Uncorrected Evidence 219

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Oral Evidence

Taken before the Transport Committee

on Wednesday 19 March 2008

Members present

Mrs Gwyneth Dunwoody, in the Chair

Mr David Clelland

Clive Efford

Mrs Louise Ellman

Mr Philip Hollobone

Mr John Leech

Mr Eric Martlew

Mr Lee Scott

Graham Stringer

Mr David Wilshire

________________

Memoranda submitted by South West Regional Assembly and South West Regional Development Agency, West Midland Regional Rail Forum, Transport for London and The Northern Way

Examination of Witnesses

Witnesses: Mr Julian Johnson, Chair of the South West Regional Assembly's Regional Transport Board, South West Regional Assembly and South West Regional Development Agency, Mr Chris Haynes, Head of Transportation Strategy, Birmingham City Council, West Midland Regional Rail Forum, Mr Geoff Hobbs, Head of Strategy, London Rail, Transport for London, and Professor David Begg, Chairman of the Transport Compact, Northern Way, gave evidence.

Chairman: Good afternoon to you, gentlemen. We do have a little bit of housekeeping which we have to organise first. Members having an interest to declare.

Mr Clelland: A member of UNITE.

Graham Stringer: A member of UNITE.

Clive Efford: A member of UNITE.

Chairman: ASLEF.

Mrs Ellman: A member of UNITE.

Q682 Chairman: Can I explain to you, gentlemen, this room does rather absorb sound, so I am going to ask you to speak up and belt it back, because the microphones in front of you record what you say but do not project your voices. If you agree with one another I would be inordinately grateful if you did not repeat what somebody has just said, but if you wish to catch my attention you may do so. Can I ask you first, for the purposes of the record, to identify yourselves, starting with my left?

Professor Begg: David Begg, Northern Way.

Mr Haynes: Chris Haynes, Chair of the West Midlands Regional Rail Forum.

Mr Johnson: Julian Johnson, Chairman of the South West Regional Transport Board.

Mr Hobbs: Geoff Hobbs, Transport for London.

Q683 Chairman: Did any of you have something you wanted to say briefly before we begin?

Mr Johnson: Could I just say, Chairman, I am not an Officer of the Assembly, I am a Member.

Q684 Chairman: We are very grateful to you, and if you feel that we are asking you something which is outwith your brief I am sure you will let us know. Tell me, all of you, is the White Paper too centred on London and the South East? Mr Hobbs? Perhaps you are not totally unbiased.

Mr Hobbs: I like to think that I base what I am going to say on evidence. I do not think it is too centred on London and the South East, for the following reasons. We anticipate considerably growth in the area so, for example, in London a growth of population over the next 20 years of a million people. A similar number of jobs. The jobs and population are not in the same place. There will be an increase in travel demand and it is the sort of travel which falls disproportionately on the railways because it is that sort of length of journey. London is already very dependent upon its railways. We anticipate it will become more so, therefore the investment which is going in, as signalled by this White Paper, offers very good value for money.

Q685 Chairman: To what extent would a more proactive policy to improve rail capacity in cities other than London produce a significant modal shift?

Mr Haynes: We are pleased that in the White Paper they have addressed cities separately from London, i.e. they have named various cities and they have said others were looked at as well, the core cities, because I am also on the core cities transport group as well. What we do not think they have done quite adequately is to address the whole issue of growth and the expansion, and the control. If you look at the forecasting issue, then the forecasting has largely been done from the rail demand forecasting handbook and they have not perhaps taken into account the full regeneration of the role. Certainly in Birmingham we have now got around 40% of trips coming into the city centre, up 125,000, by rail and that has grown by 8 percentage points in the last ten years and we expect that to continue.

Q686 Chairman: Mr Johnson, can I just ask you about the South West? What are your concerns particularly about something like Crossrail?

Mr Johnson: Could I just come back to an earlier point about how we feel the strategy fits in with the South West strategy? That is that we have a high rate of growth forecast for the South West. We have just completed our spatial strategy and that followed on the economic strategy a year or so ago, the sort of level of increase of something over 550,000 more houses in the region over the next 20 years, the economic growth that we are forecasting, and we feel that the rail strategy is not aligned to the levels of growth that we are anticipating. That is our prime concern, Chairman.

Q687 Chairman: Why does the South West Regional Funding Allocation advice to the Government not cover all the relevant rail schemes?

Mr Johnson: The Regional Fund, the allocation does not - in fact they are purely the road schemes, Chairman, not the rail schemes.

Q688 Chairman: But to what extent do you believe your regional rail prospectus has influenced the White Paper?

Mr Johnson: Well, I hoped that it would have certainly identified the priorities that we have in the South West, to remove some of the congestion, to get a better infrastructure in the region, to increase the capacity in the region looking to the forward levels of population growth and the economic growth we have in the region.

Q689 Mrs Ellman: Professor Begg, in your written evidence from the Northern Way you talk about the benefits of high speed journeys to the North and you have a figure of Ł10 billion benefit and you also talk about an added benefit to London as well. Could you say any more about how you get to these figures and how substantiated they are?

Professor Begg: We have tried to sing to the Government's new mood music on transport assessment. In the past we did not look at benefits such as agglomeration benefits, which is a kind of new buzz word now.

Q690 Graham Stringer: Can you define it?

Professor Begg: Yes. Agglomeration benefits occur when you get businesses in close proximity so that they can share some of their resources and customers can target these businesses, share skilled labour, and you usually look at agglomeration benefits within a city. To give you one example, one of the reasons why Canary Wharf is so near to the City of London is because they can share a number of these benefits. What we have not done really seriously is look at what happens when we bring cities closer together and what really intrigues us in the Northern Way is what happens if we can improve transport links across the Pennines. To answer your question on high speed, we think it is right that we look at the case for high speed rail North to South, but we actually believe that there is a compelling case for high speed rail links across the Pennines. Indeed, we are trying to understand what is driving some of the rail patronage numbers. The growth in rail patronage in the north of England is twice as high as the national average. We would like to know if that is going to continue. If it does, what implications does it have for capacity? So what drives us on high speed rail is that firstly it is a pragmatic case about running out of capacity on existing lines and how quickly will we do that. We actually think within 15 to 20 years we are actually there on the East Coast, West Coast, Midland Main Line and TransPennine, but then we want to find out what happens if we shrink journey times between these cities too, and that is where the glomeration benefit argument comes in.

Q691 Mrs Ellman: How important would you say rail is to improving productivity and growth in the northern regions?

Professor Begg: We think it is significant.

Chairman: I just want to interrupt you for a moment because I think Mr Efford wanted to pick up one of the points.

Q692 Clive Efford: Just on high speed rail, exactly what does high speed rail deliver in terms of benefits to the passenger? Is it significant to knock 10 or 20 minutes off the journey between London and Manchester, or are we talking more about reliability and a dedicated passenger line rather than high speed?

Professor Begg: We are talking about it all now. We are actually starting to gather some hard evidence on what has happened since the improvement in journey time took place on the West Coast and some of the benefits that are starting to accrue to economies like Manchester. We can quantify quite easily what the benefits are to passengers and we can put a monetary value on 20 minutes, 30 minutes off a rail journey time. We can quantify the impact on the environment if there is less air traffic or if there is less traffic on the road. Where we are still struggling - and I think it is an issue with the Department too - is to try and quantify that in terms of economic benefit. What benefit does it start to bring for the economy? How important is transport against improving skills, for example, improving education? What weight do we put on transport against some of these other -

Chairman: I do not think we can do all of this, Professor Begg. We need to concentrate on those things. I am going to bring you back to Mrs Ellman's question. Any evidence you have got on that we would like to see at any point in the future, in addition to what you have given us.

Q693 Mrs Ellman: Do you feel the Government is listening to any of the plans you put forward?

Professor Begg: Yes, we do. The question which the Chairman posed at the start on the White Paper, is it biased in favour of London - our view on the White Paper is that at long last we are preparing for expansion. We have a debate about the growth in rail patronage and whether we are preparing for enough expansion. We would have been disappointed that what we think is the most important transport scheme in the north of England that covers all modes of transport was not in the White Paper, it was not in HLOS and that was investment to deal with the congestion in the Manchester rail hub. It is an interesting question why it was not in it, but subsequent to the White Paper there has been a positive announcement from the Secretary of State. Ł60million is in Network Rail's strategic business plan. We have got more rolling stock than we were anticipating subsequent to the White Paper on both Northern Rail and TransPennine, so things have got better since the White Paper in the North.

Q694 Mrs Ellman: Are there any other views on improvement in rolling stock and whether it is going to make a real difference?

Mr Haynes: We have studied the rolling stock plan in some detail and generally 1300 carriages is more or less correct in terms of what is promised. What you have to be a bit careful with is the replacement, for instance in the West Midlands where the class 172s are replacing the class 150s. Sorry about the jargon. There are actually less seats on the new 172s than on the 150s and in fact the new electrical multiple units that are being included as additional stock in London Midland are actually ones transferred from Northern Rail and the class 323s. We are hopeful that the number of seats will be sufficient, but with the growth we are currently seeing there are two issues. One is procurement and how long it is going to take. In the rolling stock it talks about working together, and if you read the rolling stock strategy, which I know is not quite your White Paper but it is important to it, you will see how long it could take to deliver that rolling stock with all the changes, trying to do it through the franchises but with combined elements, tenders in, et cetera. So that is a concern about when it might be delivered as well as capacity.

Q695 Mrs Ellman: When do you expect it to be delivered?

Mr Haynes: Well, the class 172s from the West Midland's point of view have been ordered as part of the new franchise commitment for London Midland. So we are fairly confident that those will be delivered from 2010. The cascading that occurs for the new units and the tendering - they talk about additional class 172s. Will those be tendered? Can they be added on to the existing contract? Will the replacements that allow the cascading for the 323s be done in time? Those are real questions about whether those will be done by 2010, or is it going to be 2013 or 2014?

Q696 Chairman: Mr Johnson, did you want to add to that for the South West?

Mr Johnson: Yes, Chairman. The standard of the rolling stock in the region has been a big issue for quite some time now and, as I read it, the South West does not actually gain any of the 1300 of the new units in the White Paper. There will be a cascading effect, so that we will get some of the other units into the region, particularly on our cross-region rural route where the standard rolling stock has been of a very poor standard and, as I say, this has been a big issue in the South West.

Q697 Mrs Ellman: Do you expect there to be less overcrowding when the new rolling stock arrives?

Mr Johnson: One would hope so with additional capacity. I have to say we feel that we have made many representations about the capacity and it has been a very slow response. We are hoping that the White Paper will go some way towards addressing that, but if we are to get people out of their cars and onto another mode of travel then we have got to increase the capacity and get rid of a lot of the congestion which we have in the South West at the moment.

Q698 Clive Efford: Can I just ask very briefly about the issue of high speed rail, Professor Begg? I really just want to follow up on this issue about high speed rail. You say in your evidence that you think it would contribute Ł10 billion to the economy over 60 years and you use as evidence the upgrading of the West Coast Line. Is that because we have improved the reliability or is it the speed we are achieving on that line which has made the difference?

Professor Begg: It is both really. People will argue for high speed rail for very different reasons. My starting point would be that it is better to introduce new high speed rail lines than try to add additional capacity to existing lines because of the upheaval that is associated with it. Anyone who has experienced upheaval on the West Coast Main Line through badly needed modernisation will understand that it is not easy to put additional capacity down on existing lines. So we think it is a capacity issue. One of the major concerns we have with the Government's White Paper is that while we like the fact that there is a costed five year plan there which is target and capacity improvements, we think it is important to look a bit further than five years because a lot of this planning needs to take place sooner rather than later.

Q699 Clive Efford: I think I follow the point, so thanks for that answer. The travelling public bears more of the cost of rail investment at the moment. Why should that be? That is open to anybody.

Mr Haynes: I think we recognise, as the White Paper sets out, that following the problems earlier in the late 1990s and early 2000s the Government had picked up a greater bill than it was expecting and therefore there was going to be a review of that balance. The RPI plus 1% (it changed from RPI minus 1% to RPI plus 1%) meant the public is getting a small extra share. However, that is only on the controlled fares. The fare for myself from Birmingham to London today was Ł127 second class and I have got colleagues, friends, who bought first class tickets who have had to stand all the way on the Pendalino from Wolverhampton to London, having paid the first class fare. So there is a capacity issue. In the new franchises that will let Arriva -

Q700 Chairman: They were sitting on the floor in the first class this morning. I have been to Birmingham and back today and they were actually sitting on the floor of the first class, whom I suspect were actually standard class passengers who could not even get into the carriage, so that is actually quite unhelpful.

Mr Haynes: It is indeed, and they are paying a very high fare for that privilege. The new franchises to London Midland and Arriva have actually been let at RPI plus 3%, which is different from the White Paper. So there is a question about whether what is in the White Paper and what can be delivered in terms of trying to meet the carbon footprint and everything else is actually achievable within both the overall funding and with the current rates of inflation and cost control. But to answer your question, in our evidence we said we doubt that that is going to be a fair representation while trying to meet the other wider Government targets on encouraging people to use public transport.

Q701 Clive Efford: So your answer to the next question, will it impact on passenger growth forecasts, will be yes, but could you give us some more detail?

Mr Haynes: It will. With petrol prices having gone up, as you have all seen lately, that may not have such an impact, but it will, we think, have an overall impact when people have a choice, when the costs appear to be two or three times what an air fare costs, because most people are now used to getting low-cost airlines as well.

Q702 Clive Efford: So do you think it is realistic to expect that the increase in the number of travellers alone can balance franchise operators' books without additional fares?

Mr Haynes: It does not look like it, judging by the new franchises that have been let.

Q703 Clive Efford: In terms of impact on the growth of the railways, not in terms of passenger numbers but capacity and other schemes, what do you think about that?

Mr Haynes: The White Paper takes a fairly conservative view about the overall growth, as we have said earlier, so that in terms of the actual cost benefits of individual schemes they might not be too affected, unless we have a really serious recession where the GDP will affect it, but overall we think that it could start to have an overall detrimental effect on the mode share.

Professor Begg: The bigger known is the change in GDP and what is going to happen to the economy. In the railway in the past we have worked on the assumption that a 1% growth in GDP would increase rail passenger demand by around 2%, maybe just slightly over, but if anything the evidence from the last five years is that we have got much higher income elasticities in that and certainly the evidence we have gathered from the north of England, especially on that trans Pennine corridor, would tell us that something very different has been happening in the last five years. I think the big concern on railway franchises is that there have been some bits from TOCs which have been based on pretty heroic assumptions on GDP.

Chairman: I want, if I may, to move on.

Q704 Mr Clelland: Just on the high speed rail point, if it is possible to calculate what we call these days agglomeration benefits of high speed rail by saying 40 minutes off a journey will result in X million pounds worth of benefits. What cost benefit analysis has been done on a system, say like Maglev, which could actually halve (or even more than that) the journey times between, say, Newcastle and London?

Professor Begg: That would be factored in if you wanted to look solely at Maglev.

Q705 Mr Clelland: Has any cost-benefit study been done?

Professor Begg: No, we have not looked at any specific technology. We have remained technology neutral. We have worked on the assumption that trains would travel at 300 kilometres per hour, Eurostar, high speed rail route one capable speeds, and we have worked on that assumption.

Chairman: Thank you. I think I am going to move on to Mr Scott.

Q706 Mr Scott: Mr Hobbs, how would you ensure the level of service you hope to achieve on the London overground concession is replicated on rail services throughout London?

Mr Hobbs: As you know, we are trying to increase the level of train service, the facilities at stations and the condition of stations to a new and higher level. The main way in which we would choose to work is to work with colleagues in the Department for Transport as they re-let franchises. So as they come up, we would make the case for a level of service commensurate with the overground, similar to the overground, on the new franchises as they are re-let.

Q707 Mr Scott: To what extent could the London overground concession be a model for the development of the rail network elsewhere in the country?

Mr Hobbs: We think - and this is always a balance - the overground model offers some significant advantages, certainly for our part of the country and the economic and social conditions in which London finds itself. For example, standards of service which are even across the network so customers know what to expect and do not have to, for example, look up timetables or put themselves out. Next up, the integration of the service through, for example, ticketing as well as through facilities, so cctv everywhere, pay-as-you-go ticketing across the region -

Q708 Chairman: There are difficulties with that, are there not, Mr Hobbs? I do not think we want to go into that, but why are you so sure you can actually do that?

Mr Hobbs: Pay-as-you-go or the standards generally?

Q709 Chairman: In the whole question of integrating the ticketing system.

Mr Hobbs: Technically, it is no problem to do. Commercially, there are all sorts of problems. The technical problems are solvable with time, energy and money and we await -

Q710 Chairman: I am sure most things are solvable with time, energy and money. I mean, if I was 30 years younger I would be a right goer, but that is not the point! I do not have time to think about it. How long are you going to think about it?

Mr Hobbs: We are hoping to install pay-as-you-go within the next year.

Q711 Chairman: I see. Is there any reason to believe that is a realistic assumption, Mr Hobbs, on all the franchises?

Mr Hobbs: Subject to our ability to meet the commercial terms which the TOCs have set us, and there is the rub!

Q712 Chairman: That is quite a reservation, is it not, really?

Mr Hobbs: It is a reservation, we make no bones about that, yes, but we are working with all haste and all our efforts to ensure that.

Chairman: I am sorry, I intervened, Mr Scott.

Mr Scott: No, no, your intervention was absolutely first class, especially about being a bit of a goer!

Chairman: Well, hope survives!

Q713 Mr Scott: Mr Hobbs, London Underground. How are we going to look at improving the services given to passengers? I have 14 stations servicing my constituency and some of the conditions passengers have to travel in I do not think we would legally be allowed to allow animals to travel in, so how are we going to improve that?

Mr Hobbs: You are thinking particularly of crowding, perhaps?

Q714 Mr Scott: I am thinking of the conditions of crowding that people have to travel in, as I did myself this morning.

Mr Hobbs: With London Underground we have a series of line upgrades which are in effect now, so that work will spread out over a period of years. There will be a series of line upgrades going around the network. Each line is slated for an upgrade over the next decade, some sooner, some later, and that will add cumulatively in excess of 20 to 25% capacity to the network as a whole, and that will help to alleviate some of the worst excesses of crowding. I do not mean to say by that that everyone will have a seat, but the worst crowding will get better over that period of time.

Q715 Mr Scott: You say a decade?

Mr Hobbs: Most of the line upgrades will be done by 2016 and the last one is the Bakerloo Line in 2019.

Q716 Chairman: I am not clear really, Mr Hobbs, who is going to pay for all of this and who is taking responsibility for what. Some of these overground lines are already involved in very intricate schemes with the rest of the railway system, are they not? What deals have you done? What agreements have you reached? Have you done a deal with the Department? What is it?

Mr Hobbs: Is this for the Underground or National Rail?

Q717 Chairman: Both. I mean that bit of the overground that you are taking over. You are assuring Mr Scott he is going to have all these marvellous extra seats and it is all going to be done in ten years. What about the rest of it?

Mr Hobbs: For the Underground there is funding in our recent comprehensive spending review settlement for the line upgrade -

Q718 Chairman: Within ten years?

Mr Hobbs: For the line upgrades on the Underground, yes. For the overground, that again is a funded project which is funded through our business plan as a result of the comprehensive spending review settlement with DfT.

Q719 Chairman: Could you give us some figures, Mr Hobbs?

Mr Hobbs: For the value of each of the projects?

Q720 Chairman: Can you tell us how much of it is funded, the length of time and the size of the budget?

Mr Hobbs: I could do. I would have to get back to you in writing rather than -

Chairman: Fine. You get back to us and we will get back to you.

Q721 Graham Stringer: Mr Haynes, last week or the week before we were told that the improvements to Birmingham New Street were really just extra passenger capacity and did not increase the capacity of either the number of trains or the number of passengers actually on trains. Is that true?

Mr Haynes: No, it is not true. The New Street investment, Ł388 million from three sources of funding, that is the public sector funding in New Street - it is about a Ł600 million scheme - both increases the overall, as you say, passenger handling capacity but allows within the station for longer trains and a few extra trains, but mainly longer trains because of the elements. So it will add 50 to 100% capacity within New Street of passenger handling, the numbers of passengers through the station, both on the trains and in the station.

Q722 Graham Stringer: What will be the increase in capacity by having longer trains?

Mr Haynes: Increasing capacity by longer trains is 50% approximately. It varies by route. Obviously, when you have got a Pendalino with nine cars at the moment with the potential for up to 12 cars, New Street can handle a 12 car. You are not getting a 50% increase there, although the Government is arguing in the White Paper that it is roughly 50% on the West Coast Main Line.

Q723 Chairman: But not at Birmingham, I think, Mr Haynes, which has some unique qualities?

Mr Haynes: Correct. That is what I am saying. But on some of the regional services, which is two coaches at the moment, doubling that to four coaches, or five or six, and most of the local services are six.

Q724 Graham Stringer: Will the capacity of the number of trains, as opposed to the size of the trains, increase?

Mr Haynes: Very slightly. There is room for a thirteenth platform which could take a detailed element on that, but really it is marginal in terms of the numbers of trains because that relies on signalling alterations and on obviously what are called the rules of the route, the number of trains you can run on each of the routes. The city is planning for additional capacity to add on to New Street so that the overall capacity in Birmingham will increase significantly by trains as well as passengers.

Q725 Graham Stringer: Professor Begg, you mentioned before you did not understand the growth in passenger numbers, what was driving it. I think as a Committee we have been surprised and are trying to understand what numbers the Department actually means, because we have been told as a Committee that the numbers are not actual passengers, they are tickets, so that if you are one person going on one journey on two franchises then that counts as two journeys, and that if you go into London and your ticket allows for two destinations that counts double. So can we rely on the figures for growth which the Government is putting out?

Professor Begg: I think the key question is, has there been a fundamental and permanent shift in this relationship between income and rail travel?

Q726 Graham Stringer: I think that is an interesting question, but it is not the one I am asking. I am asking a question about the figures the Government gives us and what they mean compared with figures used under British Rail, where it was one person, one ticket, one journey, and you could understand that. So how can we compare them? How do we understand them?

Professor Begg: It is difficult to make historical comparisons because there has been a change in how we measure it, but the point I am making is that given that change, should we be changing our forecasts on the capacity we need on the basis of this fundamental change between income and rail patronage.

Q727 Graham Stringer: I do understand that. I will come back to it one more time. If the Government is saying -I cannot remember what the figure is - that there has been an 8% growth over the last three years, what would that mean in terms of real extra passengers?

Professor Begg: I do not have an answer to that.

Graham Stringer: Does anybody?

Q728 Chairman: Mr Haynes wants to make a wild guess!

Mr Haynes: If only it was true! What I would say is that it was the ticketing analysis and the Government used various elements. As far as we are concerned at the regional level, we allocate passengers, so we actually measure the number of people getting off the train and getting on the train, and we interview them and ask them where they have come from. We use our own figures. In fact, the figure in the Birmingham one, in the appendix there, ours is slightly higher than the figure in the Government's one. We have 33,000 for the same figure that they have quoted, 32,000, for 2008/9. So as far as we are concerned it is real growth. They are real people who are getting on and off the train. You can only do so much analysis before you go into the old ticketing data.

Q729 Graham Stringer: Can I come back to David Begg? You talked previously about the Manchester Hub and bringing all the Sheffields closer together and taking all the pinch points out of the system. Given that is important in the north of England, was the investment in Birmingham and Reading the right decision or would we nationally have got more benefit if the Government had invested in the Manchester Hub concept?

Professor Begg: We have not studied Birmingham and Reading and whether these were the right decisions. I think we were surprised, though, that the Manchester Hub was not included in that announcement at the time.

Q730 Graham Stringer: Rosie Winterton bounced into Manchester just about the time Crossrail was announced to say that we were going to get a study on the northern rail. Do we need a study? Have there not been umpteen studies about the pinch points in the system? Could not somebody, if they had a few billion in the bank, just sort it?

Professor Begg: There have been studies and most of them have been carried out by Greater Manchester Passenger Transport Executive, but what you will find is that different stakeholders have got different views as to what needs to be done around the Manchester Hub. For example, one of our, Northern Way's, big concerns is the huge growth in container traffic across the Pennines. We are anticipating something like 60 container trains a day travelling from the east coast ports in the north of England to the west coast ports. We think there is a real capacity problem. We think there are big pinch points around the Manchester Hub. So that produces a different solution than if you are trying to get people to say more trains into Manchester Airport, or if you are trying to deal with commuter traffic. So I think we can build on the previous studies, but I do think we need to bottom out exactly what we are trying to do.

Q731 Graham Stringer: Thank you. Mr Johnson, would the South West be a better place if you got rid of First Great Western?

Mr Johnson: If I can give an honest question, Chairman -

Q732 Chairman: We do not like any other answers around here, Mr Johnson!

Mr Johnson: Very definitely. We are concerned about their franchise and the performance in the region.

Q733 Graham Stringer: Have you made representations to the Secretary of State when she gave them a relatively trivial fine for misleading the Department and not complying with its franchise?

Mr Johnson: I do not think with the Secretary of State, but we have certainly had meetings with the Minister for Transport over that franchise and the poor service which we do get in the region. I think there has been some response to those representations in a marginal improvement, but I think we would be happy not to have that particular train operating company.

Q734 Mr Leech: Can I ask about fares? Is it sensible that the travelling public should bear a bigger proportion of the costs of rail investment?

Mr Hobbs: Naturally, in the best of all possible worlds we would prefer lower fares. There is always a balance to be struck in the sense that other things equal, lower fares means less money and less money for the capacity improvements we all want to see, given the growth in rail demand that is observed already let alone forecast into the future. I think one positive thing we can definitely say from the White Paper is the move towards a greater simplicity of fares.

Chairman: They will not be any cheaper, but you will know why.

Q735 Mr Leech: What impact do you think there would be on significant fare increases to the Government's forecast growth?

Mr Hobbs: David mentioned some of the impacts on GDP. We have done similar statistical exercises. I think every 1% increase in fares reduces demand by about 0.25%, so there is definitely an impact and that demand would tend to shift over to modes such as the private car.

Q736 Mr Leech: Are there particular segments of the industry that would be most affected by significant increases?

Mr Hobbs: There will be segments such as the leisure segment and in general the long-distance operators, given that the absolute level of the fare is higher, so those two segments in particular as opposed to commuting, which would be a bit less affected.

Q737 Mr Leech: Should fares be linked to performance of the Train Operating Companies?

Mr Hobbs: I think there are better ways of measuring and rewarding performance of Train Operating Companies than the level of fares. I think there is a more direct way to improving the behaviours of train operators.

Mr Leech: Do the others agree with that?

Q738 Chairman: Mr Johnson, should we actually reward them?

Mr Johnson: If I could just come back to the earlier point about the importance of the ticket value. Certainly one of the studies we did with the passengers between Bristol Temple Meads and Birmingham was that there were three considerations. One was performance, secondly was reliability and thirdly was the value. Now, how you actually quantify the value I am not too sure, but clearly the ticket price was very much related to the service they were getting on that route. It would, I think, deter people from getting out of their cars and travelling by rail by putting an increase on it. There clearly is a level. I couldn't tell you what that level is, but there must be a point where passengers will deterred from changing their mode of travel, so it is a consideration.

Q739 Mr Wilshire: Could I take Mr Hobbs back to his expectations of higher fares and that the money from those fares will be partly used to improve the quality of service in the area he talks about? He also talks about integrating the services in London with the fringe outside London, part and parcel of the policy he has for the overground, so that money would be taken from the fringe of London and taken into the London priorities. Now, the priorities of the people I represent just outside London are not the priorities of the people inside London. When money is taken from people like my constituents will it be used for their priorities or for London's priorities?

Mr Hobbs: I think it will be used for shared priorities.

Q740 Mr Wilshire: What are the shared priorities?

Mr Hobbs: For example, one of the things the White Paper suggests is the right thing to do - and I am trying to think of one that is relevant here - is to improve the quality of service into Waterloo and there some of the fares revenue along with public money would be used to upgrade the lines into Waterloo and the station itself to enable that to happen. That would benefit people who travel within the London boundary as well as people beyond.

Q741 Mr Wilshire: The clash of priorities is what I asked you to address. The people outside London certainly want to improve the service into Waterloo, but they want to get there quicker. The people inside London want more trains to stop. Which of those two will you go for?

Mr Hobbs: I don't think necessarily there is or need be any such conflict, and certainly the ideas that we see -

Q742 Chairman: You have found a new way of getting trains to still stop and get there quicker!

Mr Hobbs: One of the ways of managing to square the circle is to have longer trains such that you get the additional capacity on all types of service.

Q743 Mr Wilshire: But even if they are longer trains, the whole train has to stop, not just part of it, so it will not get there any quicker.

Mr Hobbs: I don't think we are suggesting that there will be wholesale more stopping points along the route into London.

Q744 Clive Efford: Just on capacity, Mr Hobbs, can you tell us what contact you have had with the ROSCOs and train manufacturers about the plans you welcome in your evidence for 900 additional rail carriages for London, and how confident are you they will be delivered on time, particularly in relation to Thameslink?

Mr Hobbs: We in Transport for London have not chosen to deal with ROSCOs and the trains we have bought for our overground service we have bought directly on our own account, rather than through ROSCOs. Subsequently, we have leased them through a finance lease, but that is another story.

Q745 Chairman: It is a rather nice point, is it not, Mr Hobbs? It is every so slightly dancing on the head of a pin! "I don't deal with the bankers, but I do actually do a lease with somebody else who deals with bankers."

Mr Hobbs: The reason why we chose to do that is that we felt we could get better value for money than going directly through the ROSCOs, given the levels of service one gets from a ROSCO lease, and buying the train service and seeing them roll off the manufacturing line reduces the level of risk and therefore we will get a better value lease at the end of the day, money that we can re-use to invest in other parts of what we want to do.

Q746 Clive Efford: So the 900 carriages you refer to in your evidence are going to be purchased by TfL?

Mr Hobbs: No, the 900 carriages are part of the national rail network fleet. TfL has bought on its own account a fleet of 50 trains for the overground, but just for the overground. Some of the trains which are on the existing overground will be re-used in the rest of the national rail fleet.

Q747 Clive Efford: My point is that TfL is seeking to have influence on the overground serving London. This is a significant part of increasing capacity for London. We have had evidence from the manufacturers that they do not think these carriages can be delivered on time. Now, what discussions have you had about this? If you are planning ahead for London, how confident are you that these trains are going to be there for anyone to purchase, whether it is TfL or anyone else?

Mr Hobbs: What we have done is to make our own estimate of what rolling stock is required and to what type of design, since that matters in the environment in which they are used. We have cast a slide rule over the DfT's numbers to see whether we agree that they are right, and we take the view that broadly speaking its plans for procurement look achievable to us.

Q748 Chairman: I think you have rather missed the point of the question, Mr Hobbs. We have taken evidence from the manufacturers that it cannot be done, but you are saying that your slide rule tells you it can? Am I misinterpreting what you are saying?

Mr Hobbs: I have not been party to that evidence. All I am saying is that by -

Q749 Chairman: I am sure you have read it, Mr Hobbs. You did not come before this Committee without having read the evidence of the people on whom you are going to be asked to comment. Or did you?

Mr Hobbs: If I remember rightly, they said that some of the very early potential additional new build is pretty challenging.

Chairman: Oh, yes!

Q750 Clive Efford: They are saying specifically that the Thameslink carriages will not be there to buy.

Mr Hobbs: I cannot comment on that. I don't know enough about what the DfT has or has not agreed with the manufacturers.

Q751 Chairman: No, Mr Hobbs, I am sorry. You have just told us that you have looked at their figures and you think they are okay. That is what you said to Mr Efford, a kosher set of figures.

Mr Hobbs: Set at a high level. I thought that the numbers of additional rolling stock, the 1,000 additional vehicles, looked about the right number over the timescale to 2014.

Q752 Chairman: Oh, I see. So we are just talking about an abstract, "Yes, that is the sort of number we think we ought to have"?

Mr Hobbs: Yes, that is right.

Chairman: I see.

Clive Efford: Well, I have got evidence to suggest to you that perhaps you might want to have a chat with people like Bombardier to find out if there are going to be any trains to buy at the right time! I have got nothing more to say on that.

Q753 Chairman: I want to ask you about inclusiveness because you say it is too complex in the arrangements that are being made, but then you say, "Why weren't we involved and why aren't we allowed to specify station improvements?" So how do you get a balance between inclusiveness and efficiency?

Mr Hobbs: I think what we are saying is that what we would like to see is a greater degree of integration with the other modes within London. Railways are always a little bit apart, a little bit special, and there are many ways in which we could make the customer feel more at home through a greater degree of simplicity in what is offered in terms of the station facilities, in terms of the condition of the stations, in terms of how the train service is delivered and in terms of the ticketing, and that would also have some opportunities for efficiency.

Q754 Chairman: Yes, but you were actually criticising the arrangements as far too complex, were you not? You were not criticising the ability of passengers to understand what was being proposed and saying that that should be simplified, you were actually criticising the complexity of the arrangements, were you not?

Mr Hobbs: I think what we were noting was that the process as a whole whereby you take the White Paper and the HLOS, pass it through a series of other bodies was one which involved a lot of stages and there must be ways of making that slicker in the future, especially now that this is a new process and one that hopefully will become more well known and well understood going into the future.

Q755 Chairman: Mr Haynes, I want to ask you briefly some questions on the stations. Are you still sticking with this assumption that you can get people off the concourse into the trains in Birmingham in six minutes flat?

Mr Haynes: We are indeed. We have got lots of new escalators, steps, et cetera, not just the up escalators that are there at the moment.

Q756 Chairman: How many people do you expect to have on one of your new longer trains?

Mr Haynes: Well, now you are asking!

Q757 Chairman: Well, you have done an estimate of the number of carriages, so you must have some idea of how many people you intend to carry?

Mr Haynes: It depends whether it is a regional service -

Q758 Chairman: No, Mr Haynes, you have just told me that you are going to get rid of a lot of the two trains that come in from different angles on Birmingham because you are going to have longer trains. So you are going to have fewer trains but they are going to be longer, although are they necessarily going to replace two trains coming from different directions and meeting in the middle?

Mr Haynes: No, not fewer trains, the same number of trains or slightly more. Not fewer, longer, and presently they may carry something like 300 people if you have got two coaches, and it could be 600 on the new one, et cetera.

Q759 Chairman: If they are longer, Mr Haynes, and they are the same number, how are you actually going to get them into the station, or are they going to have sort of rubber bits at the end?

Mr Haynes: No, no, the platforms are long enough to take two of these trains, as they do now, on A and B, except for the Pendalinos and those which obviously take a full platform length.

Chairman: I see.

Q760 Mr Martlew: Just on the length of the trains, that may be fine at Birmingham, but what about the stations either side where it is going to stop?

Mr Haynes: You will see that in the White Paper it refers to a platform lengthening on pretty well all the lines into Birmingham and it will go to other major cities as well. That is being allowed for and is being currently planned by Network Rail. On the occasional station where you can't lengthen the platform, then they are looking at selective door opening.

Q761 Mr Martlew: That means you are not going to be able to introduce these trains until all the platforms have been lengthened?

Mr Haynes: There is platform lengthening happening on the Coventry corridor at the moment to take the longer trains and it is being planned in conjunction with the acquisition of the new rolling stock.

Mr Martlew: Thank you.

Q762 Chairman: Are you happy about the adequacy of the forecasting in the figures which have been put out in the Department's model? Do they take account of the housing and employment patterns which are going to develop?

Mr Haynes: We don't believe they do. We believe they don't fully take this into account. You need to look at it, as in our evidence, on a regional and a sub-regional basis in order to plan accordingly.

Q763 Chairman: So how are you going to do it, through planning assessments and utilisation strategies?

Mr Haynes: Network Rail have started on the West Midlands one now and we are working with them on addressing the growth across the region to be taken into account, and they will be liaising with the North West region because it covers wider than one region, and we are working with the Great Western side as well.

Q764 Chairman: How much do you agree that the White Paper focuses on the short-term at the expense of the long-term?

Mr Haynes: It certainly takes cognisance of the longer term on certain issues, such as rolling stock, where they have to take a longer term view, but when it was said to be a 30 year wide paper it is very, very concentrated on the control period up to 2014 and things like the high-speed line is sort of shunted into a siding, or whatever it is, as being too difficult a decision, "We can put it off to the next control." So for a lot of the key projects - and Northern Way, David, mentioned the Manchester Hub - it doesn't really address that medium term issue, some of which they need to start planning for now.

Q765 Chairman: Professor Begg, how about additional investment on the TransPennine network? Is that important?

Professor Begg: Yes, we think it is absolutely critical. The challenge we were posed by Government was to come up with evidence on how transport investment can boost the economy. If anything, what we are doing is actually trying to make sure that transport investment is responding to the growth in the economy in the north of England. With the work we did on new high speed rail routes what surprised us was just how important that TransPennine link was. We think there are huge economic benefits if we can get cities like Leeds and Manchester working in tandem, working closer together. I think there is a lot we can learn from the way the Scottish Executive, who seem to be resourced better, are dealing with two very similar cities, Glasgow and Edinburgh. They are a similar distance apart. On the size of the cities, if anything Leeds and Manchester are larger, but the Scottish Executive have got some fairly ambitious plans on how to improve rail connections between Glasgow and Edinburgh.

Chairman: I am sure they have got ambitious plans, but of course they do not quite have to deal with the same problems of funding, do they? But we must not get into anything sordid like discussing money! Gentlemen, you have been very useful and very helpful. Thank you very much indeed.

Memorandum submitted by Department for Transport

Examination of Witnesses

Witnesses: Mr Tom Harris MP, Parliamentary Under-Secretary of State for Transport, and Mr Bob Linnard, Director, Rail Strategy and Stakeholder Relations, Department for Transport, gave evidence.

Q766 Chairman: Good afternoon, Minister. I am sorry to have kept you waiting, but you are always warmly welcome whenever you come and whenever we get you through the door. Would you be kind enough to identify yourself and your esteemed colleague?

Mr Harris: Thank you, Chairman, and it is a pleasure to be in front of you again. On my left I have Bob Linnard, the Director of Rail Strategy.

Q767 Chairman: Did you have something you wanted to say to us? You are actually, I think, Tom Harris?

Mr Harris: I am Tom Harris, the Parliamentary Under-Secretary of State. Could I just begin by offering a very few comments? I will leave most of my comments for the questioning. This is about the White Paper and I hope that the Committee will look at the White Paper from a historical perspective, and I know you of all people do not need to be reminded about the historical record as far as the railway is concerned. Under nationalisation the railways from one year to the next had no assurance of long-term funding. It was always a one year sorted and then another year. Then there was privatisation and the legacy of Railtrack, and we all know about what happened there. We have had five years of Network Rail and now for the first time we have got what the industry has actually been asking for for a long time, which is a short to medium term investment plan which is set in stone and is guaranteed for the next control period. Very briefly, as you know, HLOS is about 1300 new carriages, it is about Thameslink, it is about Birmingham New Street and Reading, but there have also been developments since HLOS. We have had the announcement of Crossrail funding and I have taken the Crossrail Bill finally through its House of Commons stages. We had the opening last year of St Pancras and the final stage of High Speed 1, and just yesterday the Secretary of State announced that she is inviting Network Rail to look at developing complex future options for some of our long-term transport challenges, which will include either the conventional or possibly high-speed rail, or other lines or other forms of transport, and I am happy to accept questions on that. Ultimately, the bottom line for me, and I have said this before, is that the railways are not run for politicians and they are not run for the industry, they are run for passengers and we must always remember that it is the passenger experience which for me is the most important thing in all of this. I will just end by saying this: now is a very good time to be the Railways Minister and very few of my predecessors have been able to say that. That might be not what I am saying at the end of this presentation, but that is how I feel at the moment, Chairman!

Q768 Chairman: Well, Minister, we are always pleased to laud the tremendous advances which have been made and I do not think anyone would disagree with many of the points you make, but you will understand that of course your role is to provide strategic direction and to procure railway services and projects which only it can specify. So when we criticise both those aspects of Government policy which seem to us not to go far enough and not to expand far enough, this is not to be taken personally, as some of your colleagues have occasionally done. It is a demonstration of the fact that it is because we know what has been done and what needs to be done that we feel we have the right to ask you whether you are doing exactly what the passenger needs and wants.

Mr Harris: Absolutely.

Q769 Chairman: Therefore, we are grateful to you for those cheerful words. I am delighted that you feel so happy in your ministerial job, which is always an advantage to someone, and I am very grateful to you. But let me ask you something boring. What about the repeated engineering overruns and the failure to learn lessons? Are those not symptomatic of a deeper structural malaise within Network Rail?

Mr Harris: I would not agree that Network Rail has refused to learn lessons.

Q770 Chairman: Well, do remember that both you and I have taken evidence of previous overruns and previous projects where there were precisely the same sorts of problems which arose at Rugby, and the Department and Network Rail did not seem to learn from it.

Mr Harris: Chairman, you know in detail the ORR report on the overruns, and probably in far better detail than I do, so you know that the ORR themselves have said that as far as Rugby is concerned an element of overrun was probably unavoidable. I cannot remember the exact words they used. To suggest that because overruns do occasionally happen I do not think necessarily leads me to the conclusion that lessons have not been learned and I have spoken in great detail with Iain Coucher following what happened at the New Year and I have to tell you I am impressed by two things: one, the robustness of the ORR inquiry, and I took very seriously its conclusions, but also the commitment from Iain Coucher and the people around him, an acceptance that they got it very wrong and a determination to learn from the mistakes exactly as you are saying is important.

Q771 Chairman: You do not think the overruns cast doubt on the ability of Network Rail and the contractors to deliver the work set out in your High Level Output Statement?

Mr Harris: I do not think that. I think that with a network the size of the one that Network Rail is in charge of it would be optimistic in the extreme to expect there to be no engineering overruns. Given the amount of money that we have been spending on the railways and given the amount of money we have committed over the next control period, that money inevitably means that there will be far more engineering possessions than there were in the days when there really was not an awful lot of investment going into the railways. So in one sense it is the Government's responsibility that possessions happen because we are actually providing the resources for that. Of course it is up to Network Rail to make sure they do not overrun, but I see every indication that Network Rail - and it is not in their interests, certainly, not to learn those lessons. They do not want to be pilloried in the press and have angry ministers on the phone asking what on earth happened, and they are quite clearly committed to learning from the mistakes of New Year and other possession overruns as well.

Q772 Chairman: Yes. I think the difficulty I have is that the recent Office of Rail Regulation Monitor said that "renewal and enhancement work continues to be deferred on a regular basis: expenditure was 12% below budget in the year to date, largely as a result of deferrals and project delays." Now, that is a very significant underspend, is it not? Do you not think one ought to worry about a system which is apparently deferring work and not spending the cash that is available?

Mr Harris: I am not entirely familiar with the report you have just quoted, Chairman -

Q773 Chairman: Well, I can assure you I am not above making things up, but that is actually a genuine quote!

Mr Harris: That was simply a reminder to my official to get me a copy so that I can read it after this session.

Q774 Chairman: Excellent! I am sure they have got it there.

Mr Harris: I would certainly be concerned. Yes, I understand why there would be concern if, as I am sure you quite rightly say, Network Rail is underspending on its maintenance or renewal budget. I would also be concerned if there was an overspend, and sometimes I feel it is actually quite difficult for Network Rail, or indeed any other organisation in similar circumstances, to get it exactly right because they are not spending exactly what the budget is. I will confess ignorance on that particular case, Chairman, because I am not familiar with that particular report.

Q775 Chairman: I understand that, Minister, and nobody expects you to micromanage the system, but this is not quite the same set of circumstances. We have taken evidence from Network Rail. We were concerned about their governance. Do you think they have got the right arrangements? Do you think the Chairman's relationship with the CEO is the right one, and can you tell us of any other major public organisation of a similar size and importance which has a similar governance structure?

Mr Harris: On the last question, Chairman, no, I cannot.

Q776 Chairman: Would you be worried if, for any reason, the CEO had real difficulties and was not able to be the public face of the organisation and the chairman of the board said he did not go near the office for four years - four days, not four years. It may have seemed like four years to the rest of us, but actually four days is enough, because he did not want to get in the way. It is very tactful of him, but is it what you expect of the chairman?

Mr Harris: I am willing to stick my neck out, Chairman, and suggest that that period of New Year was not Network Rail's finest hour.

Q777 Chairman: Well, that sounds like a wild assumption, Minister! I can see you are a very dangerous and grossly over-optimistic person! Not their finest hour.

Mr Harris: I do not think it is for me to decide on Network Rail's behalf which personnel should be involved at a particular stage.

Q778 Chairman: No, but it is your responsibility to work out whether their governance system is the right one for them, because you are giving them the cash and I am old enough and bad tempered enough to think that if you are paying you ought to have some control!

Mr Harris: Well, let us look at the governance arrangements. This was something which was looked at very closely by the Government in 2004 when we produced the Rail White Paper, The Future of Rail, and that was the result of a very extensive consultation within the industry. A whole number of options were looked at and what came back strongly from the industry - and this has not changed today - is that the industry is not in the mood, there is no expectation or enthusiasm for yet another restructuring. If I could just go back slightly to your earlier question about overruns. To me what is important is the actual output in terms of Network Rail. When we have consistently year on year improvement in the performance of railways in terms of the public performance measure, that is what concerns me more than the details of individual possession overruns because that actually means that more trains are arriving at their destinations on time, and if that is happening then Network Rail must be doing something right.

Q779 Graham Stringer: I do not know where to start. You said in your opening statement that the railway is run for passengers, not for ministers or politicians or anybody else. Do you not think that the customers, passengers of First Great Western, would think that was not an accurate description of their position and that they are more victims?

Mr Harris: Yes, I think they would think that and they would have every right to think that.

Q780 Graham Stringer: In that case, why are First Great Western still being allowed to tender for franchises?

Mr Harris: First of all, First - not First Great Western but First as a transport entity is probably one of, if not the biggest private sector transport operator in the world and they run very successful franchises, so I would no more say to First that they are not entitled to bid for any more franchises than I would say that because they have a good performance in First ScotRail that they have got the right to actually have the franchises in all of them. I do not think either position would make any sense. But they have let down their customers very badly in the Great Western franchise. We have made it clear there is now a legally enforceable remedial plan in place. If they breach that in any significant way, it is then open to the Secretary of State to remove that franchise. Now, that has actually never happened since privatisation. No company has ever had the franchise taken away from them for performance reasons and I think First are in no doubt about the seriousness of the situation.

Q781 Graham Stringer: That fact is that First Great Western lied, did they not? They gave false reasons for cancelling trains. Is that true?

Mr Harris: They misreported the level of cancellations.

Q782 Graham Stringer: Did they lie?

Mr Harris: I do not think so. Can I explain why I do not think they actually lied? Because my understanding is that their misreporting was the result - and I am not defending First Great Western in any way, I have no interest in defending First Great Western and I believe that criticism should be made where it is due, and it is certainly due of First Great Western, but my understanding of this particular point is that had they not misreported their cancellations the figures would have actually been better than what they reported, not worse.

Q783 Chairman: So they are incompetent crooks?

Mr Harris: That is a conclusion for the Committee to make, Chairman, not me.

Q784 Graham Stringer: So if they tell you inaccuracies but they are not to their disadvantage, they are not lying then?

Mr Harris: No. I think the word "lying" is a pejorative sense and I think -

Q785 Graham Stringer: It is pejorative. It is meant to be.

Mr Harris: Yes, of course, but I would not use it in the pejorative sense because I think what happened was they gave the Department figures which were wrong. I do not think that is necessarily lying, and they were figures which put them in an even worse light than the correct figures would have. So in that sense I do not see any logic in lying to make themselves look even worse.

Q786 Graham Stringer: How did the Secretary of State arrive at the Ł29 million fine?

Mr Harris: We have not fined First Great Western.

Q787 Graham Stringer: Well, penalties then. I am sorry, I think that is accurate.

Mr Harris: It is a Ł29 million passenger benefit package.

Q788 Graham Stringer: Some of which had already been agreed?

Mr Harris: Yes, that is right. I think some of the media misreported what this Ł29 million actually was. The Ł29 million was about the 500,000 extra cheap tickets to the most popular destinations in the First Great Western franchise. It was about extra rolling stock on some of the routes. That was actually additional to the remedial plan. The remedial plan was far more robust. It did not have a financial ceiling on it. It did not have a price on it because what we said in the remedial plan was about training extra drivers and guards. It was about providing extra capacity, it was about bringing down the cancellations, it was all about outputs.

Q789 Graham Stringer: Did the Secretary of State not put out a press release on 26 February saying that the remedial plan was Ł29 million?

Mr Harris: No, she did not actually. The remedial plan is, if you like - although the passenger benefits package is now legally enforceable, if you like, under a remedial plan, there were two different strands. I know this sounds a bit technical, but the passenger benefits part of it was actually, I do not think, the most important part of the remedial plan. The most important part of the remedial plan was all about outputs. It was all about getting cancellations down, and I have to tell you that as far as this figure put in by the press is concerned, I do not know how much First Great Western will have to spend on the training of the drivers and the training of new guards or on the procurement of new rolling stock and I do not care. All I care about is that they spend enough money to get their cancellations back down to an acceptable level and provide a proper service for their passengers. I have no interest in how much they have to spend, but I expect it will be considerably more than Ł29 million.

Q790 Graham Stringer: What do First Great Western have to do to lose this franchise? They cut the size of the trains by half and made passengers' lives miserable. They put the fares up. They lied to the Department of Transport. What do they have to do to be driven out of the south west of England so that passengers can have a fair deal?

Mr Harris: Because we now have the remedial plan and because it is legally enforceable, if First Great Western fail to deliver in a substantial way, a material way, that remedial plan they will be faced with the possibility - and we in the Department for Transport would have no legal barrier to removing the franchise. So every month that remedial plan delivery is monitored and if they do not deliver it they are in very serious difficulty. That is how the franchise system works because Train Operating Companies ultimately are accountable to the Department if they do not deliver on their franchise commitments.

Q791 Graham Stringer: Is it not the case that is it you - not you personally, Minister, but the Department - that has a difficult problem because First are scheduled to pay about Ł2 billion, are they not, in their franchise agreements? So does that not put you in rather a difficult position when that is a cost to the Department of Ł2 billion?

Mr Harris: No, not at all. If I could just explain that?

Q792 Graham Stringer: It is a lot of money.

Mr Harris: As I said at the beginning, my priority on First Great Western is to make sure that there is a service there which is a good quality service for local people and if First Great Western do not deliver it, then another Train Operating Company will deliver it. When GNER walked away from their contract, their franchise, at the end of 2006 exactly the same criticisms were raised, that they had pledged a certain level of premium to the Department and that therefore we were going to lose that premium. What happened in the franchising process that followed that was that we actually gained a larger premium payment from a new operator for a shorter period.

Q793 Graham Stringer: So you will be very relaxed about getting rid of First Group if they fail this?

Mr Harris: No, I do not think I would be relaxed, but I certainly would not hesitate if that is what was needed.

Q794 Graham Stringer: Do you not think it begs the question as to whether the Department, which is in a position to lose Ł2 billion if it enforces the conditions on the franchise - people in the South West must be asking this question, why this wretched company is still there - is in a position of having a conflict of interest?

Mr Harris: Not at all. For the want of any doubt and for people in the South West region who are concerned about that particular point - and I accept it is a legitimate concern - let me just place on the record absolutely that any consideration of a lost premium (which I do not believe, incidentally, would be lost) would not be taken into account if First Great Western were found materially to have breached the remedial plan.

Q795 Graham Stringer: You said earlier, Minister, that you think no previous franchise had been lost. I think Connex was lost, was it not?

Mr Harris: It was lost, but not because of rail performance.

Q796 Graham Stringer: No, it was lost. Does that not argue for a point this Committee has been making for a long time? What would put my mind at ease is if there was a public sector operator that you could compare with some of these franchises who have not been operating, but it would also give you and us comfort that somebody could stand in and the industry would not step back because you had taken the franchise off them. Would that not give us all a lot more security?

Mr Harris: I have to disagree with you. First of all, the Secretary of State and the Department for Transport can step into any franchises and operate as a last resort. That is a right we have in every franchise and it is a right which was taken up in the Connex situation. But I think it is probably mistaken to assume that if we take one franchise into public ownership, therefore because it is publicly owned we would assume that the performance on that franchise would be so much better.

Q797 Chairman: You do not have a benchmark, Minister. We have had this argument before. You know what the arguments are.

Mr Harris: I do know what the arguments are.

Q798 Chairman: At the moment you do not have a benchmark, and when you had a benchmark you sold it back to the private sector. It is not a problem, is it? We know what the arguments are and so do you.

Mr Harris: When you say "a benchmark", why would a publicly owned franchise create any meaningful benchmark?

Q799 Chairman: For the simple reason that when in fact the ones which were taking over from Connex ran their sector of the railway and not only improved all sorts of aspects of the governance and the control of the railway but showed what could be done, their reward was to be put up again for private profit.

Mr Harris: I do not have the performance figures for Connex before and after they had the contract taken away from them. I certainly do not accept that a publicly run train company, either franchise or national, would by definition perform better than a private one.

Chairman: I do not think we said that.

Q800 Graham Stringer: I do not think the Committee has said it would. What we have been asking for is for a comparator.

Mr Harris: We do have a public sector comparator and it is used every time we franchise.

Q801 Graham Stringer: But that is a theoretical one?

Mr Harris: It is. It is a computer model.

Q802 Graham Stringer: It is a computer train and people get on and off in the way that people get on in future lifestyle dealings in Cornwall?

Mr Harris: This exact policy suggestion was put to me at a meeting you chaired, Chairman - I think it was the ASLEF group of MPs - and this suggestion was put to me, and the person putting the question said, "I am not particularly ideologically in favour of private or public, but if we had one public sector franchise we'd have a comparator," and I responded by saying, "Well, if you had an entirely public rail service, would you want one of the sections of it privatised in order to create a private sector comparator?" and of course the answer was no. I just think it is a circular argument. I do not see the point. I just do not think it would add any value.

Q803 Graham Stringer: I would like you to answer this general point. I cannot see, and I am sure Alistair Darling cannot see, why you are so relaxed about a Ł2 billion fine, but I want to make a more general point about the structure of dealing with the franchises. One is that if you enforce the conditions we stand to lose a great deal of money and destabilise the industry because you have an interest. On the other hand - and this is one of the points the Chairman was making in the first place - if the Rail Regulator fines Network Rail, in the end it is the taxpayer who is fined. This is an extraordinary system of conflicts of interest. Does it not make you want to think very deeply and hard about the governance of the rail system?

Mr Harris: Can I just take you up on your first point, because I would not want the record to show that I am relaxed, as you say, about losing Ł2 billion. What I said was that I am relaxed inasmuch as I would not lose any sleep if I had to make the decision or the Secretary of State had to make the decision that First Group were to lose that particular franchise.

Q804 Graham Stringer: Alistair Darling would be losing sleep?

Mr Harris: I think experience shows that that premium, which you have already discussed, would not be lost to the DfT - and the premiums, of course, come to the DfT, not the Treasury - because we have the experience of GNER, where everyone predicted we would lose that particular premium and we did not. We increased it by getting a new contract to run, and I have every confidence that is what would happen with First Great Western but can I say on the record that the indications are that First actually are, understandably enough, taking our actions very seriously and I hope not to be in the position -

Q805 Chairman: One would hope so really, considering that the chorus of complaint has been almost deafening.

Mr Harris: I am disappointed that we have got to this stage where we have had to issue a remedial plan because I have had to answer colleagues' criticisms of First Great Western. I have not been defending First Great Western, but I have been aware, you have been aware, the Committee has been aware, the media have been very well aware, therefore First must have been aware of the tremendous chorus of disapproval, as you say, and it is disappointing that we have got to this stage before they have actually delivered on a remedial plan.

Q806 Mr Martlew: On this point, I think earlier you said, Minister, when we were talking about First Great Western, that the action you took took away the legal barrier. Was there any legal reason why you could not take the franchise off them when you took the other action?

Mr Harris: Franchises are, of course, legally watertight documents and there is a legal process if you want to take a franchise off a particular TOC. The advice we had was that in the context of the misreporting of the cancellation data and a breach of the franchise, that did not of itself actually constitute a default of the franchise. However, a default of the remedial plan would and it is when you get to default that you can take away a franchise.

Q807 Mr Martlew: The reality is that what you are telling us is that legally you could take the franchise off them, but that has not come out until now, has it?

Mr Harris: I think every time you make a decision about the policing or the monitoring of every franchise you absolutely have to make sure that you are doing it legally, and that is all we are doing.

Q808 Mr Martlew: And you could not at this stage?

Mr Harris: Our advice was that we should move to a remedial plan.

Q809 Chairman: So in fact the answer to the question Mr Stringer asked you earlier on, what do they have to do, is practically murder one in five of their passengers every day before anybody can actually do anything about it?

Mr Harris: I think it is one in ten, Chairman!

Chairman: I see.

Q810 Mr Clelland: Minister, would you accept that were we to build two high speed rail lines on the east and west coast of the UK that would have quantifiable benefits to the economy?

Mr Harris: I know that the answer you want is "Yes", but you would have to put a lot of caveats on that. First of all, you would have to ask which areas would it serve, how much would it cost to build and how long would it take to build, what would be the business case, what would be their projected customer base? It has been actually quite encouraging that ever since the opening of St Pancras and the opening of the second section of HS1 there has been a huge amount of enthusiasm for high speed lines in Britain, and I think that is all to the good and I think people are interested in railways again. But actually the debate has moved on since we published the White Paper and in yesterday's speech by the Secretary of State she alluded to the fact that a lot of the debate on high speed lines is basically saying, "Well, here's a solution. Now let's look for a problem to answer it," and actually what I think we should be doing and what the DfT actually will be doing for the rest of this year is that we are going to say, "Let's identify what the challenges actually are in transport within the country, then let's look at the different options." There will be more than one option for meeting that challenge. "Then let's look at a solution." But at the moment people are saying, "Well, we've got high speed rail as a solution, now let's find the problem."

Q811 Mr Clelland: Have you seen the recent Atkins study?

Mr Harris: I confess I have not read it in detail, but I am aware of it and I have read some of it.

Q812 Mr Clelland: The conclusion they come to there is that the economic benefit to the UK will be Ł63 billion, which is more than twice the cost of building the two lines.

Mr Harris: That is right, but I think that is over 60 years.

Q813 Mr Clelland: But the fact is that it is economically viable at that rate, is it not?

Mr Harris: I am not saying that the high speed line is not economically viable, but let me say this about the high speed line. I think there is a number of assumptions. First of all, the Atkins Report is a good report from what I have seen. Greengage 21 are also doing some good work and Network Rail are going to contribute to that, and I think that is all to the good and it is all very helpful. But I think a number of assumptions are made about high speed and one of them is that it is environmentally friendly. Another is that it contributes to the economy. Another is that it will result in a certain amount of modal shift from planes to trains. A lot of these assumptions I am not convinced we have the empirical data to support. Take the environment. Not every environmentalist thinks that high speed is a good idea. The reason is - and I am sure you know this already -

Q814 Chairman: Not every environmentalist thinks the world is round! It is not a very good assumption to base transport policy on those views, is it?

Mr Harris: I am sure that is true, Chairman. I am simply making the point that some of the assumptions made to support the case for high speed are not borne out necessarily. It is more a shade of grey than black and white. For example, you need a 90% increase in the amount of energy for a train to push it from 125 miles an hour up to 180 miles an hour, which is where we generally assume high speed to be. You could argue that is not a good use of energy and therefore environmentally the case might not be made. Look at connectivity in Britain. Most of Britain's urban conurbations are actually pretty well connected already. Another argument which is often put to me is that France, Germany and the Continent have these high speed lines, why can we not have them? There may be a case at some point in the future for a high speed line, but it is not going to be justified by saying, "Our neighbours have got it, therefore we should get it."

Q815 Mr Clelland: Given what you have said, that a lot has happened since the White Paper and given this latest report with all the caveats you have just mentioned, is the Government now going to review its position on high speed?

Mr Harris: Our position on high speed was not no to high speed. I think what we are trying to develop is this new approach to planning, which as I have said is let us not start with the solution, let us start by identifying where the problems are and then let us look at the mix of solutions and choose the most appropriate solution, which might be high speed, it might be conventional speeds. If it is capacity that is the challenge you want to address, it might actually not be rail at all. But I would rather identify what the problems are.

Q816 Mr Clelland: The problem as far as the northern regions are concerned is the North/South divide. It is the old problem. We have not made a great impact on it and one of the solutions, not the only solution, to the North/South divide, it is felt in the regions anyway, is high speed rail. That is the problem. How is the Government identifying that?

Mr Harris: That is one of the issues. You talked about the economic benefits of a high speed line, and that is absolutely something the Government will be taking account of in the months and years ahead, and we should do that. But I simply come back to the point that I do not want to start off with the solution and then look around for a problem to fix.

Q817 Mr Clelland: But is the Government's previous view about high speed rail holding despite the fact that things have changed, as you have said, since the White Paper despite this new study?

Mr Harris: It is holding inasmuch as we have not ruled them out. That has not changed.

Q818 Mr Clelland: But it is a sceptical view of it at the moment?

Mr Harris: No, I would not say it is sceptical at all. I think the one change - and this might not sound a terrific shift - is that the next time we produce a High Level Output Specification for publication in 2012 it probably will not be accompanied by a white paper on railways, it will probably be accompanied by a white paper on transport, looking at the whole range of transport solutions rather than just rail.

Mr Clelland: Thank you.

Q819 Mrs Ellman: The Northern Way has put forward a number of proposals for rail improvement, including TransPennine improvements. Are you going to back any of their rail proposals?

Mr Harris: We will obviously look at everything on a case by case basis. I know that is a cliché and I apologise if that just sounds a bit too vague.

Q820 Chairman: Do not worry, Minister, we are quite used to clichés!

Mr Harris: I try to avoid them when I can, Chairman, especially when I am sitting in front of you. A lot of what the Northern Way has concluded the Department is taking very seriously, but I would not say that everything in the report was going to be rubber-stamped and approved by the Department, or indeed by Network Rail, who are taking a lot of it forward.

Q821 Mrs Ellman: You made a comment just a couple of minutes ago about proposals for the future could be to do with transport in general and it might not just be rail. Does that signal a change in attitude towards rail by the Government?

Mr Harris: Not at all. As I said earlier on, it is a good time to be a railways minister. I am reviewing that position right now!

Q822 Chairman: That was at least an hour ago, Minister!

Mr Harris: Indeed. It feels longer! We are predicting and everyone is predicting - we may disagree about what the patronage increase will be over a certain period of time, but no one is predicting that the railway industry is going to shrink. We all know that people are voting with their feet and they are using the trains more. That is a terrific thing and we want to encourage that and we want to provide the capacity for that. So absolutely not. I am as enthusiastic about the railways as I have ever been, as is the Government. We can actually point to our achievements on that and we can point to the White Paper and to the HLOS to say, "Look, if anyone doubts our commitment to the railway, just look at this." Clearly, there is no substance in any claim that we are turning our backs or going cold on railways, absolutely not.

Q823 Mrs Ellman: But what levels of growth are you actually planning for? In the White Paper you predict passenger growth of 30% over the next decade and the White Paper's target is to increase capacity by just 22% and your submission talks about 14.5%. What are you planning for?

Mr Harris: Yes. I think we are comparing apples with pears here. The actual patronage growth over the HLOS period, which is 2009 - 2014, is on our calculations 22.5% and we are providing enough capacity to meet that and to improve it in most parts of the country, particularly in the urban conurbations outside London. But you are right in that over ten years that is probably going to be about 30%. Over 30 years we have said that we expect the network to be carrying double the number of people it is carrying today.

Q824 Mrs Ellman: The way the Government is funding rail is assuming an increase in fares to passengers. What is the effect of that going to be on anticipated growth?

Mr Harris: We are assuming that fares, both regulated and unregulated - apart from those two franchises that were announced before the White Paper was announced in July (I think, from memory, that was West Midlands and Cross Country) - do not have to rise by any more than the rate of inflation plus 1% over the HLOS period to 2014. Those are our revenue assumptions. Of course, in terms of unregulated fares it is up to companies to put them up more than that if they wish, but we do not think they need to go up by any more than RPI plus 1% over that period.

Q825 Mrs Ellman: Your written evidence talking about the future of the Saver ticket makes that future sound very uncertain. What are the implications of that for passengers?

Mr Harris: It is no secret that the Association of Train Operating Companies wanted us to deregulate Savers and they put up a fairly robust case on it, and I do not deny there is a case for deregulating Savers and moving to single leg journeys, but ultimately we made the decision actually that this was a move that the travelling public were not ready for and we basically disagreed with ATOC on this particular occasion.

Q826 Mrs Ellman: So does that mean the Saver ticket is safe?

Mr Harris: For the time being, but we are moving to a new structure of tickets later this year and I cannot, with all honesty, tell the Committee that in ten years' time from now the fares structure will be exactly as it is at the moment.

Q827 Mrs Ellman: Are you satisfied with the systems for improving rolling stock?

Mr Harris: Improving rolling stock or buying new rolling stock?

Q828 Mrs Ellman: Buying new rolling stock.

Mr Harris: I do not foresee any changes to the structure as was agreed in the 2004 White Paper. So in terms of the rolling stock companies, in terms of the ability of Train Operating Companies to release that rolling stock, yes, I am happy with that. I do not see any changes coming forward for that.

Q829 Mrs Ellman: What about procurement? Bombardier tell us that there could be a saving of 10% if procurement was organised in a better way and there were not the peaks and troughs that we have now.

Mr Harris: Obviously, I would have an interest in seeing the figures. I am as keen as anyone to see money saved.

Q830 Chairman: I do not want to be unkind, Minister, because you are such a lovely fellow, but I do think that Bombardier have given you more than once a very clear indication of the figures and in fact I happen to know, because I was sent a copy at the time, that they sent you a very detailed paper in the last six months. I am sure Mr Linnard would confirm that.

Mr Linnard: We are aware of their arguments about predictability and trying to avoid peaks and troughs.

Q831 Chairman: But it was quite a detailed paper, so it is not just a commercial argument, Mr Linnard, is it? There were very detailed figures within that.

Mr Linnard: Yes, and what we have said in the rolling stock plan, which we published at the end of January, is that so far as we possibly can we will organise the procurement of the extra 1300 vehicles that are coming in over the HLOS period in a way that minimises, so far as we can, peaks and troughs in the manufacturers' order books.

Q832 Mrs Ellman: Is there any rolling stock being stored anywhere which could be brought into use?

Mr Harris: There is occasionally some rolling stock which is at the end of its lease ready to be re-leased in the short term, but media reports of large quantities of rolling stock lying unused even though it is useable is not true. There is actually quite an inconvenient shortage of rolling stock in the industry, and this goes back to when I criticised the privatisation plan back in the 1990s. There was expected at that time to be a surplus of rolling stock at all stages, so that when franchises changed hands they would have a choice of rolling stock. That has not happened because of the growth of the industry, which is why we are committed to buying or procuring these 1300 new carriages. So if there is occasionally stock at the end of the lease waiting to be re-leased, that is an inevitable part of cascades but it is not a particularly worrying aspect of the leasing system because it does not happen in the long-term.

Q833 Mrs Ellman: Will the current orders from new rolling stock improve overcrowding, or will it just be keeping up with the increase in the number of passengers?

Mr Harris: It will improve overcrowding. It comes to a judgment about whether people can actually tell. In a very, very crowded train if there is a 10% increase in capacity sometimes you could be forgiven for not noticing that there has been that 10% increase. But ultimately, yes, it will improve capacity in London, all London stations apart from Moorgate (which is going to be relieved by Underground development) and in all major cities outside London. But - and I may regret saying this - you do hit on a valid point in that one of the consequences of a growing railway, of success, is that it could be perceived that we are sometimes running to keep still. It is, I have to tell you, a much better position to be in than worrying about falling patronage, but we are doing everything we possibly can to meet that capacity challenge because overwhelmingly that is the most important challenge we are facing at the moment.

Q834 Chairman: We have just taken evidence, Minister, that far from being bigger carriages - you may be right that people will not notice the extra room, although I would be surprised, but what they would notice is if there were fewer seats, and with the combination of the cascade and the new procurements there will be some lines that have smaller carriages, is that not the case?

Mr Harris: I am not intimately familiar with the design of some of the new rolling stock.

Q835 Chairman: No. Mr Linnard, is it not the case that some of the rolling stock that is being moved from one area to another will in fact be smaller carriages than the ones they have at the present time?

Mr Linnard: What they are interested in is not the physical configuration of the carriages but the amount of new capacity that is provided into the London stations and to the big cities outside London.

Q836 Chairman: So you do a calculation which involves not just seats but size of carriage, the numbers of trains, is that what you are saying?

Mr Linnard: Yes.

Q837 Chairman: So it is true that some trains will actually be smaller than the ones at the present time?

Mr Linnard: What we are interested in is the total capacity. The way that capacity is provided depends not just on the Department's planning but critically on the decisions that train operators make and the negotiations they have with rolling stock manufacturers and leasing companies.

Q838 Chairman: But you never actually involve the ROSCOs in any of these debates, do you, Mr Linnard?

Mr Linnard: We have kept the rolling stock leasing companies in touch with the development of the plan.

Q839 Chairman: I know they are bankers, and one does have one's reservations about bankers, but nevertheless they are the people who are going to pay for the rolling stock ultimately, after you have paid your bills. Why are they not part of the calculation, part of the debate, part even of the negotiations?

Mr Linnard: All I can say is that when we launched the rolling stock plan at the end of January we had an industry briefing session and the ROSCOs were at that briefing session. There have been bilateral discussions -

Q840 Chairman: That is not quite the point I am making, Mr Linnard. I am sure you are very good at keeping the whole of the industry informed from time to time, but what I am really saying is that these calculations, because of the way the privatisation structured the industry, means that the rolling stock when it is being negotiated is just not a matter for the Train Operating Companies or the Government, it is a matter for the Train Operating Companies, the ROSCOs who are responsible in many instances, in all instances, for the leases and yourselves, and yet they are not party to any of these debates.

Mr Harris: I would suggest, Chairman, that you are right in that of course ROSCOs have got a role to play, but actually I would probably put the emphasis far more on the Train Operating Companies. It is not up to my officials to decide what type of rolling stock a particular TOC needs, but it is up to the TOCs.

Q841 Chairman: But they do actually decide the numbers, do they not, Minister? Civil servants decide the numbers that are involved in the rolling stock figures, so why should they not actually decide not just the numbers but the type? What is the difference?

Mr Harris: The difference is that it is the Department for Transport that is finding the money to buy these 1300 new carriages, so of course when Douglas Alexander first announced the 1,000 new carriages back in February 2007 it was 1,000. The figures have gone up since then because we have been able to get the resources. So of course it is up to my officials and the DfT to decide how many trains we are going to procure, but it is primarily up to the Train Operating Companies, the people who actually run passenger services, to decide what the most appropriate type of rolling stock is. It is not up to my officials to do that.

Q842 Mr Martlew: On rolling stock - and I have just heard what you say - can you give us an explanation of what went wrong with the Pendalino extra carriages?

Mr Harris: I think I know what you are referring to. On reflection, I think it would have been better if the debate between Virgin and the DfT had not been conducted in public. I think that was unfortunate and I think some valid criticism could be levelled at the Department for Transport as far as the public perception is concerned. I wrote to all MPs with a West Coast Main Line interest to clarify exactly what the position was, because it emerged from the media that the story was that the DfT had said no to Pendalino line filling, which is not the case. We did say no to Virgin, to their proposal for what they called the two year extension to the franchise, what I perceived as being a new two year franchise without any competition, and they could not convince the Department, they could not convince me that that process would provide value for money or better value for money than an open contest. I was not prepared for the Department to be blackmailed with the prospect of Pendalino line filling there as the prize. So we now have the situation where we are still committed to Pendalino line filling, and in fact the process started today with an advertisement in the official journal of the European Union for the start of that procurement process and we will have those 106 new carriages in place by the start of the next franchise.

Q843 Mr Martlew: Which will be when?

Mr Harris: 2012.

Q844 Mr Martlew: But many of us were led to believe that they would be in service quite a bit sooner than that.

Mr Harris: Virgin's negotiating position was, "We want an extra two years on the franchise and on that basis we'll cooperate with the Pendalino line filling." The first part of that was not acceptable to us. I accept that if the conditions of that proposal had been different and had been acceptable to us, we would have been able to move more quickly.

Q845 Mr Martlew: Can I stay on the West Coast but come on to another issue? After the problems we had at Rugby, do you sincerely believe that the timetable set for 2008 will be able to be implemented? Do you not believe that there are going to be delays on the upgrade of the West Coast Main Line that will throw that into chaos?

Mr Harris: I think if I were to try and tell you or the rest of the Committee that in light of events at the New Year I have no doubts about the meeting of that timetable you would not believe me, so I am not going to say that.

Q846 Chairman: We believe every word you say, Minister!

Mr Harris: What I would say is that the ORR is conducting its own review of that timetable and it will be taking evidence up until the end of this month. If you do not mind, I am going to reserve my judgment to see what the ORR says because it is privy to a lot more of the detail that is necessary to make that judgment.

Q847 Mr Martlew: So what you are saying is that the jury is out until the ORR comes up with -

Mr Harris: Yes. I would not want to speculate on that publicly without the kind of detail that the ORR is privy to.

Q848 Mr Martlew: Let us hypothetically presume that it does not come in in December 2008. What are the consequences of that?

Mr Harris: There are quite severe penalties that the DfT would have to meet. In terms of track access charges, I believe the current regime for track access only runs until December this year, so any delay in the upgrade, the finalisation of the upgrade, will have a financial cost to the Department and that is something that -

Q849 Mr Martlew: So you will be paying the Train Operators money?

Mr Harris: Essentially.

Mr Linnard: There will also be a cost to Network Rail because it is not just Virgin who operates on West Coast.

Mr Harris: More significantly, I think it would be fairly damaging to Network Rail's reputation, which frankly could do without any more damage to its reputation at the moment. I understand that not all of the Train Operators are entirely happy with the idea of heading to that December 2008 deadline and having more, longer, possessions between now and then in order to achieve that. I think some of the Train Operating Companies undoubtedly would rather see that deadline extended into 2009. I am not going to cast judgment on whether that is the right judgment.

Q850 Mr Martlew: Especially if they will be compensated for it!

Mr Harris: That is something I am sure the Committee will take into account.

Mr Martlew: I will leave it at that.

Q851 Chairman: Minister, could I just ask you, in the light of serious and repeated breaches of network licences would you write to the Remuneration Committee of Network Rail and request that no bonus payments are made to senior managers this year?

Mr Harris: No.

Q852 Chairman: Why not?

Mr Harris: I do not think it is up to ministers to take that decision. It is up to Network Rail.

Q853 Chairman: The slight problem we have got is that the Office of Rail Regulation said to us very firmly it was not them, and you are telling us it is not you. There does seem to be a slight element of, "Not me, Guv," floating around here and perhaps the taxpayer will find it a little difficult to understand. If there are breaches of the licence, the network licence, what would normally be the Department's response? Mr Linnard, would someone say to them, "Perhaps this is not the year to pay large bonuses"?

Mr Linnard: If there is a breach of the licence, the Remuneration Committee has to take that into account in setting the directors' bonuses for the year in question and the Chief Executive of Network Rail has said publicly, very soon after the New Year overruns, that he would expect that to be reflected in bonuses in the organisation.

Q854 Chairman: He has that in common with quite a lot of us! We would all expect it to be reflected in the bonuses. All I am trying to find out is whether it will be.

Mr Harris: That has happened in the past, Chairman. Licence breaches in the past have been reflected in reduced bonuses.

Q855 Chairman: So we can assume that somebody will be taking a general interest in this. If Network Rail does not satisfy the Office of Rail Regulation by the end of March that it has got robust plans to complete the West Coast route modernisation in time for the timetable, what will happen? What will the Minister and the ministry do?

Mr Harris: I will not interfere in the running of Network Rail and I certainly will not interfere with any decision to be made about bonuses to directors.

Q856 Chairman: I see. So you are quite prepared to accept that the Office of Rail Regulation has sufficient power and sufficient muscle, is that what you are saying?

Mr Harris: Yes. As I have said before, Chairman, I am content that the existing structures in the rail industry are fit for purpose and I have not inclination to change them.

Q857 Mr Hollobone: The White Paper and the HLOS have been criticised by some because they do not seem to be joined up as much as they should be with other policies in other government departments. What steps have you taken to ensure maximum coordination?

Mr Harris: Would you mind saying exactly which policy areas?

Q858 Mr Hollobone: For example, spatial planning. The Government has got some very ambitious housing expansion targets and yet specific stations seem to be seeing a reduction in service under franchise arrangements, whereas the Department for Communities and Local Government is insisting that tens of thousands of new houses be built in those areas.

Mr Harris: In terms of timetable planning, what you have to remember is that timetable planning is actually a short-term exercise and housing planning is a very long-term exercise. The timetables generally change once a year, in December, sometimes in May, and timetables are actually fairly flexible beasts. They can be changed to accommodate different patterns of travelling. There are two things we are talking about, the HLOS up until 2014 and the long-term strategy. The long-term strategy, by its nature, it is not specific, it is more vague simply because it is very difficult to tell exactly the shape of things in 30 years' time. That has built into it a great deal of flexibility. In terms of HLOS, there is far less flexibility, and rightly so, because we want the industry to be assured of exactly what is going to be delivered over that five year period. I have not seen any evidence that the majority of the housing developments, for example, that we are talking about will all be delivered before 2014. I think it is a legitimate concern that the White Paper, particularly HLOS, should be part of joined-up government. I do not think that there is any evidence to say that it is not, but I absolutely accept that rail planning must take account of projected population growth.

Q859 Mr Hollobone: Let me give you an example. Route utilisation strategies tend to be set first for a five year period, as I understand it, so it is not an annual timetable, it is over a longer period. In an area I know well, in Kettering for example, the number of trains that serve Kettering station are to be cut back by about a third this December. At the same time the Department for Communities and Local Government is insisting that the number of houses in the borough of Kettering goes up by one third by 2021. The local authorities are tearing their hair out in trying to attract developers to the area to meet the Government's targets, yet the Department for Transport is effectively sanctioning a drastic reduction in the train service to the town. How can those two be squared?

Mr Harris: Without the facts and figures in front of me, Mr Hollobone, I would find it difficult to reply to that in detail. I do not know if you and I have actually corresponded on this already. If we have, I am afraid I cannot remember the details of the response I sent you.

Q860 Chairman: I am sure Kettering is the second centre of the universe after Crewe, but the point Mr Hollobone is making is one of principle. Does the Government automatically, where it is asking for an expansion of population, an expansion of housing, an expansion of jobs, take account of the fact that it may be that the Department for Transport is actually apparently going in the opposite direction? So it is really a matter of principle. It is not whether or not Mr Hollobone's own personal station gets the trains, it is whether this is happening - we do have these marvellous phrases - in a joined-up government? Do you sort of weigh the Department of Environment from time to time to find out what they are doing, which is probably all one should ever do?

Mr Harris: Of course rail planning, especially long-term planning, must take account of growth areas in the country. I am not quite sure how valid an accusation would be that we are conspiring to reduce services in areas of growth.

Q861 Chairman: No, I would never accuse you of conspiring, Minister. I do not think you talk to one another often enough to conspire! Sending the odd text message might be a sort of gesture! Mr Linnard, do you have a joint committee with that brilliant Department of Local Government, or whatever it is called at the moment, and the Environment and plan the expansion of rail services in relation to the regional spatial policies?

Mr Linnard: I was not at the meeting myself, Chairman.

Q862 Chairman: But you do have one, Mr Linnard?

Mr Linnard: There was a meeting within the last couple of weeks at actually permanent secretary level between Transport and CLG to talk about future housing growth plans and the implications for the rail. As the Minister said, we are really talking about the planning that will go into the next HLOS, the one from 2014 onwards.

Q863 Chairman: Yes. Then I think that rather begs the question, what is going to happen between now and 2014? Or are we not actually planning for anything in between?

Mr Harris: Chairman, what will happen between 2009 and 2014 is that the amount of people being carried on the railways is going to increase significantly in all parts of the country. I have dealt with a number of colleagues, for example, on the West Coast Main Line upgrade on local difficulties over the timetable. There is an example of a major project which is going to deliver a significant 30% increase in capacity, a 50% increase in services between London northwards to Birmingham and Manchester, but inevitably and understandably colleagues whose local constituency stations are perhaps not receiving the full benefit they expected are coming to lobby me about that. I have to recognise that there are valid concerns there, but the bigger picture is that capacity is increasing and services are improving and the number of services is increasing. That does not actually mean that every single station on every single line can receive extra services.

Chairman: No, I do not think we are asking you that. Perhaps you would like to give us, Mr Linnard, a short note which would just delineate those areas which the Department for Transport is talking to, whether it is in the far, far future or whether it is more within the next step.

Q864 Graham Stringer: One of the measures of success of the rail system which ministers regularly quote is the increase in passenger numbers. I did not realise until we had witnesses here a fortnight ago that the passenger numbers did not represent single people. If you go on one journey and you use two franchises, apparently in the Government's statistics that counts as two journeys. Is that right?

Mr Harris: No. My understanding is that when we talk of passenger journeys we talk about one ticket for a journey. So if someone is travelling from Exeter to Glasgow and they have to change trains a couple of times, that is one journey.

Q865 Graham Stringer: And franchises?

Mr Harris: And if they have to change franchises, yes, that would be one journey. That is my understanding, because they buy one ticket. It is a new one on me, Chairman, so -

Q866 Graham Stringer: We did hear that very directly in evidence, that one journey with split tickets counted twice in your statistics. We also heard that journeys going to London, if there were two possible destinations you could be going to, are counted twice in the statistics. So you are saying that is absolutely not true?

Mr Harris: My understanding is that that is not true. You have raised a 1% doubt in my mind, and I am happy to write to the Committee to clarify that, Chairman, but I would also say that even if you were to take passenger kilometres, which would take account of that anomaly, you are still seeing a very, very significant rise.

Q867 Graham Stringer: I do not think anybody who travels on the trains doubts that there has been an increase, it is just getting it quantified.

Mr Harris: It is worth clarifying that. But that is my understanding and I will clarify that in writing.

Q868 Graham Stringer: Exactly. On a different subject, could you tell us why Birmingham and Reading were chosen for refurbishment and capacity enhancement and not other stations? I am obviously thinking about Manchester, but it would apply to other stations as well.

Mr Harris: Sure. Birmingham received, from memory - the record will show exactly what it was, but from the HLOS budget about Ł125 million of the total that was needed for the Gateway project. The rest of it did not come from the rail budget directly. Reading is actually one of the worst bottlenecks in the country. I understand it was first identified by Isambard Kingdom Brunel and not much has been done about it ever since, so in that respect I am quite glad the Government has got round to doing something about it. That will actually free up a huge amount of capacity west of Reading on the Great Western Main Line. Why those two stations instead of Manchester or anywhere else? The question could probably be turned around the other way if we had chosen Manchester and Newcastle, why Manchester and Newcastle and not Birmingham and Reading?

Q869 Graham Stringer: We all fight for our own areas. I just wondered if there was a series of hard criteria, because certainly John Prescott identified in - I cannot remember whether it was a ten year plan or another white paper - twenty-odd pinch points in the rail system and platforms 13 and 14 in Piccadilly was one of them, as were other parts of the country. I just wonder why it is Reading, as opposed to those pinch points all identified by this Government within the last ten years. I would be interested to know what the criteria were.

Mr Harris: Certainly in terms of train paths and the amount of congestion caused at Reading - and as I say, it is a historical problem and it should have been sorted out long before now - I do not want to give the impression that because we have identified Birmingham and Reading in HLOS therefore no other conurbation is going to receive any attention because that is simply not the case. On the Manchester Hub, Network Rail is leading a review of what is actually needed there and that is something the Government is going to take very seriously. I see the rail network as a national jewel in the crown, if you like, a national asset.

Chairman: I do not think we argue with that, Minister. We just want to know what are the criteria. In fact I do not think we are objection to either of those particular stations, but we could give you a list of 18 more that are about the same.

Q870 Graham Stringer: The Government's own list of pinch points I supported. It would be good if all those pinch points were not pinch points and capacity was increased. Can you tell us how you choose between them? Can you, Mr Linnard?

Mr Linnard: Broadly, it would have been done on a benefit/cost appraisal and the critical factor would have been the extent of the constraint that the existing layout of the stations was causing to rail capacity, so where we would get the biggest return for the money, which ultimately was limited money.

Q871 Graham Stringer: Money is always limited. So there is a cost-benefit analysis at the back of this. Can the Committee see it?

Mr Linnard: We can certainly give you a description of how the calculations were done, yes.

Q872 Graham Stringer: But could we see the actual cost-benefit analysis?

Mr Linnard: I do not see why not.

Mr Harris: I certainly do not see any reason why not.

Graham Stringer: Thank you.

Q873 Mrs Ellman: The National Passenger Survey undertaken at the end of last year shows that only 45% of rail passengers think they are getting good value for money with the fares. Is that something that concerns you?

Mr Harris: Yes, it is, although the same passenger survey did conclude that 81% of passengers were satisfied with the service they got. But yes, it does concern me, that figure of value for money. Short of saying that we are going to take money out of the HLOS budget that is currently identified for capacity and instead use it to subsidise more rail fare, which I am not prepared to do and it would not be the right thing to do, I have got the responsibility of trying to explain to you and to the public why fares have increased and what that money is actually going to create, because that money is ultimately used for increasing capacity and the service that people get.

Q874 Mrs Ellman: But what about the costs? What about keeping the costs down?

Mr Harris: Regulated fares, after taking inflation into account, are no more expensive today than they were at privatisation and I think that is something we should actually be reminding people about. Unregulated fares, of course, are a different matter and I do not have any control, nor do I want any control, over unregulated fares. But most people, 80% of passengers, travel on regulated or discounted tickets and I think sometimes when the media report a very eye-catching top price for a particular journey we lose sight of the fact that that is not the price that people actually pay. Virgin have told me that 80% of people who travel between London and Manchester on a one-way pay less than Ł35. That is actually a very good deal.

Q875 Mrs Ellman: But that all depends on people's needs, does it not, and ability to plan ahead and to get the right information at the right time?

Mr Harris: Nevertheless, it is 80%.

Q876 Mrs Ellman: You mentioned that before, but train operators claim that premium payments into the Treasury will increase tenfold to Ł1.28 billion by 2014. What impact will that have on unregulated fares?

Mr Harris: The effect that has on unregulated fares is a matter for the Train Operating Companies. I understand the argument that if they have to pay a higher premium, then they have to put up unregulated fares. It comes as no surprise to me that Train Operating Companies do not like to pay a premium and that they would rather not pay it. If I were in a Train Operating Company, I would rather not pay it to the Government either, but that is money that comes directly to the Department for Transport. It is money which is directly reinvested in the rail network. I make no apology for saying that if a company is making a profit out of a franchise they have won from the DfT that is a very profitable franchise, I think it is a good thing, and I make no apology for the fact that they give us money. They pay some of that profit back into the DfT, which we then put back into the industry.

Q877 Mrs Ellman: But when you make predictions about the rates of growth of passengers, what assumptions do you make about the impact on passenger growth of increases in fares?

Mr Harris: There is no evidence that increases in fares is going to have any kind of negative effect on passenger growth. I think the reason for that is, as I said earlier on, that the vast majority of people actually travel on regulated or discounted anyway. If you are travelling at off-peak times and if you are not using a Saver return, if you are using a full price walk-up-and-go ticket, then you are not travelling on the whole for business purposes and there is an element of market competition there. The Train Operating Co