HC Deb 05 February 1996 vol 271 cc19-25 3.31 pm
Sir Teddy Taylor (Southend, East)

(by private notice) asked the Secretary of State for Transport to make a statement on the future management of the LTS Rail line in light of the events over the weekend.

The Secretary of State for Transport (Sir George Young)

Last Thursday, shortly before Enterprise Rail was due to take over the LTS Rail franchise on Sunday morning, after a routine audit of the system for allocating ticket revenue, the British Rail Board was made aware of certain ticketing irregularities in the company's accounts relating to the allocation of revenue from Travelcard between LTS and London Underground Ltd.

The board immediately instituted an investigation, which is still continuing. The Rail Regulator is also carrying out an investigation under his powers under section 55 of the Railways Act 1993.

In the circumstances, the franchising director decided that the transfer of LTS to Enterprise Rail should be postponed pending the outcome of the investigations. For the time being, LTS Rail will therefore continue to provide services as a subsidiary of the British Rail Board.

The House will understand that, as there remains a possibility of legal action, it would be inappropriate to comment on the specific allegations under investigation. Financial irregularities, whether in the public or private sector, are unacceptable and have no place in the modern railway.

Sir Teddy Taylor

While I much appreciate the Secretary of State's action in such a short space of time, as the alleged accountancy malpractices appear to be disgraceful and dishonest, will my right hon. Friend give a clear assurance that, before Enterprise Rail is given the opportunity to run the service to Southend and to deliver the pledged benefits of more regular services and new trains, any such alleged malpractices will be entirely weeded out and the persons who have been guilty of them held responsible? Will my right hon. Friend give the further assurance that, before any other steps are taken, the House will be given a full statement on how the irregularities occurred and, more important, the steps that have been taken to resolve them?

Sir George Young

I am happy to give my hon. Friend the assurances that he seeks. In relation to his first point, I have the franchising director's assurance that he will not be transferring LTS Rail until the allegations have been fully investigated. The franchising director, the Rail Regulator and British Rail will have to be fully satisfied that ticketing and revenue management are completely in order. As for the hon. Gentleman's second point in relation to the outcome of the investigations, in the first instance that will be a matter for British Rail and for the regulator. Should further legal proceedings be necessary, publication of full details may not be appropriate. I will, however, ensure that the House is made aware in general terms of the outcome of the investigations.

Ms Clare Short (Birmingham, Ladywood)

May I ask the Secretary of State to understand how serious this matter is, and that deliberate fraud in the public services— franchised or not—is a terribly serious matter for the country? Will he give us an undertaking that the offer to the LTS management team to allow it to run that service will be withdrawn, because it has shown itself to be a corrupt management team—[HON. MEMBERS: "Withdraw."]—if the allegations are true. Will he agree to reopen the tendering process and now allow British Rail to bid for this and other franchises?

Can the Secretary of State tell us whether a criminal investigation is taking place, and, if not, why not? Will he confirm that the fraud was discovered because the British Rail auditors held an inquiry and that, a few days later, they would not have had the authority to do so? In the future, how will he ensure that such fraud does not take place in companies that have been franchised?

Sir George Young

I made it clear at the end of my statement that the Government took the allegations very seriously and that there was no question of financial irregularities being tolerated in the modern railway, whether it is publicly or privately owned. In relation to the hon. Lady's specific questions, whether to re-tender for the LTS franchise is a decision for the franchising director, which I expect him to take in the light of the investigations once they are completed. Depending on the outcome of the investigations, it may not be necessary to re-tender, but it is too early to say. In relation to the police, it makes sense for British Rail to complete its internal investigations. However, British Rail has assured me that it will not hesitate to call in the British Transport police if that seems appropriate in the light of the investigations.

As for British Rail making a bid, again that is a matter primarily for the franchising director. He has, so far, taken the view that it is not necessary for British Rail to bid because of the quality of the bids that are coming from the private sector, but that is a matter which he has under review. In relation to the audit, the irregularities were detected soon after they occurred, and appropriate steps have been taken to put them right. It was the audit machinery that detected the irregularities and prompted the intervention.

Dr. Robert Spink (Castle Point)

Does my right hon. Friend agree that it inspires confidence that the irregularities were detected and acted on immediately, which shows that our systems are working very well? Will he also undertake to ensure that the investigations are completed as soon as possible, so that the undeniable benefits of privatising British Rail can be brought to bear on my constituents, who want to see the new rolling stock and improved services that the new privatised companies are offering?

Sir George Young

My hon. Friend has rightly drawn the House's attention to the benefits of franchising. Two franchises have gone ahead, offering real improvements to passengers at less cost to the taxpayer. We should not lose sight of that goal. As for his specific questions in relation to the length of time of the investigations, they will be properly carried out; there is no question of rushing them. The priority is to ensure that the investigations expose the full extent of any wrongdoing. My hon. Friend is also right to draw attention to the rigour of the audit procedure, which detected the irregularities soon after they occurred.

Mr. David Chidgey (Eastleigh)

Does the Secretary of State agree that, in light of the events that are now being revealed in LTS, we have clear confirmation of the folly of the current privatisation process? What guarantee can he give the House that similar practices are not being undertaken throughout the 25 train operating companies, and that they are not being allowed to maximise their revenue and profit at our expense? Will he now accept that there is an urgent need to establish a national rail authority with strong regulatory powers to ensure that we meet the twin objectives of maximising investment in our rail industry and maximising passenger and freight loading, rather than maximising profit to the shareholder at the expense of the taxpayer?

Sir George Young

As the hon. Gentleman may know, there are already two independent regulators of the railway industry, both of whom are involved in the investigations to which I have referred. There was an assumption in the hon. Gentleman's question—and, indeed, in many of his comments—that irregularities of this kind happen only in the private sector. It will be within the experience of many hon. Members that there have been problems within local authorities, housing benefit departments and home improvement grant departments. It is simply not the case that irregularities and the risk of abuse of the taxpayer occur only in the private sector. There are, sadly, all too many abuses in the public sector.

Mr. John Marshall (Hendon, South)

I thank my right hon. Friend for pointing out that fraud has occurred in authorities such as Lambeth, Liverpool and other havens of new and old Labour. Will he confirm that there was not just one bidder for this franchise but that others came forward with honourable proposals? Does he agree that commuters are looking forward to improvements in service and that they are fed up with the dead-beat service that they have for too long received from the nationalised British Rail?

Sir George Young

My hon. Friend is absolutely right. If he examines the detail of the new services being provided by Great Western Railways and South West Trains, he will find real benefits to passengers and commuters from extra services that were not being provided by British Rail and which will be provided at less cost to the taxpayer. It is important to retain a sense of perspective.

As for financial impropriety, my hon. Friend may have seen that today's Evening Standard contains serious allegations of financial mismanagement in the London borough of Islington. It is not the case that problems of this kind occur only in the private sector.

Mr. Nigel Spearing (Newham, South)

Is the Secretary of State aware that there are four stations in the borough of Newham at which LTS trains do not stop? One of them is West Ham, which is served by the District line and the North London line and will shortly be served by the Jubilee line, which will provide a convenient interchange to the whole of London. Is he further aware that, when I approached the prospective management of LTS, asking it to stop trains at that station, it declined on the basis that it would lose revenue from there to Fenchurch Street? Does he agree that this state of affairs does not help privatisation or the integration of transport? Will he examine the plan for pooled fares which existed prior to the Transport Act 1947, which would mean proper services for Londoners and would avoid the risk of the accounting problems about which we have been hearing?

Sir George Young

It is worth recalling that there were proposals from LTS to increase off-peak and Sunday services and to offer fares for accompanied children travelling of only 5p. Such services are not currently available, so one needs to look at the broader picture before making a judgment. As for non-stopping trains, the matter was resolved when the passenger service requirements were set. By and large, the present service would have been carried out by the new contractors, and there were no planned reductions in service on that line.

Mr. Richard Tracey (Surbiton)

I regret what has happened with the London-Southend-Tilbury line, but does my right hon. Friend share my deep disgust at the blanket conclusions drawn by Opposition parties about the privatisation of rail services? Will he confirm that the South West Trains privatisation in my constituency and the Great Western line privatisation went ahead successfully at the weekend, and that Stagecoach, which is taking over South West Trains, is pledging an extra £3 million to improve passenger services, punctuality and services for the business traveller?

Sir George Young

My hon. Friend is right. Stagecoach made a financial commitment of £3 million to improve stations and provide passenger facilities that are not available under the present regime. This morning, I received from Stagecoach a new passengers charter with performance commitments to increase punctuality on main line and suburban services. It is indeed the case that, under the two franchises that are going ahead, there will be real improvements that will be welcomed by my hon. Friend's constituents and commuters throughout the south-west.

Mr. Andrew Mackinlay (Thurrock)

How does the Secretary of State square his undertaking that there will be a most rigorous examination of the big smell relating to the LTS line with the words of the franchising director earlier this morning at Waterloo station? The franchising director said that he expected the privatisation to proceed on course within three or four weeks. Is not the franchising director prejudging the inquiry, and is not that an indication that both the Secretary of State and the franchising director want to minimise the embarrassment and get on with privatisation, regardless of what is discovered?

Will the Secretary of State tell us whether any employee of British Rail who formed part of the management team has been suspended, and if not, why not? Will the people who put in alternative bids be made aware of the circumstances of the distortion of the bidding process for the LTS line?

Sir George Young

I understand that the commercial director of LTS Rail has resigned and that one other member of staff has been suspended. I made it clear when I answered an earlier question that whether to re-tender for LTS is a decision for the franchising director, which I expect him to make in the light of the investigation that I have announced.

Mr. Mackinlay

He is prejudging it.

Sir George Young

There is no question of that investigation being prejudged. No decision can be taken until the inquiry is completed.

May I say how pleased I was to see the hon. Member at Waterloo station earlier this morning commemorating the inauguration of the first two privatised rail services?

Mr. Toby Jessel (Twickenham)

Having got up at 4.30 yesterday morning to join my right hon. Friend on the first privatised South West train, the 5.10 from Twickenham to Waterloo—[HON. MEMBERS: "YOU must have been mad."] Perhaps I was mad, but that is what I did. The train was clean, punctual and comfortable, and my constituents look forward to an improved service. Can my right hon. Friend confirm that there are 179 stations on South West lines as against 16 on the Southend line—

Madam Speaker

Order. I remind the House that this is a very narrow private notice question. I shall be bringing it to a close shortly after those hon. Members who have a direct interest in that line have been called. The hon. Member must now come to the end of his question and make it relevant to the private notice question.

Mr. Jessel

Does not that make the Southend line only one eleventh as important as South West Trains?

Sir George Young

It is always a pleasure to meet my hon. Friend, and it was a special pleasure to meet him at five o'clock in the morning yesterday at Twickenham station and to share that historic first journey on a privatised train service with him. I had the benefit of my hon. Friend pointing out certain local features as we made the journey from Twickenham to Waterloo. My hon. Friend rightly puts the problems before the House in perspective by reminding us of the scale of the service being provided by South West Trains and of the improvements that will take place.

Ms Margaret Hodge (Barking)

From the perspective of my constituents, the Southend-Tilbury line is of great importance. Barking station provides one of the few interchanges between British Rail and the underground. It is critical that there should be trust and co-operation between rail and the underground for that interchange to function. That trust and co-operation has been challenged by what has emerged this weekend.

Madam Speaker

Order. I have not heard a question from the hon. Lady yet.

Ms Hodge

Will the Secretary of State confirm that the line—known as the misery line—will not be well served if he continues the proposals to privatise it with that particular company? Will he introduce a more transparent mechanism to ensure that trust and co-operation can be built into the final authority for running the line?

Sir George Young

The hon. Lady's constituents want a reliable train service. The prospective franchisees were offering more services than those currently provided, including additional services late at night and on Sundays. We are determined to provide a better service for the nation's passengers and commuters through franchising.

The evidence of the first two supports our assertion that the process can drive up the quality of service and reduce the cost to the taxpayer.

Mr. Jacques Arnold (Gravesham)

Bearing in mind the fact that rail fares have risen by 22 per cent. more than inflation in the nationalised railways, will my right hon. Friend remind the House that fares on privatised lines such as the Tilbury-Southend line, which is of direct interest to my constituents, will be pegged to inflation for four years and to increases equal to or less than inflation in the following three years, so it is vital that the privatisation of that and other lines takes place as rapidly as possible?

Sir George Young

My hon. Friend has rightly reminded the House of safeguards that passengers have not had before on the level of key fares. From January this year, key fares have been capped to the retail prices index, and after three years they will go down by 1 per cent. That contrasts with the 22 per cent. real increase in fares under the last Labour Government.

Mr. Tony Banks (Newham, North-West)

How many more crooks are involved in bidding for franchises in British Rail and how will the Secretary of State know that when the British Rail internal audit machinery has been abolished?

Sir George Young

I hope that the hon. Gentleman will reflect on the language that he used in the light of what I said earlier. It would be wrong to prejudge any legal proceedings before the investigation has been completed. Before any franchise is transferred, the franchising director has to be satisfied of the integrity of the management. Other safeguards are built in through the regulator. I am confident that we have the necessary safeguards to protect public services.

Mr. David Lidington (Aylesbury)

Will my right hon. Friend assure me that the investigation into the alleged fraud will not hold up progress on the franchising of the Chiltern line, which is already under way, or prejudice the position of the management consortia that are bidding to make the Chiltern line service still better?

Sir George Young

I can give my hon. Friend the assurance he seeks. There is no question of halting the franchising programme, which is making good progress. As we speak, 50 per cent. of passenger services by revenue have been let or are under offer. Final bids for next four franchises are due on 1 March. There is no evidence that any other train operating company has been involved in irregularities such as those we have discussed, so it would be wholly unjustified to arrest the franchising programme.

Mr. Keith Hill (Streatham)

On the subject of arrests, will the Secretary of State confirm that the scam would have been worth up to £360,000 a year to the future owners of the private railway company? Will he also confirm that, in future, 12 private railway companies will share their revenues with London Underground and experience the same opportunities for fraud? Can he name a single example of comparable fraud under the publicly owned railway system?

Sir George Young

I can think of several comparable instances in the hon. Gentleman's borough—the London borough of Lambeth.

Mr. Michael Stephen (Shoreham)

Can my right hon. Friend confirm a point that appears to have been missed by most Opposition Members—that, when the irregularities occurred on the LTS line, the line was being run by public servants?

Sir George Young

It is certainly the case that the LTS line was being run by British Rail when the irregularities took place.

Several hon. Members


Madam Speaker

Order. I am now going to move on. I remind the House that we will have a wide debate on these matters on Wednesday.

George Foulkes (Carrick, Cumnock and Doon Valley)


Madam Speaker

If the hon. Gentleman is seeking to catch my eye on that, he should do so then.