TUESDAY 1 MAY 2001

SIR ALASTAIR MORTON AND MR MIKE GRANT

  140. In effect what you are saying to us is all that has gone before is no use to you at the present time because of the major changes that you have set out?
  (Sir Alastair Morton) I think no use is altogether too far. We are able to proceed with some things and not able to proceed with others pending the resolution of the queries we have been discussing about long-term funding.

  141. What is your view of the concordat between HMG and Railtrack?
  (Sir Alastair Morton) Which document is that?
  (Mr Grant) The Statement of Principles.
  (Sir Alastair Morton) The 2 April document? I think it makes the best of a pretty bad job. I would like to congratulate my colleague, Mr Grant, on the leading role he played in putting it together out of some very disparate and disconnected pieces.

  142. We are delighted to pay tribute to Mr Grant and that is all very pleasant, but what is your view of a Public Interest Director for Railtrack?
  (Sir Alastair Morton) I have been called many things in my life but I have never denied the word "capitalist", although I do believe that capital can work in the public interest—same word.

  143. Self-knowledge is a wonderful thing, Sir Alastair.
  (Sir Alastair Morton) The Public Interest Director has a duty to keep certain matters before the board but his fiduciary duty is to the shareholders known as the company and to the stakeholders, such as users, of the company's product, railways. The Public Interest Director has no authority, no position, no ability, to force upon Railtrack conduct that his colleagues on the board are unwilling to adopt, but he has the duty and the ability to keep the subject in front of them.

  144. So what influence does the Treasury have over the franchise replacement programme?
  (Sir Alastair Morton) They are concerned that we should get value for money. They are concerned, as they always are throughout history, to defer away from the current year and the next year whatever it is going to cost; it is an automatic reaction on their part. They are aware that this is a very costly area of Government policy, like health and schools perhaps, and, therefore, they are alert to any sign that there may be, as it were, the development of uncontrolled or uncontrollable costs.

  145. So they have already approached you about the difficulties that have arisen because of Railtrack backing out?
  (Sir Alastair Morton) I do not think they got a chance to approach us before we approached them.

  146. Ah, mutual speed, how endearing. Can I ask you about the whole question of the franchises. What has apparently happened is that some of the franchises that should have been granted were opened, there was discussion, and then for one reason or another nothing further has happened. In the first batch Chiltern seems to have been preferred bidder last May. There is East Coast, South Central. In the second batch we have got TransPennine, we have got the whole business of Central, which has already been mentioned. What is happening, Mr Grant? Is it that you are going ahead with what you perceived to be the simpler franchises without tackling the ones like the East Coast Main Line? Is it that you decided that you could grant them for 20 years irrespective of what the SRA is going to want in the long-term, or is it simply that you are following the dictat that we have heard this afternoon from Sir Alastair that whatever happens you will have to accept that certain changes are a given and, therefore, must be accepted in whatever you put forward as part of the franchise?
  (Mr Grant) I can certainly go through the list, Chairman. On the Chiltern front, it was felt that—

  147. Can we start first with the principle. Are you going for those franchises which are straight forward and, if that is not the case, why is it that something like the East Coast Main Line has been started, stopped and started again?
  (Mr Grant) We are not just going for the ones that are the simplest.

  148. You have an overall plan so you know exactly where you want these franchises to fit otherwise you would not be talking to people about 20 year franchises.
  (Mr Grant) We took the view that there were a certain number of franchises when we came into existence that needed to be done more immediately than others and those were to deal with overcrowding—

  149. Is that batch one that you are talking about?
  (Mr Grant) Overcrowding was certainly a South Central issue and East Coast Main Line was in batch one, so we had an InterCity TOC and we had a South London TOC where overcrowding was a major problem. On Chiltern it was an easy one to cut our teeth on and there were things that were needed on Chiltern as well. That was batch one. On batch two we took South West Trains, which was an overcrowding issue,—

  150. You will understand, Mr Grant, that for most people if Stagecoach is the answer it must have been a very strange question.
  (Mr Grant) The Stagecoach bid on the criteria put forward was the best bid and was value for money. On the second part of batch two, Central we suspended on 7 February for the reasons we stated.

  151. And on the East Coast?
  (Mr Grant) On the East Coast, we have obviously gone through some of the history, that we did lay our preferred bidder to Ministers on 8 December, the position of Railtrack changed in that intervening period and we are now reviewing the proposals put forward to us again.

  152. So, in other words you have not reached any conclusions on that at all simply because of the changes that took place in the interim?
  (Mr Grant) That is one of the major reasons, yes.

  153. On some of the others, Wales and Borders and Wessex—Are there problems with Wessex?
  (Mr Grant) On the Wessex franchise we have yet to go to shortlisted parties but we will be doing that in the near future.

  154. It is difficult for the Committee to work out exactly how you are deciding, firstly, your priorities and, secondly, what you are asking of your preferred bidders.
  (Sir Alastair Morton) Can I attempt a philosophical rather than a detailed answer?

  155. Of course, Sir Alastair, I am always delighted to hear your philosophies.
  (Sir Alastair Morton) We set out in a process back in 1999 to consult very widely with users, with community leaders, be they local authorities, regional planning agencies or whatever, served by franchises with owners and operators of franchises, a long list of stakeholders in other words, as to what they foresaw themselves wanting by way of rail services. We got answers and we got no answers. In other words, it was not an overwhelming response but there were a lot of responses. Rail passenger users were a very important part of that consultation. At the end of it we devised an initial list of which ones we would start with, partly for practical reasons—we only have the resources to do so many of these at once—and we embarked on it. We have taken on more and more and there are a number in progress now. What worries people is that they seem to spend a long time emerging. If you take Chiltern—this is getting away from philosophy now—we at no stage said "we, sitting around a table in our offices, know exactly what every franchise should look like down to the last detail, including the commuter car parks", we said "We want to hear what people think they want. We want to hear what bidders believe they can make money from".

  156. This degree of sensitivity is welcomed by everybody but you will understand that when people see a franchise is awarded to Stagecoach they may find a little gap between the philosophy and the reality.
  (Sir Alastair Morton) The competitor that finished closest to Stagecoach, and we said so at the time, was the First Group in partnership with Dutch State Railways. Tempting as it was to introduce Dutch State Railways into the British system—

  157. Yes, it would be nice to have somebody running railways who knows about it.
  (Sir Alastair Morton)—we nevertheless had to compare the bids. We also had to ensure ourselves, as we did, that we were in a position to enforce the performance of those bids, which we are; we were not under the old franchises. That is one of the strongest reasons for having new franchises. Stagecoach have made us promises, which they have started to deliver already with the new rolling stock, that they are going to deliver on or they are going to suffer quite severely.

  158. On this question of franchises, there are other areas of the country other than the south, and I am thinking now of the northern region and the Yorkshire region that you touched on in the question of the TransPennine Express. When can we expect to have some decision on the franchise applying to the northern region?
  (Sir Alastair Morton) The decision is hardest to forecast. It will be launched, because it has not been launched yet, after we have a general accord, a meeting of the minds, with the Passenger Transport Executives and authorities through whose area it goes, and those are Mersey, Greater Manchester, West Yorkshire, South Yorkshire and Tyne & Wear. They all have to sign off on that franchise. We have said we want to understand each other and we are not going to have a 1997 situation. My saying that, as you probably know, provoked a certain amount of uproar because I said it in Birmingham. I was quite pleased with the uproar, frankly, because it proved that I had touched a nerve worth touching. Since then the reactions have been very positive, everybody is saying to everybody else, including us, "we are all going to work together, aren't we?" Mike had a meeting with most of these people just the other night and we intend to press on with this. When we have a meeting of the minds about who is going to do what within the franchises, then we will go ahead and launch invitations for the northern franchise—your question—and the process will take the same course as other franchises are currently taking.

  159. I understand that all the authorities that you have referred to, passenger franchises, have all published their local transport plans which would obviously involve some of the strategy that you have been referring to. My concern is that we do have overcrowding in our area and when we approach the operators they are saying "before we can invest in new stock or before we enter into new contracts, we want to know where we stand with the franchises", so it is a vicious circle. The question is when can we expect to get out of that vicious circle? I know you are saying that these authorities have got to be involved but when are we going to put some rockets behind them?
  (Sir Alastair Morton) The rocket has been put, that was my speech in Birmingham, and I got reactions in a most satisfactory fashion. Bricks they may have been, but the fact they all stirred themselves to focus on throwing the bricks was a good thing.