My Lords, I remind noble Lords that, apart from the noble Lord, Lord Young of Cookham, and the Minister, the speaking time limit for the following debate is four minutes. When the screen flashes, your time is up.
My Lords, for a debate on open access, many noble Lords have applied for the vacant slots. I am delighted that the Minister is in his place to pronounce on the quality of the bids.
Open access did not exist under British Rail, but privatisation, in which I played a modest role, allowed open access train operators to run passenger services. They identify available capacity and apply to the ORR, which then consults on the proposals and analyses their feasibility and benefits. New services have to pass a rigorous abstraction test to ensure that they will add passengers to the railways and grow total revenue, rather than removing passengers and fares from existing services. Open access operators then pay access charges to reflect the additional cost that their use of the railways incurs. They get no direct subsidy and carry the commercial risk of running the railway.
Applications are considered in accordance with statutory duties, including protecting the interests of users of railway services; promoting the use of the network for passengers and freight; and promoting competition and improvements in railway service performance. The final decision rests with the ORR, and neither the DfT nor Network Rail, nor the franchised operators, has a veto.
In 2000, the first open access operator entered the market: Hull Trains. Since then, there have been real benefits from open access—especially to underserved areas that provide the only direct link to London—for cities such as Sunderland, Hartlepool, Halifax, Rochdale and Pontefract, helping regeneration in those areas. With a cancellation rate of less than 1%, open access rail operators are the most reliable. They have focused on affordable fares, with Lumo’s average £40 fare between London and Newcastle as opposed to the £195 walk-up fare. These lower fares from open access operators have in turn attracted a broader demographic to rail travel.
My Lords, I thank the noble Lord, Lord Young, for tabling this debate. Much of his involvement took place in the mid-1990s. At that time, he was my ultimate boss, and I became the ultimate student of this operation, in which, on the basis of the somewhat bizarre writing of an excellent letter, we could have been involved as well.
My simple answer to the Question is that open access should be phased out as quickly as reasonably practical. It is a bit of a shock to be informed that I am agreeing with the RMT on that matter. Rail privatisation was a product of the political doctrine of the day: that private ownership and competition would solve all our problems. My personal view is that privatisation as a generality has failed. Rail privatisation has failed, at best, bizarrely, and, at worst, disastrously. The bizarre part of it comes from the track being given to Railtrack, which is a sort of private sector company which went broke and then turned into Network Rail, which is a pretend independent company that was nationalised not by the Government of the day but by the ONS, which said that so much of it was tied-up with the Government that it was really a nationalised company. It dumped £34 billion on the national debt, which virtually nobody seemed to notice.
There was little pure competition in the railway throughout this process; open access was the closest, and was therefore pursued. There was some slack in the system and some open access operations emerged. It is my view that they undoubtedly cost the taxpayer money and that there was not much benefit. In future, they will inhibit total system optimisation.
Any operator of open access will need long-term stability of their rights, whereas the great thing about Great British Railways is that it will eliminate all the conflict in optimising the railway. There will be a single guiding mind. The only disputes in future are likely to involve open access operators, since they will be the sole source of external commercial pressure. This will absorb a disproportionate amount of management effort. The only case for open access is doctrine, and it is a doctrine I do not share.
My Lords, I would like to ask the Minister a few questions as my contribution. First, will he confirm that the regulator has objectives, but, in fact, all holders of the post have concentrated on the one about promoting competition to the exclusion of other duties?
The regulator costs the taxpayer £30 million a year and has 350 staff—in fact, it gives rise to much greater costs, as illustrated in the Williams review of the costs of running a railway. Because its decisions have the force of law, they compromise constructing a properly integrated railway timetable with an emphasis on connections, reliability and economic use of railway infrastructure. Is it true that the regulator allocates open access paths regardless of their impact on other trains on the network? Can the Minister confirm that this has delayed improvements to the timetable on the east coast main line for three years, costing the taxpayer a very large sum of money—hundreds of millions of pounds?
Are the regulator’s assumptions about revenue forgone and the generation of additional revenue sound? Have these been tested independently and properly verified? I believe that this is not the case and that, in fact, they are underpaying for access and exaggerating the revenue that they are generating for the system. I am not seeking to deny that there should be access from destinations not previously served by franchise operators, or to strike anybody off the railway map. I am particularly concerned that freight should have proper, guaranteed access to the network.
Railway regulation has not been a good thing for the railways. Indeed, regulation generally, as carried out by previous Conservative Governments, has been shown to be defective in almost all cases and for all utilities. We have to look only at the feeble responses of Ofcom and the power utilities to underline that case.
My Lords, I feel a bit nervous speaking in this debate, alongside a former Secretary of State who was a major contributor to the railway we have; the noble Lord, Lord Tunnicliffe, who ran London Regional Transport; and the noble Lord, Lord Bradshaw, who is extremely wise and was one of the great modernising managers of the old British Rail. What am I going to say?
I am going to say that I do not want to see a return to a monopoly British Rail, but believe it is essential that the railways have a guiding mind and that decisions on access have to be taken in a single place if railway capacity is to be used most efficiently. At the same time, I think there should be a mechanism, as was in the Labour manifesto, whereby companies can make open access proposals that will be treated on a fair basis by the guiding mind.
It seems to me that the present system does not really work that well as an alternative to the monopoly. Open access operators pay marginal costs, not full costs, for use of the network. There is a risk that, if they are not adding to total passenger use on the route, public subsidy increases if the franchise operators are losing business as a result. That is a real problem. I do not think that the noble Lord, Lord Young, dismisses it. It is a real issue: it is not just the Treasury; it is a public issue as well. I would like to see something like what is proposed in the White Paper, possibly with strengthened rights of appeal. But there is a role for open access.
The key point about the guiding mind is that investment decisions have to be taken on the basis of what maximises use of the railway. There are many cases where open access proposals would make sense only if there is additional investment to provide additional capacity. I would like to see that. I agree that many provincial cities have benefited from a direct link to London, and that should not be taken away. I want to see an end to the Eurostar monopoly with more competition on services to the continent. I strongly support freight opportunities. There was a very good piece in the Financial Times yesterday about how parcel services are going to be operated from passenger stations. All that is to the good. We need a guiding mind, which we are getting through setting up Great British Railways, but we need the possibility of fair open access as well.
My Lords, I am glad to have this opportunity, which my noble friend Lord Young of Cookham has afforded us, to further consider the role of open access operators. Many of us were participants in the debates on the Passenger Railway Services (Public Ownership) Bill, where we had at least two opportunities to talk about this—from my point of view, always in the context of the role that open access operators have played and can continue to play in enabling the passenger railway system to have competition as an element in its activity. As I said during the course of that Bill’s passage, privatisation has not always worked. In particular, it has not worked where there has been an inability to secure competition. The key to privatisation is the link to competition. Where competition can be achieved, it is the most effective potential outcome.
In this particular instance, while the Government are, effectively, taking back into complete public ownership those areas that they regard as not susceptible to competition, it would be a serious mistake to remove opportunities for competition, because they drive innovation and better passenger outcomes. Indeed, in their briefing for the King’s Speech, the Government more or less said exactly that. The question is: are the Government now committed to that?
Only a few weeks after we completed the passage of that Bill, we found that the Secretary of State was sending a letter to the Office of Rail and Road—the Minister kindly sent it to us, to remind us—in effect saying that she had priorities. When I read the letter, I find that her priorities are not the same as what the Government said in their manifesto and King’s Speech briefing. They are particularly focused, and are intended to focus the Office of Rail and Road on what she regards as the difficulties associated with it not covering the cost of fixed-track access, which my noble friend talked about. She said that her expectation was that
My Lords, I am very grateful to the noble Lord, Lord Young, for securing this debate. I have to agree with him, the noble Lord, Lord Lansley, and some of my colleagues that we are in grave danger of losing sight of what we are trying to achieve: a better deal for the passengers and freight customers.
There was a very good article in the Daily Telegraph yesterday, quoting people from freight—I shall mention that in a minute. It goes on to say that Great British Railways will do a good job in co-ordinating but more than one body is involved. There is the infrastructure manager, which will still be owned by the Government. There are the government-owned railway undertakings and open access railway undertakings, and there is freight. That is not a monopoly; it is four different groups of people who need some independent body, which at the moment is the Office of Rail Regulation, to determine who gets priority on the track.
It is very easy to say that there is no capacity on the track. I did not have much chance this morning to read the 30 pages that the Minister sent us yesterday, but access is very difficult in some places, as noble Lords have said. To cite the Daily Telegraph, Tim Shoveller, the chief executive of Freightliner, said that,
“giving a state-run passenger railway the responsibility to allocate routes would undermine its ability to compete with HGVs”.
He says that Great British Railways will
“inevitably favour route applications for its own passenger services”.
That is just a normal way of doing business—and this is why it is so important to have an independent regulator with statutory duties to be able to make decisions on behalf of the whole sector.
My noble friend the Minister’s latest suggestion was that the regulator would be able to recommend to Great British Railways. Recommending to government, as we all know from experience, sometimes works but not always. It is about sustaining investment in the private sector, which is still there in the rolling stock companies and in freight—all freight is in the private sector—and still there in the open access. The last thing about that is that government in this format does not have sole discretion as to which stations should be served and which trains should run where. This is a matter on which many people have different views, and I am sure that many noble Lords will keep on talking about it today.
It is a great pleasure to follow the noble Lord. I reassure the noble Lord, Lord Liddle, that he is not alone in feeling a little nervous in speaking today. Like everyone else, I congratulate my noble friend Lord Young on securing this debate. It is an honour to briefly take part in what feels a bit like a relaunch of the band that we had for the passenger railway services Bill.
Like others, I express my gratitude to the Minister for circulating the notes yesterday. Today I would like to talk about the future confidence in open access. As recently as last month, the Minister in the other place said that open access operators “can also abstract revenue”. It is not the first time that such words have been mentioned. There are also examples of new bids being opposed by DfT. When you combine that with the noise and broader sentiment of the wider public ownership reforms, a narrative—at least to me—begins to build that one day, despite all the assurances, the beady eye of government will fall on them as the last bulwarks of capitalism, which have escaped public ownership up to now.
As has been touched on, investment from a private sector entity requires certainty if it wishes to invest and even expand. That made me think of one related example that is in the news: Heathrow. I am obviously not involved in the discussions on expansion, but surely a key part of the success of the current, and potentially larger, airport will require long-term assurances of open access, not only as part of the feasibility of the proposed expansion but for the success of what would become a larger airport, and having the connectivity it needs. The same issue of certainty applies to all providers, to secure investment and, ultimately, a better service.
What assurances can the Minister give to existing services that open access is here to stay? Current open access providers may well be safe for now, but what happens when their agreements come up for renewal? The Government state that economic growth is their priority, so when there is a discussion on the so-called abstraction of a provider, do they take into consideration the wider financial benefits that these services provide to areas as well as the negative impact that the withdrawal of the service would have on the cost to taxpayers in providing an alternative?
My Lords, this is a debate when we can again lament the passing of the great Lord Prescott. I came down this morning on a Prescott express. One of the greatest, most transformative achievements of the last Labour Government was Hull Trains and the way it transformed the economy in the area that I represented. I do not think that, I know it—I live there.
Since the 1850s, there has been no train from Worksop to London, other than the royal train occasionally stopping there—none, for any passenger. There is a proposal for it to be brought in by Hull Trains. A letter of 4 February says, in reference to the “Hull Trains 27th Supplemental Agreement”:
“DfT analysis suggests that the proposed Hull Trains London-Sheffield services”—
the one that would connect Worksop directly to London for the first time in nearly 200 years—
“does not meet the threshold … We estimate abstraction of approximately £1.77m per annum … with EMR most negatively impacted”.
I am mathematical economist and I should like the Minister to give me the entire economic analysis and the presumptions it is based on. That says that people from Worksop go via Sheffield to London. I know the train drivers; my office was next to the train station in Worksop. I had to decide how to get to London by train. The ASLEF national negotiators—quite a number of them because of freight—were based in Worksop and had to make weekly, often daily, decisions about how to get to London by train. Huge numbers of staff from the railway industry live in Worksop and they were in the same situation. None ever went via Sheffield. It is simply not true. I stood at the station as an MP regularly, often constantly surveying the commuters. I know who goes into Sheffield and who goes the other way. I know where they park. I know most of the people by name. They do not go that way, so that figure is based on false assumptions and false economics.
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Importantly, we now have a mature, evidence-based, 25 year-old case study on the east coast main line, where three open access operators compete with the Government-run intercity operator, LNER. Passengers travelling to the north and Scotland from King’s Cross enjoy robust fare competition and a choice of operators. Importantly—the Treasury should take note of this—LNER’s subsidy continues to fall, despite it facing robust on-track competition.
There have been wider benefits, promoting the Government’s growth agenda. FirstGroup has invested £0.5 billion in new rolling stock, securing jobs in the north-east, with a further £0.5 billion awaiting a decision. Open access operators account for around 19% of all new train orders placed in the UK in the past five years, although they provide only 0.9% of passenger services.
Last year’s Office of Rail and Road report said:
“An economic appraisal of the impact of open access operators in 2022 concluded that open access operators had been beneficial to the UK economy, and that this was particularly apparent for flows not already directly served by a franchised operator. Our 2023 report noted the particularly strong post-pandemic recovery for open access operators”.
All of the leading European countries with state-run operators, including Germany, France and Spain, have increasingly used open access as a vital tool in complementing their national service operators.
I turn now to the Government’s proposals, which dramatically change the terms of trade and put at risk the benefits that I have outlined. There should have been no cause for alarm because, in September, the previous Secretary of State said that,
“where there is a case that open access operators can add value and capacity to the network”,
as assessed by the Office of Rail and Road,
“they will be able to”.—[Official Report, Commons, 3/9/24; col. 18WS.]
However, that is not what is proposed.
The consultation document of 18 February says:
“GBR will become the decision maker for key decisions on access terms that are currently led by the ORR: the duration and form of access rights, developing and setting the access charges framework and the design of performance incentive regimes contained in track access regimes”.
Then, we have the historic understatement:
“For GBR to have the space and authority to take access decisions on the best use of its network, the ORR’s current role must change”.
GBR will, in due course, absorb Network Rail and all the franchised train operators. It will have a massive conflict of interest in deciding whether an open access operator should provide a new service. We know this because, in the last 10 years, Network Rail opposed all 10 applications to the ORR for open access, which then approved five of them, with the DfT either opposing or not responding. The letter which the Minister circulated yesterday—to everyone except me—opposed nearly all the applications. These are the organisations which will decide in the future.
The ORR—the final arbiter, at the moment—will have its powers curtailed. Instead of being the referee, the ORR can overturn a decision only if GBR has not followed its own processes or has acted irrationally. But those processes could include a large increase in track access charges, making a proposition unviable. It could change the abstraction rule, again making current services uneconomic. The ORR would be powerless to intervene. Its role has been crucial to the success of open access, and it will be marginalised. This would be self-harm for the railway, the regions and passengers.
Behind all this is the Treasury—the controlling mind of the new regime, if ever there was one. It is the Treasury which insisted on the letter to the ORR in January, with its primary objective of minimising subsidy, setting aside the wider obligations of the ORR to promote competition and better use of the network. The consultation document does not refer to competition law or the CMA, which will remain in place. In the absence of a strong independent regulator, there is a risk that we could see more competition law challenges, which will be inherently unpredictable for operators and GBR.
Investors need certainty and confidence about the terms with which they engage with GBR. If we want to encourage investors in schemes such as Heathrow southern rail, which will be needed if there is a new runway, there will need to be a strong and independent regulatory regime to protect investors’ rights. These new reforms remove existing certainty and could shrink freight, the private rail sector and wider economic growth.
There is a devolution angle to all this. If the mayoral strategic authorities are to be empowered to take control over more railway operations, as Andy Burnham would like, they will need confidence about the terms on which they can access rail infrastructure that they do not own, and a strong independent regulator will be needed, overseeing the prices proposed by GBR that devolved authorities will be charged, and their ability to run trains extending across their own and GBR’s networks.
I noticed with alarm the press release of the RMT—which the Government were so eager to placate last July—headed, Why Open Access Rail is Incompatible with the Government’s Rail Policy. That is, by the way, the very same union that, in 2020, demanded
“urgent Government intervention to support the open-access sector and to protect all jobs at Grand Central and Hull Trains”.
The Minister needs to make it clear he does not share the view of the RMT.
To sum up, do the Government accept the need for a genuinely independent regulator if we are to continue to reap the benefits from open access? Can he confirm that he is genuinely open to persuasion on the proposals in the consultation paper?
“you give due consideration”—
to these priorities—
“whilst respecting your statutory duties. I wish to see the impacts on the taxpayer and on overall performance for passengers—such as potential congestion on the network—given primacy”.
This is clearly in order to say, “Don’t consider all your statutory duties. Don’t consider the statutory duty on competition”.
During the passage of the Bill, the Minister very kindly responded, saying that it was not the Government’s intention to remove the statutory duty for the promotion of competition. There is a real risk that the Secretary of State has put herself in a position where she has asked the Office of Rail and Road not to undertake its statutory function in balancing its statutory duties in considering open access applications.
Happily, the Office of Rail and Road issued its guidance at the end of January and made it very clear that it will continue to balance its statutory duties, and rightly so. I cannot see that it has any option to do otherwise. In my view, the Secretary of State’s letter was wholly inappropriate and should not have been issued. If the Government want to change the decisions being made in the interim by the ORR, they should have issued new guidance. They had the power to do so, but they chose not to.
When we see the Great British Railways Bill and changes to the Railways Act, I hope we will continue to see competition, and the benefit that open access operators can give to the network in promoting competition.
The Minister needs to think again and retain the role of the Office of Rail Regulation as a statutory consultee in something that to most of us is a competition issue. It needs to be fair and seen to be fair—and I hope that my colleagues in the Department for Transport will look at this and not insist that they can trample over the Office of Rail Regulation and get what they want, because they would rather have an extra train to Edinburgh when, in fact, you could have cancelled one of LNER’s trains and allowed Lumo to go in. Who is to say which is better? It is for the regulator to decide. I look forward to my noble friend’s comments.
I am also grateful, as ever, to the Minister for recently forwarding a copy of the current rail consultation document. I do not wish to rehash the debates that we had on the rail Bill, and I am sure the Minister is unbelievably delighted that when the GBR Bill comes forward we will have plenty of the opportunities to talk about wider reform. Can the Minister give any indication of when that Bill will be introduced and when the Government see it taking effect?
Is not the point of the whole reform agenda to fix problems with our rail system? Today the Government announced that they are cutting NHS England, which has around 13,000 staff, and they are doing so for efficiency reasons. Later this year—soon, we hope—we will see GBR, but when you combine Network Rail and the TOC staff, you are potentially seeing over 80,000 staff. What assurances can the Minister give that, when we see this reform, there will be speedy change and costs will be kept down, when we have such a vast quango?
Finally, as has been touched on, the consultation refers to the importance of freight and says that there would be a growth target, which the previous Government also talked about. Does that mean that that target would be included in the Bill when we see it?
The truth is that the Government are meant to be about levelling up. When I brought businesses into my area, I argued the case for a direct train service via Retford into London—if I could have done that via Worksop, it would have been even better—and it succeeded, with major companies coming in. That was the argument—I was there; I was making the argument with those companies. Laing O’Rourke is on the Sheffield side of Worksop, by the way. There is huge new investment on that industrial estate, including it. Cerealto, which came from Spain, is there. All they wanted was an improved service down the east coast main line. No one considered the East Midlands Railway.
I have nothing against Sheffield or that route. Point to point, it is dramatically longer, which might be the reason why people went the other way. The other route is far quicker and far shorter. The Hull Trains model has brought huge economic benefits. It has shifted the housing market. The Government want loads more houses with loads of land. That area is happy to have housing. It wants nuclear fusion there, which will involve massive investment—billions—and 3,000 new jobs. Again, connecting Worksop to London is an economic objective even more than a social one. It is convenient for getting down to the football, the theatre and all that kind of thing that people might want to do, but it is about the economic basis of it. I know every single major company that came in—I was there—and I know that this was part of the argument. These figures are wrong. There needs to be that flexibility.