. I welcome the broad approval of noble Lords for this and commend the regulations to the House.

Motion agreed.