Rail fares and franchises (HC 233-i)
Transport Committee 4 Feb 2009
Evidence given by:
2.45 First Group Paul Furze-Waddock, Commercial Director, UK Rail
National Express Group David Franks, Managing Director, Rail
Virgin Trains Graham Leech, Commercial Director
Southeastern Charles Horton, Managing Director
First Hull Trains Jim Morgan, Passenger Development Director for First Group
Association of Train Operating Companies (ATOC) David Mapp, Commercial Director
3.30 Passenger Focus Colin Foxall, Chairman Mike Hewitson, Head of Policy
London TravelWatch Sharon Grant, Chair Tim Bellenger, Director, Research & Development
thetrainline Richard Rowson, Business Development Director
4.15 The National Union of Rail, Maritime and Transport Workers (RMT) John Leach, President
Transport Salaried Staffs’ Association (TSSA) Gerry Doherty, General Secretary.
Q7 Mr. Eric Martlew (Carlisle): On this very point, Mr Leech, you may have been briefed by a letter I have sent to your chief executive. Can you explain why a ticket from Carlisle to Birmingham, if you want to be there before 10.30 in the morning, went up from £71 to £124? Can you explain, if I want to go and visit the Chair in her constituency in Liverpool, why that has gone up from £40 to £70?
Mr Leech: That is because when we had the new timetable introduced in December we wanted to look at the new passenger travel on that route and we thought it was right, at the same time as introducing these cheaper fares, to make some changes. However, we review all of them; in fact we are looking at those particular changes and we are aware that there are some problems with them. That was clear as well from feedback from our front-line staff. It was always a trial, therefore, and in that particular instance we will be making changes.
Q8 Mr. Eric Martlew (Carlisle): You accept that the figures I have just commented on are correct?
Mr Leech: For some particular ---
Q9 Mr. Eric Martlew (Carlisle): You restricted the travel, so you almost doubled the cost of these fares. Are you saying now that you are admitting that you got it wrong?
Mr Leech: I am saying that we had some massive increases to our services, introduced in December and, as part of that, we had to look at the train services that we restrict. Overall, the same proportion of trains are restricted now as they were before. In many cases we made the restrictions easier. There were some cases where we tightened some restrictions, but all of this is open for review and, with hindsight, in that particular case we think that it right to make some changes.
Q10 Mr. Eric Martlew (Carlisle): So you are agreeing with me that the fare from Carlisle to Birmingham went up, if you want to get there before 10.30, from £71 to £124. Is that correct?
Mr Leech: That is correct for that particular journey, yes.
Q11 Mr. Eric Martlew (Carlisle): When you are talking about the averages of fares, did you put that into the averages of fares?
Mr Leech: Yes, absolutely. Every single change that has happened; because there are many journeys being made much more cheaply than those before.
Q12 Mr. Eric Martlew (Carlisle): Finally, you are saying now that you got that wrong and you are going to look at it?
Mr Leech: Yes, and we are going to make a change in that.
Mr. Eric Martlew (Carlisle): If the President of America can admit that he has got it wrong, it does you no harm at all!
Chairman: We look forward to hearing the results of the change.
Mr Hollobone: Second only to bankers in the City of London, you gentlemen must be the most unpopular men in the country.
Mr. Eric Martlew (Carlisle): We are!
Q13 Mr Hollobone: You can speak for yourself, Eric!
Q77 Mr. Eric Martlew (Carlisle): I think there is a great fog over pricing and the customers do not believe what you, gentlemen, are telling us. It may come as a surprise to you, Mr Leech, but I am quite a fan of Virgin. They look after their staff, they are good with their customers and they have invested a lot of money in the rolling stock, albeit through the TOCs. On the franchising, is it not a nonsense, the fact that a company that has a good reputation and is well-liked by the passengers is not taken into consideration and it is actually a blind bid when you go into the new franchise?
Mr Leech: Well, that is a matter for the Department to decide.
Q78 Mr. Eric Martlew (Carlisle): I know who is responsible, but I am asking for your comment on it.
Mr Leech: I would say it is a nonsense, but in many procurements for other services, certainly if we procure services for ourselves, then we do take account of the performance of previous suppliers, so, in making this response, I am not making a partisan response for Virgin. My personal view is that, if you are appointing somebody for an important contract and they have been your supplier before, it would be normal to take some account of how well that supplier has performed. That is what I would do in contracts that I manage, but clearly it is a question for the Department for Transport.
Mr. Eric Martlew (Carlisle): Does the franchising system not work in reality? You, gentlemen, actually complained about how much money you are having to pay to the Government, but you actually bid for that, that is how you got the franchises. Would it not be better, and I am not really advocating this because I would like it to go back into public ownership, for train companies to buy the business and then be regulated the same as the water utilities are regulated, so you actually buy the business?
Q79 Chairman: Is there anybody that has an appeal for?
Mr Mapp: The existing model has worked reasonably well and the numbers in terms of passengers and so on, I think, demonstrate that, but we are, at the end of the day, commercial companies and we are fairly flexible in the way in which we work. Any sort of franchising framework that allows us to earn a reasonable return, and I emphasise "reasonable return", is something that we would be willing to work with, so yes, clearly we have views and we would certainly want to be consulted in terms of any future franchise changes, but, in a sense, we are sensible and pragmatic in that context.
Q80 Mr. Eric Martlew (Carlisle): The final point, and I think this is probably the most important one, is that we are going into a recession. You, gentlemen, won your franchises when there was growth predicted in the business and in fact, if you look at all your models, it is all growth and those models may be looking a bit sickly at the present time. The franchising agreements that you have with the Government actually allow you, with a small financial penalty, to walk away from those franchises if they are not making the money that you predicted they would do and if you are making a loss, and we saw that with Sea Containers in actual fact. Is that the fault of the franchising system? Should we have a system whereby, when you are making more profits, then you pay more money to the Government other than through taxation and, when you are hitting hard times, you actually pay less? Should the franchises be more flexible? How many of you are predicting that you will not have to go back to the Government within the next two years?
Mr Morgan: I cannot go back to the Government because Hull Trains is not a franchise.
Q81 Mr. Eric Martlew (Carlisle): But National Express is.
Mr Morgan: Yes.
Q89 Mr. Eric Martlew (Carlisle): The question I asked was: could the franchising be more flexible, i.e., if you are doing well, you pay more and, if you are doing poorly, you pay less, and, two, do any of you think you will be going to the Government within the next two years, threatening to hand back your franchises?
Mr Leech: We certainly do not.
Mr Furze-Waddock: There is already a mechanism in the franchise agreement that, as I have said, there is a revenue share, a revenue support ----
Q90 Mr. Eric Martlew (Carlisle): But is it big enough, is it good enough?
Mr Furze-Waddock: That is arguable, and it will remain to be seen, but I can confirm that we have not been back to the Secretary of State, asking for any bail-out for our franchises. We continue to monitor developments, keeping an eye on what is happening to revenue this year, and we will continue to do so. We would not be managing our businesses properly if we did not do that.
Q91 Mr. Eric Martlew (Carlisle): So you do not expect to go back to them?
Mr Furze-Waddock: We do not expect to go back to them.
Q147 Mr. Eric Martlew (Carlisle): Nobody, for example, is in favour of putting prices up, I think, so you have got an easy job to that extent. You all accept that the subsidy has gone up from, I think, just over £1 billion ten years ago to about £5 something billion now, so there is a massive amount of public money going into the railways. My constituency, unlike the South East, has a public transport system that is based on the buses and probably a lot of my constituents in a year will not travel on a train whatsoever, although £5 billion of public money is going in. We are talking about spending, is it, £11 billion on Crossrail, goodness knows how much on Thameslink and we are hopeful for a new high-speed line and we are talking about putting that to Heathrow. If the money does not come from the fares, where does it come from? Does it come from my constituents who do not use the trains at all, or do we actually not raise so much money and hold back on these major infrastructure developments that we need?
Mr Foxall: That is an exceptionally fair point and it is the reason why, in previous years, we have not argued strongly about the regime that has existed in terms of deciding what went into the fare box and what came from passengers because that is a decision that gets taken here in Parliament effectively. What I am saying is that we now have a crunch point, that is all, we have a change of circumstance.
Q148 Mr. Eric Martlew (Carlisle): You can over-exaggerate that though. If presume that there was not, what is the answer to my question? Presume that there has not been a change of circumstance, what is the answer to my question? Do we take more out on the taxpayer and keep fares low, or do we actually stop development on the railways?
Mr Foxall: I think it is an extremely difficult question for me to tackle.
Q149 Mr. Eric Martlew (Carlisle): You can try to answer it.
Mr Foxall: I will try to answer it, but, in a sense, simply representing passengers, the passengers’ position is this: that they are prepared to pay for what they regard as a value-for-money service and they tell me, in their surveys, that they are not getting value for money. I am telling the Government, and I am repeating to this Committee, what they tell me. It may well be that you have a very valid point by saying that we should not subsidise the railways, but that is a decision that ----
Q150 Mr. Eric Martlew (Carlisle): What I am saying is that there is a massive subsidy going in and what appears to be being said by yourself is that there actually should be more.
Mr Foxall: No, can I correct you. I am presenting an argument which comes from passengers. I think the Government has to decide what it wants to spend on the railways.
Q151 Chairman: Does anyone else have a view on who should pay?
Ms Grant: I think Colin is quite right, that that is a political decision that has to rest with the Government of the day.
Mr. Eric Martlew (Carlisle): That is a cop-out.
Q165 Mr. Eric Martlew (Carlisle): Just on that point, very often the cheapest ticket to buy, say for example if I am coming from Carlisle to Manchester, is a ticket to Preston and then one from Preston, but the machines do not tell you that, do they?
Mr Hewitson: No.
Q166 Mr. Eric Martlew (Carlisle): Very often the booking clerks will not either because they are instructed not to, very often that is the case?
Mr Hewitson: It is a classic case where if you know the system you can sometimes find some good savings. There are conditions attached to that combining of the ticket. The train has to stop, et cetera. If you know your way around the system you can save an awful lot of money at times.
Q174 Mr. Eric Martlew (Carlisle): Does that mean people are travelling in standard class instead of first class?
Mr Rowson: No, there has not been a noticeable change in it. What we have seen in our passenger base has been a steady increase over the past five years from about 8% first-class bookings to around 16% to 17% first-class bookings, and that has stayed pretty static for the past six months. The shift has been inside that 16% where people have traded down from fully flexible tickets to specific train only tickets or off-peak tickets.
Q188 Mr. Eric Martlew (Carlisle): I do not disagree with where we should be, but we are where we are, gentlemen. You paint a very gloomy picture but the reality is different. We actually carried more passengers on the railways last year than we did for 60 years. We have got massive investment, most of it public money, and we would agree with that. Over the last few years the number of people employed on the railways has probably gone up and we have the most modern rolling stock in Western Europe. That is a picture that we have got that you have not really mentioned. I admire the way that the trade unions have been able to get a good deal out of the management for their members. I come from a railway family, three generations of my family worked on the railways, and the unions have done a very good job getting reasonable conditions for the workers. I appreciate that, but if we have not got profits in the present system, that is not going to happen, is it?
Mr Leach: Under the current system the way the industry has been constructed and refined in recent times, it all does seem to hinge on profits, but where we are at, and the phrase has been used "we are where we are", we are in a very different place today than we were three months ago in the railway industry.
Q189 Mr. Eric Martlew (Carlisle): I suspect, Mr Leach, that the statement you would have made to this Committee would not have been very different three months ago.
Mr Leach: I would not have been talking about compulsory redundancies.
Q190 Mr. Eric Martlew (Carlisle): No, but you would have been talking about the doom and gloom.
Mr Leach: We have consistently been against the privatisation of our industry.
Q191 Mr. Eric Martlew (Carlisle): Precisely.
Mr Leach: We do not think that it is the most efficient way of operating it, and we think that the current difficulties that the industry is rolling into will make matters worse. I cannot really come away from that point with regards to my own organisation.
Mr Doherty: Can I just answer some of the points that you made. Yes, we have been arguing this consistently, even in the good times, even when the profits were rolling in, because we do not think it is the proper way to run a railway industry. No other government in Western Europe runs a railway system in the way that we do. No other government puts as much public money into running their railway. None of them does. No other railway system in the world, and I heard your debate earlier on about rail fares, none of them, we have got the dearest rail fares, certainly the walk-on fares in Europe, and I think fares was one of the issues that you wanted to talk to us about, but it is quite true that the industry is carrying more passengers than it was prior to privatisation; so are the roads, so are the airways. More people are travelling. We have been living in an economic boom.
Q192 Mr. Eric Martlew (Carlisle): Mr Doherty, that was not the case. What was happening was passenger numbers were going that way, they were going up on the roads and down on the railways. We have come back, and I think we have actually started to put more people on the railways. It had been declining for probably half a century. I think the unions should take some of the credit for that.
Mr Doherty: That is not true. Railway patronage went up and down in times of economic boom. All you have to do is to look at the reports of the British Railways Board. It was always the case that in economic boom railway patronage went up and in times of decline it went down.
Q193 Mr. Eric Martlew (Carlisle): Why are we carrying more passengers now than we were in the 1960s, because that was a boom time?
Mr Doherty: Because more people are travelling now. More people have more money, it is more accessible; people are richer these days. I am richer than my parents were and they were richer than my grandparents were. Everyone has shared in the economic boom and part of that is there has been a boom in travel. I accept that the railway has shared in it.
Q194 Mr. Eric Martlew (Carlisle): Can I just come back to the franchise and the way that it affects your members. It must be very disruptive to find out that one day you work for one company and the next day you work for another company and maybe, if they have the franchise back, you work for somebody else.
Mr Leach: Absolutely.
Q195 Mr. Eric Martlew (Carlisle): I was commenting earlier about the Virgin franchise, which I think treated staff reasonably well. I know quite a lot of them because I travel regularly. Do you think that the employment record of the companies putting in a franchise should be taken into account when that franchise is given?
Mr Doherty: Is that in terms of the way they are treating their employees, is that what you are talking about?
Q196 Mr. Eric Martlew (Carlisle): Yes.
Mr Doherty: You mention Virgin. Our experience is that some franchises, in fact some groups, treat their employees better than others. You mentioned earlier on that trade unions have got a good deal for their members and that is true for some. I represent for example railway engineers. Railway engineers under privatisation have done exceptionally well because their skills are at a premium. I also represent booking office staff, who have had a raw deal out of privatisation, on the whole, and you could go round all of the different aspects of jobs within the railway, some of it good deals, some of it bad deals. Some of the employers have been good employers, as such, putting money into training, et cetera; some have been paring back. It usually depends on how their profits are doing. That is purely from an arm’s length perspective. I have not done any examination or analysis into that. Our experience has been mixed; there have been winners and there have been losers within privatisation. I will tell you who the losers have been without any doubt - the fare-paying passengers.
Q197 Mr. Eric Martlew (Carlisle): The question I asked, Mr Doherty, is do you think whether a company is a good employer or not should be taken into consideration when the franchise is given?
Mr Doherty: Yes.
Mr. Eric Martlew (Carlisle): Thank you.
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|