Statement: First ScotRail Franchise

Scottish Parliament

Thursday 17 April 2008

[THE PRESIDING OFFICER opened the meeting at 09:15]

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First ScotRail Franchise

The Presiding Officer (Alex Fergusson): The next item of business is a 10-minute statement by Stewart Stevenson on the extension of the First ScotRail franchise. As the minister will take questions at the end of his statement, there should be no interventions.

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The Minister for Transport, Infrastructure and Climate Change (Stewart Stevenson): The ScotRail franchise is key to the delivery of rail services in Scotland. I am delighted to have the opportunity to make a statement to Parliament on it and to demonstrate the Government's commitment to further developing our railway, growing the number of services that are provided, improving the value for money that is delivered and reducing the financial risk to our budget while retaining the option to refranchise in 2011 if First ScotRail does not deliver on the tougher regime to which it has now signed up. The agreement that was signed on 2 April delivers on all of that.

In delivering the contract's 2,000-plus daily services, First ScotRail has been performing exceptionally above the targets that were set for it. Punctuality is up by more than 50 per cent against a 6 per cent target, and passenger numbers are up almost 30 per cent, to 82 million this year. That success extends to improvements in service quality, and since 2004, more than 760 jobs have been created in the company, which represents an increase of more than 22 per cent in the workforce. More jobs have been created, more services are running and there is more value still to come.

However, success has brought its own issues. First ScotRail has greatly exceeded the revenue targets in the contract's revenue share provision, which provides returns to the Government if revenue exceeds projections. Analysis shows that First ScotRail will return revenue to the state at 80p in the pound for the remaining life of the franchise. At first sight, that appears to be good news, but it means that there is a misalignment between First ScotRail's incentives and our own. In striving to improve the railways, we faced a franchisee that would be driven to focus on lowering costs, not on growing the business. The franchise needed to be developed for expansion. Allowing rail growth to tail off or operating a contract that struggled with large developments were not options.

We considered how we could change the contract to secure best value. The option to extend the contract has existed since the franchise was let in 2004, as colleagues may remember from Nicol Stephen's press release of 20 August that year, in which the franchise competition results were announced. Its purpose was outlined even earlier, on 5 December 2002, when Iain Gray announced the contract duration.

We were not content to give an unconditional extension; rather, we developed an option whereby any failure to deliver on planned developments before autumn 2009 would leave ministers in a position to review the extension. I was content that the proposed terms meant that we had an opportunity to secure value in the transaction and to trigger early improvements in rail services. An agreement was signed on 2 April and, observing the process for announcements during recess, we made an announcement the following day.

I have heard concerns that there was no consultation on the extension. However, we need to bear in mind the fact that this was not a refranchise—on which we would, of course, consult widely—but an extension of the existing contract, which had been anticipated since 2002. We have simply implemented that option.

Revisiting the terms of the franchise has brought several benefits. Resetting the revenue share has brought longer-term benefits of around £50 million in reduced subsidy. Importantly, that is all predicated on removing barriers to growth. The Government worked to establish a proposition that gave value for money, deliverability and, critically, additionality in putting together a sound set of proposals. Our focus was to deliver Scotland's railways as part of the national transport strategy, which was itself the subject of extensive consultation.

Today, and as more material is made public, we will expand on the benefits that the extension delivers. Resetting revenue targets has secured a guaranteed return of £65 million. Capturing a share of additional value to FirstGroup in the extension, we have secured at least a further £6 million. We have created an entirely new profit share that kicks in when the franchisee's profit goes above £30 million, greatly limiting any prospect of contractor windfall. Benchmarks have been tightened to secure good performance for the life of the franchise, removing the franchisee's cushion and renewing its focus.

We have been able to secure fixed prices for an exciting range of new initiatives that will benefit passengers throughout Scotland. The element of the £70-plus million that has been secured that will be free for new services is dependent on the Office of Rail Regulation's final determination on Network Rail's business plan. However, we will work with stakeholders to identify which of those services can be implemented efficiently. I have already announced a number of new services, including services for the Commonwealth games, the extension of the Edinburgh to Glasgow service, better connectivity to London and new services to Wick and Tain. Emphasising the need to focus on sustainability, we have also targeted £1 million to improve unused station buildings.

In all of this, there are two points to emphasise. First, these contractual improvements have been secured without any uplift in the subsidy level in return. Secondly, the extension remains conditional on performance: it is at the franchisee's risk. If the franchisee does not deliver, Government may terminate the franchise at the original 2011 expiry date. The 2009 deadline for this option allows more than sufficient time to consult on and let a new franchise in 2011.

Let us move away from detail and examine what the deal means in wider terms. It is the means of delivering one of the key commitments in our manifesto, in which we said:

"Our immediate priority ... is to improve services for Scotland's commuters ... to provide more space, more frequent services and faster journey times."

It also supports our wider transport strategy. It gives back to First ScotRail the incentive to grow the business. It provides stability to deliver the Government's vision for services and continuity to develop and implement our projects, culminating in the delivery of the service programme that will be a crucial support to the Commonwealth games in 2014.

Ensuring that business growth can continue promotes financial sustainability. In 2014, the franchise will be in even better shape to allow us to consider our options. The deal also promotes environmental sustainability through schemes that aim to reduce emissions and make best use of resources. Lastly, it works to promote social capital with investment in the regeneration fund.

We have taken the opportunity to build on success and to improve the quality, the affordability, the accessibility and, fundamentally, the attractiveness of the railways. The announcement is also good news for rail employees and their representatives. The deal secures the growth in numbers and skills of the ScotRail workforce and looks forward to continued growth under our future plans.

The Government's purpose is to create a more successful country, with opportunities for all of Scotland to flourish, through increasing economic growth. To deliver that, and to ensure that we continue to give Scotland a competitive edge, we need a modern, efficient rail service underpinning a thriving, prosperous economy. Ultimately, our actions show the Government's commitment to delivering a transport system that stimulates economic growth and encourages greater use of public transport.

The Deputy Presiding Officer (Trish Godman): The minister will take questions on the issues raised in his statement. I will allow 20 minutes for questions.

Des McNulty (Clydebank and Milngavie) (Lab): Having been dragged to the chamber to make his statement, the minister does not seem to have shed much light on the issue. We have had no adequate explanation for the urgency with which the extension to the franchise was rushed through. The minister made much of service improvements and of the £70 million that will be geared towards new services, but a considerable percentage of those new services are for beyond 2011 and are not deliverable within the timescale of the franchise extension. The argument that the extension allows the minister to put the franchise up for renegotiation in 2009, while perhaps technically true, makes a nonsense of the process that we have gone through. It is an affront to the stakeholders—the people who work in the industry and those who use the services—that we have had this hole-and-corner exercise.

Let me quote from the February 2008 Audit Scotland project brief:

"The timing of this study therefore provides an opportunity to identify lessons to be learned from the franchise's performance and management to date which Transport Scotland can apply to developing the franchise further before the three-year extension or the new franchise term commences."

A lot could be learned from the operation of the franchise that could have informed the negotiations. Why was the minister not prepared to learn lessons from Audit Scotland's review, which will be completed in October? Why did the Auditor General for Scotland know nothing about the extension of the franchise before it was awarded?

Where and when will the new services to which the minister referred be put in place? Is the decision to extend the franchise fundamentally about a black hole in the minister's budget rather than about improved services for the people of Scotland?

Stewart Stevenson: The Government has retained the option, which it has written into the contract, to proceed to relet the franchise in 2011. We can consider that option until autumn 2009, which is a period of 18 months. That is comfortably a period within which we can receive, analyse and respond to the Audit Scotland report. In stepping up to the table and in making more money available for the development of Scotland's railways, First ScotRail is expressing its confidence in its ability to continue to improve its performance. We have had a 50 per cent reduction in time slippage, as against a 6 per cent target. We have had a 30 per cent increase in passenger numbers because the railways are a more attractive option. Far from the option of reletting the franchise in 2011 being a nonsense, the Government has secured a safety net that reduces the financial risk to our budgets and increases the money that is available to invest in Scotland's railways.

It is noticeable that passenger representatives very much welcome the increase in investment in Scotland's railways. I can assure members that the people whom I have met since our announcement have been very much behind it. They look forward to improvements in Scotland's railways. The nature of those improvements will be part of the future engagement that we will have with the people who work in the industry, with rail users and with stakeholders throughout Scotland. That is an important part of what we can now do to improve Scotland's railways, to which this minister, as a regular user of the railways, is fully committed, and this Government likewise.

Alex Johnstone (North East Scotland) (Con): I thank the minister for the advance copy of his statement. Although I believe that the decision to grant the extension to FirstGroup was, on balance, correct, I have little doubt that the previous Executive would have done exactly the same thing, given its fawning over ScotRail in the past.

Through his announcement during the recess, I suggest that the minister has created the impression of a smoke-and-mirrors approach. However, I have a number of questions for him. First, what specific operational benefits has he managed to secure in return for the extension? Although the £70 million investment fund, of which I regret there is not more detail, appears welcome, passengers will want to know what specific improvements to expect to their services. What improvements has the minister secured, for example, to enhance the quality of service on long-distance routes such as the Edinburgh to Aberdeen and Glasgow to Inverness routes, which, in some regards, are inferior to the service that was provided 20 years ago?

The minister is aware of concerns about the massive level of taxpayer subsidy that is being ploughed into the franchise, not least because it dwarfs the meagre £40 million that was initially promised by First. Related to that, does the minister agree that the notion of a privatised railway service in Scotland is something of a charade in light of the intensely detailed level of micromanagement that civil servants at Transport Scotland exert? Will he therefore consider how greater control of operations might be given back to the railway people who know best, thus giving the operator of the day far greater commercial freedom to respond to demand and improve services?

Stewart Stevenson: Perhaps if the member had listened to some of the debates on Stewart Maxwell's smoking proposals and the subsequent Government bill, he would know that this particular minister is violently opposed to smoking: smoke and mirrors there were none.

The member asked about specific improvements. I offer an example of one of the absurdities in the present system. The first train out of Edinburgh to London leaves at 10 to 6 in the morning. There are no trains to bring people from across Scotland to join that train, so people drive to join it. One of the service improvements that we can examine is earlier trains that will enable people to get to Edinburgh to catch the early trains to London, thus delivering on climate change as well as making significant improvements to the rail network.

The member mentioned a taxpayer subsidy. Believe me, in addition to all the other benefits, we have capped and contained the taxpayer subsidy—there is no increase in that subsidy. Mr Johnstone was teasing slightly when he suggested that the privatisation of the railway has been an unalloyed success. A majority of members probably think that it has been an extremely troubled time for the railways. We are fortunate that the previous Administration, working with our colleagues at the Department for Transport, secured an operator in 2004 that has delivered so much for Scotland. It is therefore prudent and sensible that we continue to work with First ScotRail, the winner of United Kingdom transport operator of the year in two consecutive years, and which has overachieved on the targets that were set in the 2004 contract.

Alison McInnes (North East Scotland) (LD): Like others in the chamber and beyond, I am bewildered by the Government's headlong rush into this franchise extension and I am angered by the disdain that it shows towards Parliament and key stakeholders.

However, it is amusing to witness the Scottish National Party Government's latest U-turn, because I recall Kenny MacAskill saying:

"The SNP will seek a mandate to bring our train network back into public hands through a not-for-profit trust."

Did the Government even look at the possibility of having a not-for-profit model? Can we see that analysis?

The minister has committed another £800 million of taxpayers' money without any dialogue with key stakeholders, such as unions, regional transport partnerships and passenger organisations, yet he has completely failed to justify this precipitous decision that the Scottish Trades Union Congress has called "hugely disappointing".

There are questions around the Audit Scotland report. Although First ScotRail has made significant strides in improving rail services, I, like Des McNulty, would like to know why the Government did not wait for the report's publication to find out whether any lessons can be learned. What will happen to the Audit Scotland report? Have its terms changed? Indeed, will a report be published at all? If so, what will happen if its recommendations are inconsistent with the Government's plans?

In Passenger Focus's recent survey, 80 per cent of rail passengers felt that they did not get good value for money. Does the Government expect rail ticket prices to be reduced? What are the conditions in the franchise to restrict increases in regulated fares? Does the Scottish Government plan to investigate with First ScotRail ways of lowering the cost of rail travel?

The minister's statement raises many more questions than it answers. Will he let us see the details of the cost benefit or value-for-money analysis that must have been done?

Stewart Stevenson: Some members betray their lack of business experience. Every single day that we delayed in putting in place the new arrangements was another day that we denied the public purse and Scotland's railways the benefits of the new system. From the moment that we signed the agreement, we began to get those benefits—which, as I say, would have diminished if we had moved back the signing date.

The member wanted to know what we will do about the Audit Scotland report. Audit Scotland sets its own terms and makes its own arrangements with regard to audits. However, I reiterate, yet again, the key point: the period to autumn 2009, which is well after the deadline for the publication of Audit Scotland's report on the franchise, is the window for the Government to respond to any criticisms.

The fact is that First ScotRail has to deliver. This agreement is not a blank cheque; on the contrary, it not only locks in the various benefits and increases investment in Scotland's railways, but retains the quality requirement on First ScotRail, which will be assessed both by us and by Audit Scotland.

As for regulated fares, it was Nicol Stephen who signed up to that particular environment. If the member has any questions on that matter, she knows whom to ask.

Cathy Peattie (Falkirk East) (Lab): I am very concerned about the lack of consultation. Will the minister assure us that the Government will consult all stakeholders, including trade unions, local authorities, passengers and special interest groups that represent, for instance, those with disabilities? In the previous parliamentary session, the Equal Opportunities Committee heard of the nightmare that is faced by many disabled people who use the rail network. How will the franchise deliver improved services for disabled passengers? Indeed, if the Government does not talk to those passengers, how will it know how to deliver such improvements?

Stewart Stevenson: Curiously enough, I intend to listen to them as well as talk to them. As I made clear in my statement, there will be engagement to decide how we can best leverage in the £70 million to the benefit of all users.

I acknowledge what the member said about disabled people. Of course, the Department for Transport in London is responsible for improving access to railway stations for those people. I have spoken a couple of times to my opposite number, Mr Harris—on perfectly amicable terms, I should add—and he shares my concerns about ensuring that we improve access to stations.

I recently attended the conclusion of a long-running campaign at Lockerbie station, where, with investment provided by the DFT and facilitated by Transport Scotland—the two Governments, as it were, working in harness—disabled people's needs were addressed. Of course, disabled people will be among those to whom we will listen—and not simply lecture—when we come to find out how to get value for money for the £70 million that we have secured under the new arrangement.

Christina McKelvie (Central Scotland) (SNP): Will the minister guarantee that the Audit Scotland report will trigger a wide consultation on the future of rail services in Scotland, which will seek opinions from everyone with a stake in our railways and will—in a bit of a different approach to what happened in 2002—lead to consensus on the way in which our railways will operate in the future?

Stewart Stevenson: The franchise extension and the options that it contains give us the opportunity to consider Audit Scotland's report and to consider what to do in 2014, if the franchise runs until then. Of course, we can respond in 2011 if that is appropriate.

I welcome Audit Scotland's oversight of the franchise, and I am confident that it will be shown that we are getting value for money and that the arrangements that are in place are good for the development of Scotland's railways.

Hugh O'Donnell (Central Scotland) (LD): I press the minister on his comments on disabled access, because I understand that the Scottish ministers give guidance on progress on access to railway stations. I asked the Cabinet Secretary for Finance and Sustainable Growth about the number of stations that are not accessible, but I have received no answer to my question, so I seek the minister's advice. How many stations are currently accessible and how many can we anticipate will be fully accessible?

Stewart Stevenson: I assure the member that funding for improving disabled access to stations comes from the DFT. A formidable programme requires to be undertaken to improve access to Scotland's stations, because we have a large number of stations that are not adequate. We are not yet making the improvements that I would like to see, which is why I am talking to my opposite number in the south. We identify and prioritise the stations that are done—that is the responsibility of Government and Transport Scotland—but the number that we can do and the funding that is available to do the work is a matter for the DFT.

Patrick Harvie (Glasgow) (Green): The First Minister today emphasised the effort that has been made to inform the Parliament about the decision. I have the letter with me, which consists of three short paragraphs to explain what is, by any assessment, a highly complex and detailed decision. What is the Transport, Infrastructure and Climate Change Committee, which I convene, to make of that? Last year we had to all but throw a hissy fit to get the Government's transport agency to appear in front of the committee; this year we are given scant information on a complex decision. What are we to expect in the future? Is the minister a wee bit embarrassed that his department appears to be shy of parliamentary scrutiny?

Stewart Stevenson: There is no doubt that Transport Scotland made an error when it did not respond to the committee's invitation. That will not happen again while I am minister.

We should remember that the announcement of the franchise took place during recess and that the process that was followed then was similar to the process that we have followed. Transport Scotland will publish further details of the agreement into which we have entered.

Of course, ministers and officials are always available to committees. Appearing before committees is an enjoyable part of our job, on which we are happy to step up to the plate.

Willie Coffey (Kilmarnock and Loudoun) (SNP): I congratulate staff throughout the rail network in Scotland on meeting and exceeding targets. We would probably not have reached this stage were it not for their efforts during the past few years.

My constituents in Kilmarnock and Loudon will warmly welcome the benefits that have been announced, including the enhanced services from Kilmarnock and the opportunity to bid for some of the additional £1 million to which the minister referred, which is targeted at making better use of empty station buildings.

Following a meeting that I had with the STUC and rail union officials, will the minister make it clear that the £70 million that is gained will be reinvested in rail services? Can he assure us that the operational requirements for the delivery of new services can be fully met?

Stewart Stevenson: I very much echo the member's congratulations to staff. Ultimately, if staff are not engaged in improving the quality of Scotland's rail services, rail services ain't gonna improve. Staff throughout Scotland have done superbly well.

I received a letter from the STUC on 11 April—that is the only contact that I have had so far. I will be happy to meet the STUC and representatives of workers in the railway system.

The £70 million will all be reinvested in the railways; it is not going anywhere else. A series of projects exist that have consequences, not all of which have previously been provided for. Operational requirements will be an important part of our consideration.

John Park (Mid Scotland and Fife) (Lab): I am sure that the STUC will be over the moon about the minister's agreement to meet it—it is a pity that it has come a couple of weeks too late.

My question is about trade union engagement, as the minister barely mentioned trade unions in his statement and the lack of consultation is poor. As the minister is aware, the Scottish Government has a memorandum of understanding with the STUC, which was signed by the First Minister. It has many elements and talks about partnership values, which include

"openness and transparency in communications".

Given the minister's shoddy handling of the contract extension, is that agreement still worth the paper that it is written on?

Stewart Stevenson: We stand absolutely full square behind the agreement with the STUC. The STUC and other stakeholders will have a key role in determining how the £70 million bonus that we have negotiated from the franchise operator will be spent. I look forward to sitting down with the trade unions in a spirit of partnership to discuss those matters.

It will not have escaped members' notice that I highlighted the fact that more than 700 jobs have been created in the industry since the letting of the franchise in 2004. I expect that the additional money and services that will be commissioned in the coming years will further increase employment in the industry, giving stability and security to those who are already employed and new careers to those who are yet to join.

Rob Gibson (Highlands and Islands) (SNP): I welcome the minister's statement and the improvements to services that we can expect as a result. I am delighted about the new services to Wick and Tain in the far north and I hope that he can work towards their being more speedy. What progress is the minister making to ensure that railway, bus and ferry timetables are integrated, to benefit the travelling public throughout Scotland?

Stewart Stevenson: The member raises an interesting point. Some of the recent changes to the timetable for the line north of Inverness have, unfortunately, reduced integration between rail services north of Inverness and those to the south. When I met the chief executive of Network Rail last week, I raised that matter with him, among a range of issues that we discussed.

I am delighted that the services from Inverness to Tain and Wick will be improved. When I visited Caithness last year, I found that I could not use the train. I hope that the next time I visit Caithness, integration and the availability of a sensible timetable will mean that I can travel by train.

Karen Whitefield (Airdrie and Shotts) (Lab): Will the minister confirm that the original franchise guaranteed only the option of an extension and not that the franchise would be extended? In 2004, the SNP believed that there must be greater transparency. Now that the SNP is in government, why has it opted to extend the franchise, rather than have the openness and full consultation that would come with renegotiation of the contract, which is the largest public subsidy contract that the Government makes? How will the deal be good for my constituents? Will there be a Sunday service on the Shotts line, or will Shotts station finally become disabled accessible? When will those details and the full details of the franchise be placed in the public domain for proper scrutiny?

Stewart Stevenson: The provision to extend the contract was referred to by Iain Gray in 2002 and by Nicol Stephen in 2004, so members from other parties should not imagine that the extension was not in the minds of previous ministers. In the agreement, we have capped the potential for excess profits and we are delivering £70 million to Scotland's railways. We will consult on how that will be spent. If the people of Karen Whitefield's constituency cannot benefit, that may tell us something about the abilities of those who advocate that they should.

Elaine Smith (Coatbridge and Chryston) (Lab): Given the SNP's previous supposed support for operating ScotRail as a not-for-profit organisation, I am astonished at this decision. If, as the minister said in his statement, this is good news for rail employees and their representatives, why were the trade unions not consulted? Will they, and will this chamber, be given the opportunity to take part in the decision on whether to stop the extension at the 2009 deadline?

Stewart Stevenson: The engagement in consultation that we are now planning—on how we spend the £70 million—is a way in which we can sit in partnership with the trade unions, helping them to see the benefits and discussing with them how we can spend the money.

The period to autumn 2009 is a period within which we have to review the operator's performance. We have the option to go to the market for a new operator in 2011, and we have the option to consider other arrangements if they seem appropriate. However, this minister will not turn his back on a most successful rail operator, which is delivering a tremendous service for the people of Scotland. I congratulate previous ministers, who were of another political complexion, on being party to putting in place arrangements that have enabled me, today, to talk about the extra £70 million. That has come about because of the continuing support for Scotland's railways from a range of ministers.

Charlie Gordon (Glasgow Cathcart) (Lab): The minister told us that the improvements to Scotland's railways, which he attributes to this extension to the franchise, are partially dependent on the UK regulator's determination of Network Rail's business plan. Does the decision rule out, for this session of Parliament, the operational reintegration of Scotland's railways, with all the improvements that that would bring?

Stewart Stevenson: I want to clarify one thing that I said when I talked about the determination of the Office of the Rail Regulator: we will get the £70 million. At the moment, there is the usual stand-off between the regulator and the operator, Network Rail. I met the rail regulator recently and phoned last week to discuss matters of mutual interest. We expect the Office of the Rail Regulator to take a robust line with Network Rail. We expect the office to ensure, in particular, that the tier 3 projects in the high-level output specification that we delivered last year are able to be financed by Network Rail.

At the end of the day, it will be up to the Office of the Rail Regulator to determine fair pricing and to negotiate and direct Network Rail on the projects that it has to undertake, based on the high-level output specifications from this Government and the Westminster Government. I hope that the Office of the Rail Regulator will take the firmest possible line with Network Rail and that we will therefore have the greatest possible opportunities to expand Scotland's railways.

Cathie Craigie (Cumbernauld and Kilsyth) (Lab): The minister said that people to whom he spoke in the past week welcomed this decision. I advise him that people to whom I spoke in the past week suspect that there was something of a nod and a wink in the allocation of the extension. When did discussions start on the possible extension and when did the minister sign off the extension?

Stewart Stevenson: I said in my statement that the extension was signed off on 2 April. We have been reviewing all aspects of public expenditure, including the operation of the public transport system. We have been considering our options for a considerable time. Matters came to a head when I asked officials to negotiate with First ScotRail to see what options were available. When we saw that we had the option to get £70 million to improve the standards on which First ScotRail would have to deliver, together with the option to remove the possibility of excess profits from the present arrangements, and the further option to create a new incentive for First ScotRail to deliver, we naturally signed up. We now have an extra £70 million for Scotland's railways that we did not have previously. I think that that is a good deal for the people of Scotland and for Scotland's railways.
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