Rail fares and franchises (HC 233-iii) Transport Committee 17 Jun 2009

Q307 Mr. David Clelland: Welcome to your post, Secretary of State.

Lord Adonis: Thank you.

Q308 Mr. David Clelland: I am not quite sure how helpful it is going to be having a secretary of state who cannot be questioned on the floor of the House of Commons but that is not the question I want to pursue here today. Can you bring us up to speed - if you will pardon the pun - on the current situation with the National Express East Coast franchise?

Lord Adonis: I cannot say any more than I said to the Committee before because of course discussions between us and train operators are commercially confidential. However, I can tell the Committee, as I said last time I appeared before the Committee, no train operating company has defaulted on its obligations and that continues to be the case.

Q309 Mr. David Clelland: Are you in talks with National Express?

Lord Adonis: We are in talks with all of the train operating companies and that includes National Express.

Q310 Mr. David Clelland: Are you considering a management contract for the franchise?

Lord Adonis: I simply cannot talk about matters which are commercially confidential between us and the train operating companies.

Q311 Mr. David Clelland: You cannot talk about any other franchise, about the terms of existing contracts or management contracts.

Lord Adonis: No, it would not be appropriate.

Q312 Mr. David Clelland: Who would carry the revenue risk if a monitoring contract was established either in the case of National Express or any other franchise?

Lord Adonis: It would entirely depend on the form of the management contract. There is not a single standard form of a management contract. Of course, if there were to be management contracts in respect of any franchise, the apportionment of risk would be one of the factors to be considered.

Q313 Mr. David Clelland: If a multi-franchise train operator defaulted on one franchise, what would happen to any other franchise?

Lord Adonis: The government has the power to cross-default, that is to default franchise operators in respect of other franchises that they hold as well as the one which led to the initial default. That is a power to do so. As I have said when asked about this in the past, we would need to look at whether to exercise that power on a case by case basis.

Q314 Mr. David Clelland: Without breaching any commercial confidentialities, what contingency plans do you have in place in the event of a multi-franchise failure?

Lord Adonis: As you know we have a statutory duty under section 30 of the Railways Act to ensure the continued operation of rail services and we can do that in one of a number of ways, as we have done in the past where train operating companies have been unable to continue operating the services on the previously agreed contractual basis. We could agree a management contract; we could run the service directly as we did with South Eastern Trains when Connex was unable to continue in service. There are a number of options.

Q315 Chairman: Have you given consideration to running trains directly?

Lord Adonis: Yes.

Q316 Chairman: That is something that you would see as a possibility.

Lord Adonis: Yes, absolutely. We have done it in the past. We have a call off contract with an organisation called First Class Partnerships which could, at very short notice indeed, provide us with experienced rail managers enabling the department to take over the management of a train operating company in the same as we did with Connex South Eastern when we needed to do so at the end of 2003.

Q317 Chairman: When did you last discuss this with First Class Partnerships?

Lord Adonis: We are in regular dialogue with First Class Partnerships because of course we need to be satisfied that we do have the staff and the management capacity available to be able to act if we needed to do so. I should stress that this is sensible and necessary contingency planning on the part of the government; it does not pre-suppose that we face any particular challenges.

Q318 Mr. David Clelland: Would it be wise to keep at least one franchise in the public sector to use as a comparator to the private sector?

Lord Adonis: We do not believe so because we believe we get a good deal for the taxpayer from the franchising system. Indeed we have just got an excellent deal for the taxpayer from the franchise that we let last week in South Central, £534 million worth of premium payments over five years and ten months from a very intensely competitive franchise process before we let that franchise. Our view is that the public interest is well served. That is not just our view, it is also the view of the National Audit Office which, in its Report on the management of franchises last year - as you will be aware - concluded, "The Department's arrangements for identifying and managing risks, including handling the failure of a train operator, are well planned and follow good practice." The NAO also concluded, "The Department's approach to rail franchising produces generally well thought through service specifications and generates keen bidding competition. This approach has resulted in better value for money for the taxpayer on the eight franchises let since the Department took over from the SRA." The NAO, having looked in some detail at our franchising policy, concluded that it was delivering good value for the taxpayer and that conclusion, we believe, is further supported by the recent experience of franchising the South Central franchise and therefore we do stand by it.

Q319 Mr. David Clelland: Looking forward, we are in a recession and things are getting difficult; private train companies are driven by their concerns about their share price. How can we be satisfied that they will be more concerned about the long term investment in the railway than their short concern about their share prices?

Lord Adonis: The only answer that I can give to that is that we are now about a year through the recession and no train operating company has defaulted on its obligations even though, of course, their share prices have come under very considerable pressure in that time and the return they are able to make from operating rail services has diminished. The evidence so far is that the franchising system has continued to prove its worth.

Q320 Chairman: There is a great deal of press speculation about National Express.

Lord Adonis: That is speculation and I cannot comment further. We are a year through the recession and the only significant change we have seen so far in the franchising arrangements has been the letting of the South Central franchise which delivered a very substantial premium payment for the taxpayer.

Q321 Chairman: Should we be concerned about the reports about the National Express?

Lord Adonis: The legitimate issue for me appearing before you is that were there to be for any franchise - I am not talking about any individual one - a failure, have we, on behalf of the travelling public, got robust arrangements in place that would ensure the continuity of rail services and no disruption in service to the travelling public? I can say very clearly to you this afternoon that have got such arrangements in place and were a franchise to default we believe that we could ensure that rail services are continued without any disruption to the travelling public.

Q322 Chairman: Would they continue without additional costs to the public purse?

Lord Adonis: It depends on the nature of the default.

Q323 Chairman: So the answer is that it might be.

Lord Adonis: It cost more to the public purse.

Q324 Mr. David Clelland: In relation to an increase in prices and the £2.50 reservation fee for instance that National Express are in favour of, does that tell you anything about their finances and their future?

Lord Adonis: Everyone knows that a number of the train operating companies are under some pressure at the moment because of the recession and lower growth in passenger volumes and revenue than they had anticipated but, as I say, no train operating company is in default of its obligations.

Q325 Mr. David Clelland: Are you confident that when you come before us next time you will be giving us the same answer?

Lord Adonis: The only thing I can be confident of is the answer I give you today. I never try to predict the future.

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Q338 Mr. David Clelland: Although you say that in the RFA processes the priorities are decided by the regions themselves, the priorities are very much dependent on the resources which are available. So that is not really an argument, is it? The priority in the North-East would be, given the limited resources, dualling the M1 from the north of Newcastle to Scotland but because of limited resources they do not get that priority otherwise there would be no money for anything else. So the priorities really are dependent on the resources.

Lord Adonis: That is obviously true, priorities are constraint by resources but, as I say, at the moment there are projects going on in all these areas. I well remember our meeting with business leaders in Gateshead and I know that the business leaders and you would like to see the A1 dualled north of Newcastle, however we are busy dualling the A1 south of Newcastle so there is a big project which will significantly enhance the A1 in the North-East at the moment. I think we have a good record and I am proud of the record that we have in terms of the significant infrastructure investment over the last ten years which is continuing in the period ahead.

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Q374 Mr. David Clelland: Have you seen the Maglev report which covers all the major cities covered by High Speed Two and Three on a single line?

Lord Adonis: We have looked at Maglev and indeed before the 2007 rail white paper we commissioned consultants to look at Maglev as an option. There are three very significant obstacles to progressing with Maglev. The first is the cost; it is huge, it is many multiples higher than proceeding with conventional high speed rail technology. The second is the still developmental nature of the technology. At this moment in time no country is taking forward a concrete proposal for a Maglev on a long distance high speed line. Several are considering the option but none has in fact got a plan for doing so. The third issue, which is one that to my mind is very important for Britain, is that a Maglev, by its very nature is not interoperable with the existing rail network. Since any high speed line would inevitably be built out in stages it seems to me a very important point of policy principle that the high speed line as it is built out is interoperable with existing rail network, which is precisely the policy that has been adopted in France and Germany, so that destinations which are not on the high speed line in its early stages of development can be served by high speed trains. In France a majority of the route mileage of TGVs is not in fact on the high speed lines, it is on the existing network with the TGVs going off the existing network onto destinations beyond. For example Bordeaux, the majority of the route mileage of the TGVs which provide the service to Bordeaux is on the classic network; the high speed line only runs as far as Tours. I am very mindful of the need to ensure that the benefits of high speed rail are shared with the cities and regions as rapidly as possible after the building out of the line and I think it would be very much contrary to that objective if we proceeded with the technology that only made it possible to run high speed trains to the destinations which are immediately served by the high speed lines. It seems to me very important that we are able to serve destinations beyond the high speed line and that rules out the Maglev.

This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee. Neither witnesses nor Members have had the opportunity to correct the record. The transcript is not yet an approved formal record of these proceedings.

The full transcript may be read here.