Select Committee on Environment, Transport and Regional Affairs Minutes of Evidence

Examination of witnesses (Questions 440 - 459)




  440.  I do not think that was quite the question, Mr Ballard, actually, I think it was rather more specific?
  (Mr Ballard)  I am not sure that we can actually respond any further than that.
  (Mr Brearley)  If it helps, on the particular subject, the figures we have used are based on the 1991 Census data, so they are not figures invented by authorities, as it were.

Mr Bennett

  441.  I think it is important we could understand whether you have really invented a new formula, rurality, which might be very helpful to some of the people who are arguing about the SSA, or whether you felt the SSA sparsity factor was sufficiently robust to use for this?
  (Mr Brearley)  My belief is that we have not invented something completely new, but I think I should let you have a note.

Chairman:  Yes, if we could have a note on that as well, can we?

Mr Stringer

  442.  Could we have a note on the number of people who do count?
  (Mr Ballard)  Yes, surely.

 Chairman:  Now, Mr Stevenson, on bus employees.

Mr Stevenson:  Yes. I wanted your advice, because, you see, I used to be a member of this BEST before it was wound up; am I in order asking the question?

Chairman:  As long as you have declared your interest, and, while I really rather suspect that the amount you would get out of this Superannuation Trust may not be very great, it must be recorded.

Mr Stevenson

  443.  At the moment, of course, nothing. Thank you very much for that guidance. You will know, Mr Ballard, and everyone else, the history of this, the 1991 transfer of £168 million to the National Bus Company out of surpluses of this scheme, you will know the decision in 1996 of the Pensions Ombudsman that this broke the rules and that it should be paid back with interest, following a challenge, you will also know that I think the previous Government decided to challenge that judgment and to take it to court, I understand that has been followed through by the present Government. I have two questions. Is it the intention of the Government to continue this litigation, and how much is it costing?
  (Mr Brearley)  There are, in fact, two pension schemes involved, as you probably know, the Bus Employees' Superannuation Trust and also the National Bus Pension Fund, both of which were treated in the same way originally and the Pension Ombudsman made a declaration on the one in, I think, 1996, and the other about a year later, and what has been happening is, so to speak, that one case has been catching up with the other. And, indeed, the statement of claim on the second scheme, the National Bus Pension Fund, was received by us on 22 June just gone, so very recently, and we are dealing with it at the moment. There is, as you say, litigation going on. Ministers have promised to pay the trustees' own expenses in taking the case to court and there are complicated issues, as I understand it, around all this. What present Ministers do want, I think, is to see all these outstanding legal matters satisfactorily resolved just as soon as possible.


  444.  I think the question though, Mr Brearley, forgive me, was not just whether the trustees are going to get their legal costs, which, of course, most members of this Committee totally support, something rather more fundamental, does the continuation of the case mean that the Government is not going to pay out?
  (Mr Brearley)  As I say, we are at the moment considering the second of the statements of claim; we have, I understand, put in a response to the first one, the one of the BEST scheme, in point of fact.

  445.  And what was that, was that saying that the Government did not intend to pay until they were taken to court, or was it not that?
  (Mr Brearley)  It was responding to the points which the trustees' statement of claim had made, and there are, as I understand, serious issues here about how the law should be interpreted.

  446.  What you are telling us is that the Government is continuing with the appeal that was instigated by the previous Government, is that what you are telling us?
  (Mr Brearley)  Yes, I am.

  447.  And that there is now a second matter, which is the second pension scheme, and the Government is still continuing to appeal against that, is that what you are telling us?
  (Mr Brearley)  Yes.

Mr Stevenson

  448.  Just for clarification, because what you have said, Mr Brearley, some of us would have in writing from letters from Ministers, so that is fine, that concurs entirely with what Ministers are saying, that the Government wish to see these matters concluded satisfactorily as soon as possible; of course, that can be interpreted in any number of ways. My question was, therefore, as specific as I could manage; is it the intention, even if it is also the intention to have these things satisfactorily concluded as soon as possible, that the Government is insistent on continuing the legal challenge to this?
  (Mr Brearley)  Ministers have certainly not taken any decision on whether there should be a negotiated settlement, if that is what you are asking.

  449.  Can I then probe a little further, and I do understand the sensitivities, and I am not trying to be clever or anything, but it is truly important, as you will well appreciate. Are you in a position to advise the Committee whether Ministers are considering a negotiated settlement?
  (Mr Brearley)  Sorry, this is going to be one of those answers. Ministers have got all options in front of them, including that one. They are at present awaiting advice from their legal advisers; as I say, one of the statements of claim was only received the other day.

  450.  Are you in a position to give the Committee any idea of timescale here for the satisfactory resolution of these?
  (Mr Brearley)  I used the phrase "as soon as possible" rather than "shortly", or anything, this time, but Ministers are very keen, I think, to make progress.

  451.  And the costs of the litigation, have you any idea of the total costs, not just the costs of the trustees, the total cost of this litigation?
  (Mr Brearley)  I have not got a figure in front of me in these papers, but I will let you know if we have got a figure.


  452.  Can I come on to railways now. Some of us were a bit stunned when the Government had to pay £109 million to the lessors of the rolling-stock on the European Night Services Limited, because it seemed to us this was a lot of money to pay for something that had not happened, and that did not appear to be going to happen, because the sleeper services to continental Europe now have been abandoned. What arrangements have been agreed with the lessors of the European Night Services rolling- stock to enable the Government to recover at least part if not all of that sum?
  (Mr Ballard)  Mr Rowlands will respond.
  (Mr Rowlands)  I think there are probably two elements. The Government guaranteed the original lease, or, at least, Eurostar UK's share of the original lease; that lease automatically terminated when the rolling-stock was not delivered by 31 March this year, and at that point in time, Madam Chairman, you will appreciate that Eurostar UK and its parent, London and Continental Railways, were in no position themselves to pay the termination costs of the lease because they were in similar financial difficulty, you will remember, over the Channel Tunnel Rail Link project in general. So the Government guarantee was called and the Government paid, as you say, £109 million for the lease termination costs. There are also some lease termination costs which fall on the French, German and Dutch State Railways because they were part owners of European Night Services, but that is a Dutch, German and French problem; the problem for us is the £109 million. We have a counter indemnity from Eurostar UK in respect of those lease termination costs.

  453.  What is that worth, Mr Rowlands?
  (Mr Rowlands)  If I may explain, today, nothing, I am sure that is true; the question is, would it be worth something in time.

  454.  And are we going to live that long?
  (Mr Rowlands)  What we propose to do, as part of the overall Channel Tunnel Rail Link detailed negotiations, which are going on at the moment, following the Deputy Prime Minister's statement to the House on the outline arrangements which have been agreed with LCR and Railtrack, is that, as part of that detailed settlement, we will look to ensure that, if the Eurostar business itself goes better than the Government's own central forecast over the coming years, in other words, that it is more profitable and therefore, ultimately, more profits accrue to Eurostar UK than might have been forecast, we will seek to tie the counter indemnity to that, so that at least it gives us a prospect, in some years to come perhaps, of getting that money back. But, I agree with you, at the moment there is certainly no prospect of them refunding £109 million to us because they have not got it.

  455.  Mr Rowlands, before the Department underwrote this deal, how did it evaluate the service, the possible profitability, the efficiency, the likelihood of it ever coming on stream, or did it simply just say, "Oh, by the way, we don't mind underwriting your guarantee, don't worry about it"?
  (Mr Rowlands)  Neither. The original analysis was undertaken, in effect, by the British Railways Board, because European Night Services were set up as a joint venture company at a time when Eurostar was part of the British Rail operation, before privatisation, and they at that stage, I believe, undertook an analysis of the business case. From what I understand, it was at that stage quite marginal but the decision was taken to proceed with the project with the agreement of both the Department and the Treasury. I think one would say that, in the light of current experience, that marginal business case was over-optimistic, because the conclusion now reached by ENS is that there is no viable market-place for sleeper services.

  456.  But when the whole system was privatised, in effect, and large amounts of taxpayers' assets were handed over, did no-one take an interest in the fact that the Government was acquiring this guarantee, was it just simply accepted?
  (Mr Rowlands)  That Government guarantee, my understanding is it was given before privatisation along with the counter indemnity.

  457.  But, the counter indemnity, who assessed the reality of the counter indemnity? You see, Mr Rowlands, we are in some difficulty. Yours is a very clever Department, full of very brilliant people, and at some point someone must have said to you, "This is actually going to cost the taxpayers some money, if it is called in". Now, if it was a marginal assessment by British Rail Board and it became rather less than marginal, in fact, it slid down to absolutely zero, do you think this Committee is right in asking you how you got into that situation?
  (Mr Rowlands)  I think it is a perfectly proper question to ask.

  458.  Well then what is the perfectly proper answer, Mr Rowlands?
  (Mr Rowlands)  I think the perfectly proper answer, in terms of the Government guarantee, is that it was a consequence of what at that stage was the potential privatisation of British Rail and the reluctance on the part of any banks to undertake a leasing deal with a company whose future was uncertain, and was it going to remain a state-owned railway or part of a state-owned railway, or was it to be privatised, because that clearly changed, or potentially changed, the balance of risk, from the point of view of the banks which might be offering leases on this equipment.

  459.  So normally the Department takes up all the lousy deals that banks do not normally underwrite; is that what you are telling us?
  (Mr Rowlands)  I am saying that, in the circumstances of what was a potential privatisation, it would have been difficult to undertake leasing of the rolling-stock without a Government guarantee, because of the perception of risk.

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