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Train operators continue to feel the effects of the economic slowdown. We naturally try to take an informed view about what might happen to franchisees. Franchise agreements require operators regularly to supply the Department with detailed and forward-looking financial information, including business plans and rolling forecasts. Speculation about whether franchisees might default would be improper, and would destabilise the market. Ultimately, we cannot be certain what actions a parent group or franchisee might take until we are notified of a default.
The hon. Member for Wimbledon sought to wring the last available point of political benefit out of his freedom of information inquiries, but I think he has misunderstood what the then Secretary of State, my right hon. Friend the Member for Ashfield (Mr. Hoon), was saying on 1 May 2009 in looking at a management contract. There was certainly no commitment to put a management contract in place; it is just one of the options for maintaining services and protecting passengers when we know that a franchise might be moving towards potential financial difficulties. If a management contract had been put in place, it would have been very short term and it would have been done to allow refranchising to take place-nothing more or less than that. The hon. Gentleman has misunderstood what was happening.
Stephen Hammond: It is clear from the response to the FOI request that the previous Secretary of State, the right hon. Member for Ashfield (Mr. Hoon), instructed that management contract negotiations should begin between the parties of the Department for Transport and National Express. That is made quite clear in the response to the FOI request. I have not misunderstood anything, and whether it was a short-term arrangement is irrelevant. It is not appropriate to say the situation has been misunderstood, because the key point is that negotiations were undertaken. Ministers from the Department later said no such negotiations were taking place but, through the release of departmental papers, the previous Secretary of State has shown that they were.
Chris Mole: No, no, no. Clearly, the purpose of a management contract is not to renegotiate the franchise with the franchisee for the remaining life of the franchise; it is to prepare and protect passengers and services during a period when there may be some uncertainty. That is not the same as renegotiating a franchise to allow the franchise holder to stay in place for the duration of the franchise, which I believe is the normal interpretation of renegotiating a franchise.
I would like to move on to fares, which I know is a subject of interest to many hon. Members and their constituents. I welcome the opportunity to discuss the policies that the Government have in place. As I suggested in my intervention on the Chair of the Select Committee, more than 60 per cent. of all rail journeys are made on regulated fares. The Government limit most operators to an average increase in regulated fares of no more than 1 per cent. above inflation each year.
Regulated fares are there to protect those who generally have little alternative to rail when making necessary journeys-for example, season ticket holders or those needing to purchase a ticket on the day of travel for longer-distance journeys, where a regulated flexible fare,
such as the off-peak return or super off-peak return, would apply. I was a little bemused, shall we say, by the hon. Member for Lewes making robust assertions about changes in unregulated fares, because the only conclusion one can draw from that is that he believes they should somehow become regulated fares, or that all fares should be regulated. That is a retrograde step if we want franchisees to be able to use their initiative to provide fares that are competitive and attractive to the travelling public.
Norman Baker: If I may say so, the Minister was not listening very clearly to what I was saying because I suggested two mechanisms to try to make matters better. One suggestion was to have a ratio relationship between regulated and unregulated fares, beyond which they could not rise. That is not the same as deciding what every fare should be; it is setting a maximum ceiling. The second suggestion was to look at the rather techie point of how the moneys are divided between train companies for particular classes of tickets sold. That is far different from the gross distortion with which I have just been confronted.
Chris Mole: I listened to the hon. Gentleman's second point and thought that, given our earlier comments on perverse incentives in the cap-and-collar arrangements, if train operators were asked to share the advance fares, what incentive would there be for them to promote advance fares in the way they do?
Norman Baker: I will happily answer that question as well. They will still have an incentive to sell advance fares because they have empty seats that they will wish to sell, particularly on off-peak train services, so that incentive will not disappear. However, they will also see an incentive not to overprice walk-on fares for the reasons the Minister has heard from all Members present.
Chris Mole: The incentive for them not to overprice any of the non-regulated fares is that they are in competition with other modes of travel. Entirely for that reason, they are non-regulated fares. I am sorry, but I do not think that the hon. Gentleman's argument holds water.
Ms Angela C. Smith: Is not the reality that the unregulated fares are not competitive with other modes of travel, as was pointed out by the hon. Member for Lewes (Norman Baker)? The cost of car travel has decreased in the past 10 years and the cost of rail travel has increased. If we are to reduce congestion on the roads and the impact of climate change, we must tackle the matter as a country. It is not just about competitiveness within the industry. It is a far broader question.
Chris Mole: In her introductory remarks, my hon. Friend the Member for Liverpool, Riverside drew attention to the fact that rail passenger numbers are now at the level they were at in the 1940s. If the fares were so uncompetitive, clearly the train operating companies would have been unable to fill the gaps between the peaks, which is what they have done so successfully. I am sorry to have to disagree with my hon. Friend the Member for Sheffield, Hillsborough on that point, although I will argue that there is some link between regulated and unregulated fares anyway.
Ms Smith: Passenger growth has to some extent been fuelled by the fact that the road networks are getting so congested, particularly in the south-east of England, that there is no choice but to use the trains. There has been a success story, as I acknowledged in my earlier contribution, but we are rapidly coming to the point at which the fare prices on offer could impact on future growth of the railways. It is not necessarily a given that growth will continue regardless of the fares.
Chris Mole: I do not want to disagree with my hon. Friend, but the evidence we have indicates that ridership will continue to rise in the coming years, which is why we are making unprecedented levels of investment in the rail network.
My noble Friend the Secretary of State appeared before the Transport Committee last June to talk about fares and a change that was made in the way fares are regulated. We removed the flexibility for train operators to increase individually regulated fares by up to 5 per cent. more than the average, so long as compensatory adjustments were made to other regulated fares. I am unable to give my hon. Friend the Member for Liverpool, Riverside any further information about what might happen in future years. Last July's retail prices index figure of minus 1.4 per cent. has meant that many fares, including most commuter fares, fell this January. We hope that those reductions will encourage more people to travel by train.
I was a little surprised that my hon. Friend referenced a piece of evidence from the Library that referred to 1987. If those figures are correct, I am certainly not going to take any responsibility for what might have happened in the first 10 years of that period. Certainly, in the past 15 years we have seen rail fares rise less than earnings. One can see that by looking at several popular journeys: a ticket from London to Birmingham in January 1995 cost £55, and this year it is £140, but the notional price this year if the RPI change was applied would have been £143; a ticket from London to Manchester in 1995 was £96, and this year it is £262, but it would have been £269 if RPI was applied; and a journey from London to Norwich was £55 in 1995, and that has risen to £82, but it would have been nearly £97 if RPI was applied.
Norman Baker: I hear the Minister's examples, but according to an earlier written answer, the cost of travelling by train has risen by 13 per cent. above inflation in real terms since 1997 and the cost of travelling by car has gone down 14 per cent. Those are the Government's figures.
Stephen Hammond: The implication of what the Minister has just said, with regard to the document that referred back to 1987, is that fare increases were higher when the railway was in nationalised hands than they have been since the industry was privatised. Is that what the Minister was trying to say?
Chris Mole: No, I was drawing attention to the Government who were in power at the time, as fares were allowed to rise by considerably more than they have done under this Government. I want to draw the attention of the hon. Member for Lewes to the cost of a train journey from Lewes to Newhaven Town, which was £3.80 in 1995, but £3.90 this year, having increased by 10p in 15 years, which I suspect his constituents would regard as stonkingly good value.
Ms Angela C. Smith: I will refer to my own experience a few weeks ago, when I left Sheffield to watch Sheffield Wednesday play Nottingham Forest. We wanted to buy two train tickets to go to the match because we did not fancy the congestion in Nottingham, but the cost was nearly £40. In the car, on the basis of 40p a mile, the cost would be £24. Consequently, we went in the car and took the hit in the time it took us to get home because it was so much cheaper than going by train. Sheffield to Nottingham is a common commuting journey.
Chris Mole: No. The website gives the true and real costs of motorcar travel and a better indication of what it will cost to make a journey, above and beyond the fuel cost alone. That might change my hon. Friend's perspective on the value for money of that journey.
Norman Baker: I am grateful to the Minster for drawing attention to the Lewes to Newhaven line, because I persuaded the rail company that it was in its interests to fill empty space and that, were it to introduce a reduced fare on the journeys to Lewes on which it had spare capacity, it would get more passengers. To its surprise, by cutting the fares by a third it has got the same amount of income coming in. That is an example of train companies responding properly, and that is why those fares are still down.
Chris Mole: I do not know whether the hon. Gentleman's efforts extend to the journey from Hitchin to London, which was £18 in 1995 and is now only £19.50, or to the journey from Newport to Cardiff, which was £3.40 in 1995 and has increased by only 70p to £4.10 this year. Cleary, it is dangerous to generalise in the way some do on different fares, except that 60 per cent. of passengers travel on a regulated fare, and this year, as I have said, they have seen their fares fall for the first time in living memory.
Passenger Focus, working with the Association of Train Operating Companies, has recently published research exploring the factors that prevent people from using the railway. The research revealed that many people believe that travelling by train instead of by car would increase journey time, involve more hassle and prove too expensive. However, when passengers were encouraged to "give rail a go", participants said that catching the train was more comfortable and reliable than they expected. In some cases, passengers found that the ticket was significantly cheaper than they had expected.
We need to tackle negative perceptions of train travel and encourage more people to travel by train. We aim to continue to work with Passenger Focus, the Office of Rail Regulation and the train operators to improve the quality of information given to passengers.
In 2008, with the encouragement of the Government, the industry introduced a new simplified fares structure that has three main ticket types: advance, off-peak and anytime. The National Rail website has recently had a major upgrade which emphasises this simplified structure, and my hon. Friend the Member for Sheffield, Hillsborough may find that the website is now simpler to use. It includes a link to a site called Best Value Fares which signposts information about where customers can buy train tickets, including information on independent websites such as The Trainline and Raileasy.
Of course, at the end of the day, there are only two sources of funding for the railway: the taxpayer and the fare payer. We need to strike a balance between the burden placed on taxpayers and that imposed on fare payers. In the past five or six years, the amount invested in rail has risen and the increase has been almost entirely funded by taxpayers.
A major development that I would like to bring to the attention of the House is that Oyster pay-as-you-go was rolled out across the national rail services in London on 2( )January. That will make life easier and simpler for travellers. Oyster on rail will simplify travel across London for passengers who need to use national rail and other forms of transport such as the underground-they will now need only one type of ticket. Now all the users of the major public transport networks in the capital have the assurance that their pay-as-you-go fare will be at least as cheap as the cheapest cash fare, and often cheaper. Pay-as-you-go fares on rail have become regulated because, as pay-as-you-go is bound to become the standard way to pay for a walk-up fare, passengers will need the protection of having such fares within the regulatory system.
In December, the Department published the first ever smart and integrated ticketing strategy for public transport in England, including up to £20 million of additional funding for the large urban areas outside London, to speed up development of smart ticketing schemes. Oyster pay-as-you-go is well suited to the kinds of journey made in London but it is not right for the whole public transport network. The Government's vision is based on the Integrated Transport Smartcard Organisation specification. That is why part of the pay-as-you-go deal is for ITSO to be accepted in due course on the bus and underground networks in London.
In conclusion, I believe that the right investment is in place to achieve our objectives for rail. Despite the global economic downturn, further significant growth in passenger numbers over the next 10 years is still predicted. We are making the biggest investment in capacity for a generation. Franchise contracts contain strong safeguards to ensure that key standards are met, even in a recession. There will be even tougher performance measures to ensure that longer franchises continue to deliver for passengers.
Rail passengers can be more confident than ever that they are buying a ticket for a fair price. Our policy is one of continuous improvement, and we aim to achieve value for money for passengers alongside the ongoing capability to invest in the rail network.
Mrs. Ellman: Thank you, Mrs. Anderson. With the leave of the House, I would like to respond briefly and say how pleased I am that there is such strong agreement on the importance of rail, investment and attention to the services that the public require, and on the need for risk to be shared more equitably, which is an important point.
The proposals in the Department's document "The Future of Rail Franchising" reinforce many of the points in the Select Committee's report, and have been
supported by comments made during this debate. It is important that they are followed through, and that includes the need for longer franchising with appropriate safeguards, and the need for fares that will encourage the use of rail.
I hope that because of this debate, the question of the future of the east coast main line will be considered in an open and proper manner, and that there will be adherence to a statement made in a letter to me from the Secretary of State that a new franchise would not be awarded unless it demonstrated better value for money than a state operator would provide.