Examination of witnesses (Questions 440
- 459)
WEDNESDAY 1 JULY 1998
MR JOHN
BALLARD, MR
CHRIS BREARLEY
and MR DAVID
ROWLANDS
Chairman
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.
Chairman
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.
Chairman
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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