It was not only the bankers who have been grilled recently by commons select committees. A few days before the now infamous four appeared at the Treasury Select Committee, a group of train operators faced questioning over fares rises and cuts in services from the Transport Committee.
Both occasions had a rather unsatisfactory result – though, as an aside, how I wanted to see that serial offender Sir Steve Robson, the architect of rail privatisation and the PPP on the London Underground when he was a senior Treasury official and more recently a non executive director of near bankrupt bank RBS face the committee. Just as the bankers were rather let off the hook by the MPs who seemed to be intent only on getting them to say ‘sorry’, so were the train operators. For a start, they companies, showing a measure of contempt for the MPs, sent in their 2nd or even 3rd squad to face the music. Just like the bankers, too, they squirmed and looked shamefaced, but because of the structure of the sessions, with each MP being given a few questions to ask, they were never really pushed sufficiently to explain themselves.
They would not answer any specific questions about the impact of the fares increases, hiding behind that ridiculous excuse of ‘commercial confidentiality’ and steadfastly refused to name the fare which went up by the highest proportion because they knew it would be headline news the next day. However, to his credit the well-briefed Eric Martlew, the MP for Carlisle, did manage to extract a promise from the man from Virgin to review the outrageous increases on the early morning fare from Carlisle to Birmingham which had gone up by a staggering £53 to £124 because it no longer benefitted from the off-peak cheap options.
It even took several questions from the chairwoman, Louise Ellman – who is making valiant efforts to emulate her late predecessor Gwyneth Dunwoody but still has much to learn – to elicit the reply that fares might actually go down next year if there were negative inflation. Nor did the MPs even manage to elicit information from the operators about the profits and losses from each franchise as the large groups’ annual reports do not provide that information, and the operators merely promised to see if they would be able to furnish that information later. Surely since this is public money they are receiving (either in direct or hidden subsidy) then we ought to have the right to be told how much money they are making – or losing – on each franchise.
However, what we really wanted to know was what they were going to do if there was a serious downturn and passenger numbers started falling drastically. And here it became clear why the second division had been sent to the committee. A week before, their bosses had been in to see Geoff Hoon, the Transport Secretary, to discuss the situation with franchises. After that meeting, both sides had denied that the issue of possible franchise collapses had been on the agenda but clearly the MPs did not believe it.
However, they were stymied by the fact that in a canny move the operators had not sent anyone who had been in the meeting with Hoon to face the committee and therefore they were all able to say – truthfully – that they had not been there and suggest – probably with somewhat less candour– that they had no idea what had happened in the meeting.
This is increasingly becoming the talk of the industry and both sides will be desperate to get out of the situation without losing face. Although ministers have repeatedly said they will not renegotiate, it is clear that they will be forced to do so if franchises start collapsing left, right and centre.
The companies have already worked out their strategy and it is not very different from that of the bankers (difficult not to replace the ‘b’ with a ‘w’, isn’t it!). Basically they are going to argue that nothing like this has ever happened before or could have been foreseen. The crucial words, here, are Force Majeure, a legal expression which essentially boils down to an Act of God, something unforeseeable.
Clearly this is nonsense. There have been recessions before and it was quite likely that, the promises from Gordon Brown that the era of boom and bust was over would prove to be a fairy tale. Force Majeure, an expression that is turning up in the train operators’ briefings, would normally be associated with exceptional weather, a revolution or an earthquake, not an economic downturn. But just as the bankers suggested to the MPs that no one could possibly have predicted the series of events that led to the downturn (in other words they are arguing that lending 125 per cent of a home’s value or to people with insufficient income was sensible), the train operators will knock on Hoon’s door with their begging bowls on the basis of similar suggestions.
In order for ministers not to look weak, they will be sure to extract some concessions and they will probably look like the deal they did with First Great Western last year when the company was performing so badly that Ruth Kelly, the then transport secretary was forced to intervene.
She demanded better information systems at several stations, refurbished carriages, an additional 500,000 cheap tickets and enhanced passenger compensation. This package, imposed on the company a year ago, was supposed to cost £29m but it was difficult to check its real cost.
Watch for similar deals, where both sides will be able to say that they have got something out of it. In between, though, there will be a lot of haggling. Of course, the whole thing is a nonsense. The companies will be forced to pay out more in investment, but will have their premium payments reduced in return – although obviously by not as much and therefore there will be a small hit. In the end though, most of the money will come from the poor old taxpayer effectively bailing them out. Yet again, the franchise system will have been found wanting.