HC Deb 16 November 2001 vol 374 cc1126-34

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Caplin.]

12.55 pm
Dr. Vincent Cable (Twickenham)

I have great pleasure in initiating this debate. I want to focus on one aspect of railway policy: the role of franchising, especially as it applies in the South West Trains area. I represent part of that area and, if my geography is correct, so does the Under-Secretary of State for Transport, Local Government and the Regions, the hon. Member for Southampton, Test (Dr. Whitehead). The hon. Gentleman is looking at me quizzically, so perhaps he does not.

The debate is appropriate at this time and there are three reasons for it. I am aware that a big national debate is under way about the role of the Secretary of State in the liquidation of Railtrack, but I do not want to be part of that—it is taking place at a different level.

My first concern is the effect of the structural changes on day-to-day services in areas such as mine. The brutal fact is that my part of outer London, the adjacent areas and their feeder lines are daily suffering a rapid and visible deterioration in service provision. That can be seen in the growing number of cancellations, of late departures and even later arrivals, and in increasing overcrowding. Those points are not anecdotal. I have checked with the railway management—an authority—who confirm that their internal statistics show that rapid deterioration is taking place. The system of fines and incentives cannot cope with the problem because the infrastructure itself is declining.

My second reason for holding the debate is to isolate certain issues that do not form part of the big question as to whether Railtrack should have been liquidated. I support the Government's action on Railtrack—as did my party. The Government took the correct approach, so I am not trying to score political points. However, many issues subsidiary to the Railtrack ownership question are unclear.

Many of us have an interest in the matter as constituency MPs and we are unclear about the way forward. For example, what is to happen to the management vacuum at the heart of Railtrack? Under the 10-year plan, what will happen to the transmission of funding for service enhancement? How will that finance chain be affected by the change in ownership? What will happen to the three tiers of responsibility: the infrastructure providers, the franchise operators and the subcontractors? Currently, they all have their own profit margins and there are confused lines of responsibility.

The Minister knows well that such confusion has lain at the heart of all the failures of privatisation. We do not yet know how the problem will be tackled. In this case, we do not yet know the Government's thinking on vertical integration, which is an essential and topical issue—certainly in my area. I want to sound out the Government on at least their provisional thinking on that subject.

I want to ask about the role of South West Trains. I am not an apologist for South West Trains, nor have I come here to give the company a caning. It simply happens to be the franchise operator.

South West Trains got off to a bad start. The company sacked a substantial number of key staff soon after it was awarded the franchise. The service deteriorated badly. Staff had to be re-hired, and arguments about terms and conditions caused further disruption. The company endeared itself neither to my constituents nor to many other people. When the new franchising round began, I was more impressed by some of the alternative bidders, such as Dutch Railways.

However, that is history. South West Trains was provisionally awarded the new franchise; it was the preferred bidder. I am impressed by the quality of the new senior management. I have talked to the chairman of the company who seems genuinely committed to railways and to making them work. As a constituency MP, my job is to work with the company to help it to get the franchise operating so as to deliver the service improvements that it promised. That is why I have introduced the debate.

South West Trains has undertaken to provide three specific aspects of service improvement. One is a doubling of the service on some of the suburban loop lines, but that in turn requires investment in new rolling stock. The company has undertaken to provide longer trains, which also requires improvements in stations and the length of platforms. It has undertaken to provide better coaches, CCTV, and more comfort and safety. All those things require money, and as long as there is uncertainty about the franchise arrangement, it will not be clear how South West Trains can make its way forward.

To crystallise the debate and perhaps to help the Minister, I shall encapsulate what I want to say in five questions. He may not be able to answer them all in full today, but perhaps he can do his best and let me have the other answers in writing. First, what exactly is the status of the South West Trains franchise? I asked the Minister a parliamentary question about that a few weeks ago, and received the predictable reply that a decision would be made in due course. I am sure that that is factually true, but it is not terribly helpful.

The franchise has been in limbo for more than six months, and it expires in February 2003. We are rapidly reaching the point at which key decisions on investment cannot be made owing to uncertainty. When will a decision be made, and what form will it take? I fully understand that the Government cannot divulge details of the Strategic Rail Authority's commercial negotiations with companies, but if the Minister can give us as much clarity as possible about the timing and nature of the franchise, the company and those of us living in the franchise area will at least be able to see what the future holds. Before I entered Parliament, I worked in a big corporation in which we operated on 10, 20 or 50-year planning horizons. It is necessary to do that in many industries. The railways have been required to operate on a short leash, and that is simply not the way forward.

The second question is more concrete, which may make it easier for the Minister to answer. When will the 10-car trains that have been promised under the franchise in my area arrive? Under the franchise proposals, there was a firm planning horizon and it was proposed that the 10-car trains would arrive in 2004. Will they be delivered on time? Longer trains are crucial if we are to solve overcrowding. Is it intended that the franchise undertakings in relation to longer trains will be met on time? Can the Minister give me an assurance that that promise will be met?

Thirdly, how does the Department propose to ensure that the finance is available for the service enhancements that have been promised under the new franchise? Where will the money come from? I am aware that the Government have an ambitious, promising, large long-term investment plan, but anyone who is following the matter closely will know that the system is close to collapse in terms of the financing mechanism.

If the Minister is following the matter closely, he will have read a revealing article in Modern Railways, a specialist journal, in July this year. It is rather technical, but revealing about the way in which funding is disappearing into the sand. It makes the point that current big rail projects are costing about three times as much as under the British Rail system for the equivalent amount of track. There is an enormous amount of waste under the existing structures. It looks as if the promising finance is not being used productively to produce the promised enhancements.

It appears, and the figures support this, that the cost of maintenance has increased by 35 per cent. in the past three years owing to the inefficiency and inflated profits of the subcontractors. Many people anticipated that that would happen when they criticised rail privatisation, and it has. The practical implication is that the pot of money available for funding service enhancements seems to be disappearing. How will those service improvements be achieved? In the case of the South West Trains franchise, we are talking not about massive capital projects but about modest ones involving station lengthening and the acquisition of new stock. Is the money available for them? Will it come from the Treasury, the SRA or private finance initiatives?

Fourthly, I turn to service and track deterioration. How is that being monitored? Are the Government aware of the extent to which quality has deteriorated? When will that curve start to turn upwards? I know that the Secretary of State is repeatedly pressed on that point, and I believe that he told the Transport, Local Government and the Regions Committee, rather hopefully, that he expected to see improvements by the time of its next meeting, which I think is in January. Perhaps he had not realised that the timetable was so strict. I am not trying to score a political point, but will the Minister give us some indication of when improvements will occur, so that I can pass that on to my constituents? When the Government have studied the inventory of their assets and the underlying technical problems, they should be able to estimate when service provision will begin to improve. We need that predictability.

Fifthly, what is the Government's provisional thinking about vertical integration? We know that it is an option because in his original statement to the House the Secretary of State indicated that he was open-minded about a variety of structural alternatives. However, I press the Minister to give specific, although not necessarily definitive, views about vertical integration.

The chairman of Stagecoach, which owns South West Trains, has gone on the record to advocate that option—I am not breaching any confidentiality—and to make what seems to me, as a layman, a very strong case for it. He argues that vertical integration would eliminate all the profit margins of the three sets of operators and ensure that there was real accountability because the franchise operating company would be responsible for the maintenance of the track as well as customer provision. It would be responsible also for safety, subject to an independent certification procedure. There would be a concentration of responsibility that has not been seen since the railways were privatised. Vertical integration could be introduced, on an experimental basis, in one region. Are the Government sympathetic to that approach? Are they encouraging it, or have they rejected it?

My final point is not substantive but concerns process. MPs are kept well briefed by Departments about many matters concerning their area. The Department for Work and Pensions keeps us informed about the Government's employment schemes, and we are well briefed on education initiatives as they affect our constituency. Some quangos are getting much better at communicating, and it is increasingly common for hospital trusts, for example, to keep local MPs informed about events.

The railways, however, are an absolute nightmare. It is virtually impossible for us to find out anything about what is happening in our area. We can try to develop a working relationship with the franchise company, but the whole process is extremely opaque. Will the Government consider how they can ensure that MPs are kept abreast of operational and practical developments in the railway system as they affect our constituents? I can assure the Minister that in a commuter constituency such as mine, the deterioration of rail services is perhaps an MP's biggest political headache. I am keen to find practical solutions rather than to score political points, but I would be grateful if the Government helped by clarifying the position.

1.9 pm

The Parliamentary Under-Secretary of State for Transport, Local Government and the Regions(Dr. Alan Whitehead)

I congratulate the hon. Member for Twickenham (Dr. Cable) on securing this debate and providing us with an opportunity to discuss passenger rail franchise agreements and the other issues that he mentioned. He will understand that it will not be possible for me to give him a definitive answer to absolutely every point that he made, but he may find it useful if I write to him about one or two issues. The essence of the hon. Gentleman's remarks related to the South West Trains franchise. We can air the subject at length today, and I hope that he will find my comments useful in discussions with his constituents.

I confirm the hon. Gentleman's geographical prowess in suggesting that South West Trains services pass through my constituency. I travelled on one of its trains to the House this morning and it arrived at my station and at Waterloo exactly on time. I can offer nothing further than that observation.

The franchise agreement, about which the hon. Gentleman is concerned, is a legally binding contract. It sets out the rights and obligations of a franchisee for the provision of railway services and, in return, provides for payments to be made to the franchise operator, determined by a competitive bidding process.

There are 25 train operating companies under the control of 11 different franchisees. Most of them provide services under franchise agreements of between seven and 15 years, negotiated in 1995 or 1996 by the Office of Passenger Rail Franchising through the provisions of the Railways Act 1993. Franchise agreements are not static; they evolve over time, and changes have been made to most of those original agreements, sometimes brought about by a change of control of the franchisee. None the less, most franchise agreements are not radically different from when they were first agreed.

When franchising occurred for the first time, the rail industry was in a very different position. It was a pre-Hatfield industry, with a newly created Railtrack. The growth in passenger numbers in the past few years—some 7 per cent. a year prior to Hatfield—was not envisaged at the time, and franchises were let on the basis of a non-expanding railway. The franchising director, who was responsible for letting franchises at the time, was steered by objectives, instructions and guidance from the then Secretary of State. Those required him to let franchises in a way that left maximum scope for the initiative of franchisees, and to impose requirements that were no more burdensome than necessary to achieve the objective of letting franchises quickly and obtaining good value for money.

Thus the specifications for service provision and quality were based on the service offered by British Rail. The philosophy was to provide a privatised industry that was no worse than the public one that it replaced. The terms negotiated in franchise agreements reflect that.

Minimum service levels were based on the service being operated by British Rail at the time of franchising, and key fares were regulated against British Rail prices. Benchmarks for performance were based on the historic performance of British Rail over that part of the network for which the franchise was being let, and benchmarks for service quality issues were based on the results of surveys of British Rail passengers. Investment by train operating companies for expansion was not a major factor. The franchises typically included a falling subsidy profile, with the franchise agreements for the most profitable routes including a clause for the payment of a premium by the franchisee back to the Government.

It would be wrong to imply that no thought was given to improving services. Incentive regimes and enforcement thresholds—the hon. Gentleman mentioned some of those devices—were incorporated to encourage an improvement in performance and service quality. Franchisees of train operating companies in the south-east, and those providing regional and local services elsewhere, where market forces alone were not deemed to be sufficient to uphold performance standards, receive extra subsidy for improving the punctuality and reliability of services, but pay penalties for deteriorating performance. All franchise agreements include enforcement thresholds for performance, which, if broken, can lead to varying degrees of sanction, including, ultimately, franchise termination.

Since those franchise agreements were signed, the franchising authority has had the opportunity to negotiate additional benefits. For instance, where material breaches of franchise agreements have occurred it has been the policy of the Strategic Rail Authority, or its predecessors, to secure a passenger dividend by way of compensation to passengers. Depending on the nature of the breach, that could be something relatively minor, such as an improvement to facilities at a particular station, or something major, such as the procurement of new rolling stock.

When the chance has arisen, the authority has also taken the opportunity to negotiate improved terms in franchise agreements, notably when a change of control of a franchise has occurred. For instance, when FirstGroup took over the Great Western franchise in 1998, a bespoke performance incentive regime was negotiated under which the company can be penalised for poor performance. That was the first of the long-distance, high-speed operators to have such a regime written into their agreement.

In the light of increasing demands to improve services to meet growing demand, in the autumn of 1999 the Secretary of State instructed the Strategic Rail Authority to replace existing franchise agreements, starting with those that were due to expire by 2004, so as to drive up punctuality, reliability and service quality, and to inject investment into the industry. Replacement agreements could complement our 10-year transport plan, which provides £180 billion for the nation's transport infrastructure.

As has been well documented, the Strategic Rail Authority experienced some difficulty in negotiating replacement deals. Two of the first six franchises to be re-tendered, Central Trains and Great North Eastern Railway, resulted in proposals with which neither the authority nor Ministers were satisfied either in respect of value for money or because they were difficult to compare, and subsequently no preferred party could be selected. Negotiations on other franchises were also taking longer than originally expected.

In July this year, the Secretary of State instructed the authority to examine what could be done within existing franchise agreements, or by negotiating short extensions to those agreements, so as to get improvements to services implemented as soon as possible. The two-year extension awarded to Midland Main Line last year is a clear example of the benefits that we want to be spread to other parts of the network. The £240 million package includes £135 million investment in new rolling stock, £17 million investment in a new East Midlands Parkway station and the provision of additional services. That does not mean that there will be no longer-term replacement franchises. Indeed, the authority has been instructed to continue negotiations on those franchises for which it has already selected preferred counterparties for new long-term agreements.

The authority is continuing to negotiate replacement agreements for South Central, South West Trains and Chiltern Railway with GoVia, Stagecoach and M40 Trains respectively. When longer-term replacement franchises are negotiated, we make it clear that early benefits should be secured for passengers. In response to the Secretary of State's statement, the Strategic Rail Authority has submitted a revised programme to Ministers, which we are currently reviewing. An announcement on that programme will be made by the authority in due course.

The hon. Gentleman asked about the Government's intentions with regard to the future of Railtrack. I can do no better than refer him to the Secretary of State's statement on 15 October 2001, in which he said: In the light of the administration of Railtrack, we believe that we should now consider reshaping the structure of the industry in a way that recognises that the needs of the travelling public must come first. We shall propose to the administrator that a private company limited by guarantee be established to take over Railtrack's responsibilities. Any operating surplus it makes would be re-invested in the railway network. Such a company would have the needs of the travelling public and other users as a priority. As it would have no shareholders, we would remove the conflict between the need to increase shareholder value and the interests of rail passengers. He went on: Performance targets would be set and linked to levels of service, safety and value for money. The board would work on commercial lines but would focus solely on delivering a safe, well-maintained rail network that is fit for the 21st century. He also emphasised that the company envisaged that it would be able to promote collaboration and co-operation around the wheel and track interface, the absence of which has been one of Railtrack's weaknesses. He went on: A private company limited by guarantee would need far less intense regulation…We shall discuss these proposals with the industry's key players. Indeed, we are doing that. He continued: We are clear that it is important for the new structure to provide strong strategic leadership; a cut in the burden of day-to-day interference; an end to the self-defeating system of penalties and compensation;"— a matter that was raised by the hon. Gentleman— clear accountability; and an end to perverse incentives."—[Official Report, 15 October 2001; Vol. 372, c. 955–56.]

As the Secretary of State has already said, he has an open mind on vertical integration, but it would not be appropriate for me today to go any further than that because of the nature of the position that he reported to the House on 15 October.

No doubt the hon. Gentleman will be most interested in the services operated by South West Trains, as it is the operator of services through his Twickenham constituency. I have considerable familiarity with train services in that constituency. The names of the stations Whitton, St. Margarets, Fulwell, Hampton and Strawberry Hill flash before my eyes, although in those days some of the stations were serviced by trains with smoke coming out somewhere near the front.

South West Trains was included in the first batch of franchises for replacement in 1999. Following a competitive process, the Strategic Rail Authority signed heads of terms with Stagecoach as the preferred counterparty for the replacement franchise in March this year. The SRA is working with Stagecoach towards signing a deal that preserves the benefits agreed in the heads of terms.

As I am sure the hon. Gentleman will appreciate, the Strategic Rail Authority cannot give a date when the deal might be signed. It does not want to undermine its negotiating position by setting itself a deadline. It wants to have complete confidence that the terms negotiated are fully enforceable and offer best value for money before the deal is signed. Suffice it to say, it wants that to be at the earliest opportunity.

I understand that the authority will consider with Stagecoach the possibility of bringing certain elements of the deal forward in advance of franchise agreement signature. Elements that could be brought forward, to ensure that passengers get some early benefits, include an increase in evening and Sunday services and measures to improve station security.

The hon. Gentleman asked about finance for the services envisaged under the new franchise under discussion. The focus of the investment proposal under that franchise is to allow growth in passenger demand, to increase the reliability and punctuality of services and to reduce overcrowding. Under the heads of terms, £1.7 billion is committed over the first 15 years to that end.

Within the heads of terms. Stagecoach has a detailed set of schemes that will provide passengers with a number of early benefits. Those include—it is particularly pertinent to the questions that the hon. Gentleman asked—investment in almost 800 new vehicles to replace the ageing mark I stock, increase the fleet and help relieve overcrowding. In April 2001, Stagecoach agreed contracts with the lessors, Angel Trains, and with Siemens, the manufacturer, for the supply of those vehicles. That order, the biggest ever UK rolling stock contract, is underwritten by the SRA. The first of the new trains are scheduled to enter service in 2002.

The second benefit—again, the hon. Gentleman asked a specific question about the matter—is a programme of platform lengthening at Waterloo and throughout the suburban network to allow the use of 10-car trains in place of the current eight-car trains. That will increase peak capacity on most suburban routes by 25 per cent.

Initial work site visits and technical studies have begun for those platform extension works. Even so, the hon. Gentleman will understand that, until a new agreement is signed, no date can be given for the introduction of the 10-car trains. However, I think that he will take an assurance that work is well in hand to examine how the 10-car trains can come into service.

Further benefits include a recast timetable on the Windsor and Reading lines to provide an additional two trains per hour for most of the day through Twickenham and Richmond. Improvements in service frequencies in suburban areas include the provision of four trains per hour at all stations on the Hounslow loop, and between Shepperton and Kingston.

In the longer term, the heads of terms provide for the redevelopment of Clapham Junction station by 2007. The upgrade is designed to make the station more comfortable and convenient for local passengers, and for those who have to change trains. Improvements will also be made at Waterloo to provide for the safe and convenient circulation of a growing number of passengers, and upgrades will be carried out at Wimbledon and Vauxhall to improve interchange with the underground.

Stagecoach has also put a set of aspirations in the heads of terms on which progress may be made later in the franchise, including the introduction of 16-car trains on longer distance routes, which is particularly interesting to me. They also include the extension of platforms at Waterloo for 12-car suburban trains, and the introduction of double-decker trains on some routes—low bridges permitting, I imagine. Of course changes cannot happen overnight, but I believe that over the next few years passengers on the South West Trains network will see a marked improvement in their service.

The rail industry has recently gone through an unprecedented upheaval, starting with the Hatfield accident in October last year, continuing with the widespread disruption to the network that followed it, and culminating in the placing of Railtrack in administration in October this year. It will be some time before the new structure for the industry is clear. However, the future of services nationwide will become clearer with the publication of the Strategic Rail Authority's first strategic plan later this year, and with the announcement of its revised replacement programme.

The strategic plan will set out the authority's long-term vision for the railways, and its priorities for the short and medium terms. Those priorities will need to address the targets set in our 10-year plan, which are to increase passenger numbers by 50 per cent. by 2010 through investment in infrastructure and capacity, to reduce overcrowding, and to secure improvements in punctuality and reliability.

We are fully committed to delivering the vision for railways set out in our 10-year plan, and we will continue to ensure that the industry bodies work together in partnership to deliver the rail service that passengers expect and deserve in the 21st century.

Question put and agreed to.

Adjourned accordingly at twenty-seven minutes past One o'clock.