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

Q339 Mr. Eric Martlew (Carlisle): Can we come back to the franchise? There has been no greater critic over the years of Virgin than I am on the west coast. I think it is admitted that they do a good job. They have provided a good service, the staff are good and if it were not for the failures of Network Rail they would have a much more reliable service. They are now coming to the end of the franchise; that means that they will not invest beyond that time. The system of franchising that we have which is a blind bid takes no account of the fact that any franchise company has done a good job. Is that sensible?

Lord Adonis: It is important that we get the best deal for the tax payer set against the requirements that we place in the franchise agreements. Although it is blind in the sense that of course no bidder knows what anyone else is bidding, it is not remotely blind in terms of the outputs that we require for the public. On the contrary; the specifications in the franchise are very detailed indeed and with each successive franchise we seek to improve the service on the previous franchise. The South Central franchise which we have just let will bring about a very significant improvement in the quality of service in the South Central area as against the one that was being offered previously. As it happened in the case Govia (the company that was previously operating the franchise) won the bid for the new franchise and quite a number of the franchise competitions are won by the previous operator. I do not think it would be right for us to say that we should operate a policy of favouritism in respect of incumbents who are prepared to offer a less good deal for the taxpayer in return for delivering the same outputs as other people who have bid.

Q340 Mr. Eric Martlew (Carlisle): You earlier answer indicated to me that there were actually more red lights than before because if there had been only five you would have said there are only five. So it appears that the franchising system is teetering, to be honest. Have we ever thought of a system whereby you lay down the conditions of what you want on a line and you perhaps review it from time to time and instead of a franchise you just sell the service, you just put it up to the highest bidder?

Lord Adonis: Sorry, you mean the entire -----?

Q341 Mr. Eric Martlew (Carlisle): Let us take the West Coast Mainline, you set what you want like you would on a franchise and you say that instead of a five year franchise or a ten year franchise, who wants to own it? We will tell you what services you have to run but you get to own it.

Lord Adonis: I think the problem there is that you would be seeking to tie yourself into just one operator for an indeterminate period and you would not get the opportunity then to test whether somebody else could come along and provide you with a better deal. The question as to what the periods of tendering should be is one we are considering, but tendering does produce a better deal for the taxpayer. The effect of doing that I think would be to produce a less good deal. To give the specific example of the South Central franchise, that is a franchise which at the present time, until the franchise changes at the end of the year, is operating in subsidy. We are subsidising Govia to operate the South Central franchise. With the new franchise they will be paying the government a premium payment for providing a better service. Clearly periodic tendering of contracts and therefore being able to carry out a competition between potential companies that could operate that franchise does deliver better value for the taxpayer than simply continuing for an indeterminate period with an existing operator.

Q342 Chairman: Will this South Central franchise be the pattern of franchises for the future? It does pay a lot more attention to passenger safety and passenger needs.

Lord Adonis: The enhanced requirement of the South Central franchise not only in terms of passenger safety with more CCTV, longer staffing hours in stations but also in terms of the provision of more care parking, better facilities for cyclists, enhanced capacity, all of those are areas where we hope we can apply the lessons in future franchises. Coming to Mr Martlew's question, I think the problem with the solution he is suggesting is that of course this would lock you in with in operator for an indeterminate period and I do not think that would produce best value for the taxpayer as against being able periodically to invite rival bids for operating franchise. The question about what is in fact the best balance between stability, long term investment and commitment and testing the market is, as I said in response to an earlier question, one that we have got under review.

Q343 Mr. Eric Martlew (Carlisle): You will always have this problem when a company comes to the end of its franchise. In the case of a five year franchise they are not going to start putting a lot of investment into that particular line, are they? The reality is that it is short-termism. If you had a 30 project you might as well sell it all.

Lord Adonis: It is not either/or because of course the franchise specifications themselves require train operators to make investments. So the South Central franchise to which you referred sets out a large number of requirements on Govia (the franchise holder) to make investments, including any issues I have just mentioned (CCTV, car parking, cycle parking). There is not a straight either/or here. That is a franchise that only lasts for five years ten months which is a shorter period than we would normally wish but this was set to coincide with the period before the completion of Thames Link. It is possible if we had a sophisticated franchise system to get significant levels of investment on the part of the train operating companies through franchises, even if they are shorter rather than longer term. However, you are clearly right to say that the willingness of train operating companies to make investments over and above those that they are required to do in their franchise agreements is reduced the shorter the franchise.

Q344 Mr. Eric Martlew (Carlisle): Turning to the issue of the extra carriage on the Pendolino, the decision on that was delayed in fact because Virgin were coming to the end of the franchise. It was delayed because Virgin would not do it under their franchise.

Lord Adonis: I am happy to say that we are ordering extra carriages for Pendolinos now so although it may have taken us a bit of time to get there, we did get there. Carlisle will be one of the beneficiaries.

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.

On behalf of Eric Martlew, 3 Chatsworth Square Carlisle Cumbria CA1 1HB