Examination of Witnesses (Questions 20
- 39)
WEDNESDAY 11 MARCH 1998
Mr Jamie Mortimer, Treasury Officer of Accounts,
further examined.
20. He implied that the targeting of the
study in the independent review did not give you an overall picture,
it went into specific aspects of the train running system.
(Mr O'Brien) I think what would
be helpful is if I put into context how this operates. In the
year in question, which is March 1997, the number of people who
had reason to use the system, if we stick to the passenger railways,
were Railtrack, 25 [2]
train operators and ourselves. If you look at the Railtrack accounts
in that year the amounts that they attribute to monies received
under performance regimes generally was £29 million. It is
virtually ten per cent of their profits. Their auditors gave their
accounts a clean bill of health. I imagine they looked at the
systems. The 25 train companies are themselves audited to the
best of my knowledge and belief ---
21. You are by profession and training an
accountant and I have the utmost respect for that. The trouble
is the C&AG represents the taxpayers' interests here. Although
you can accept it and from your years of experience I am sure
you are right, "These were all audited by reputable firms
so I can assume the information is reliable" why should it
be that the C&AG cannot put his hand on his heart and say
the same thing because he does not have access to the records?
If you cannot answer that one may I direct that at you, C&AG,
and ask you in the preparation of these accounts did you actually
ask for access? If you did, was it refused?
(Mr Miller) We simply do not have
access to the train operating companies or to Railtrack.
22. I know that. Did you go through the
motions of asking for it again or did you just accept the status
quo?
(Mr Miller) We discussed that issue
and the access question with OPRAF and we wrere not able to make
any progress on that.
23. Chairman, I hope that is a point that
will come out of this afternoon's proceedings. Forgive me for
diverting that question but perhaps you are relieved, Mr O'Brien.
Can we dwell for a second on your discretionary powers. What comfort
can Parliament have that you use your discretion in a transparent
and consistent fashion. Looking at your smiling face, I am sure
you do, but what do we fall back on to know that is the case?
(Mr O'Brien) First of all, if you
look at the amount of money that we pay out every year to train
services, as I said earlier, the amount we paid last year was
just in excess of £1.8 billion. Virtually all of that money
is payments that we make under contract. So I think in terms of
assurance that the money that we are paying--
24. --That is not my point. When it comes
to penalties, in the absence of any totally satisfactory information
you use your discretion. How transparent is that discretionary
process such that anyone else can evaluate it? Let me put it another
way: what right of appeal do any of the franchisees have against
you in the exercise of your discretion?
(Mr O'Brien) The straight answer
to that is no one has tried to appeal.
25. It is early days. Is there anything
in the statute that would enable them to?
(Mr O'Brien) Not that I am aware
of. I think the fact that no one has appealed will probably give
you some reassurance that the people directly affected by how
I exercise my powers under the franchise agreement are being properly
dealt with. The fact is, of course, that the contract is a bilateral
agreement. I cannot just do something on a whim; it is something
that I have to do in terms of enforcing what both parties have
agreed to do.
26. Yes, I suppose in theory they could
sue you over breach of contract?
(Mr O'Brien) Yes.
27. Yet it would be a difficult thing for
them to have to do if they wanted to renew that contract in seven
years' time. As you know, the account under review this afternoon
cover a year of transition. It is only a year in which this was
getting going so it is early days to be as confident as you appear
to be but I do admire your confidence that the system will work.
Can I dwell for a second on the independent review of TRUST. If
it was not designed to provide you with an overall evaluation
why did OPRAF jointly commission it? How much of the cost did
OPRAF bear? What percentage of the cost? This is you, Railtrack
and the franchisees?
(Mr O'Brien) We bore 20 per cent
of the total cost.
28. Right and you were satisfied that you
would get enough out of this that it was worth paying? How much
was 20 per cent?
(Mr O'Brien) £60,000.
29. Who were the accountants who carried
out the review?
(Mr O'Brien) Coopers & Lybrand.
30. The C&AG told us there were new
systems for monitoring the operators which have been developed
in the past year. Is that exercise complete yet?
(Mr O'Brien) We are continually
updating our systems. We have got systems developed in- house
which extract information from the TRUST system and then converts
it into financial flows. As we have refined those systems they,
frankly, enable us to interrogate the information more. As you
will appreciate 1996/97 was a year of transition and a lot of
these things were in place for the first time. We believe we had
addressed the areas where we felt, or I felt we were potentially
most exposed and satisfied ourselves that that was broadly okay.
I actually do agree, as a matter of fact, with what the C&AG
has said about conducting further reviews which is why we are
planning to do that.
31. That is a perfect prompt for me to turn
to C&AG again. You say in the usual words: "The accounts
can be relied upon for properly presenting the expenditure and
receipts for the year", and I do not suppose anyone disputes
that. Does that mean that the taxpayer can be sure that OPRAF
is using a well-directed stick and carrot that is guaranteed to
improve rail performance?
(Sir John Bourn) I do not think
it does mean that in those terms. The report is a report not simply
on the accounts in a technical, accountant sense talking about
whether it presents fairly, as of course our audit has developed,
but it is drawing to the attention of the House those aspects
of the provision of public services which are not fully reliable
and-the point I made before-if the Franchising Director rests
on a system which he does not control that is potentially a point
of weakness. Our failure to have access to it reinforces that
weakness.
32. Thank you for highlighting that because
during the process of privatisation there was a message being
imparted that the mechanism would be there to encourage better
performance. Since you have said your report is more than just
the accounts, if the Chairman gives me the time, can I make a
comment. It would be nice if the accounts were slightly more user-friendly
for amateurs like myself. You have notes to the account but on
the account itself one does not see a little note in brackets
that says "see note 1, see note 2" or whatever and for
the amateur it does take some wading about to try and dig out
the information. Having made that comment, could I ask you on
page 66 in A2 there is a figure of £866,000 which we are
told is reduced expenditure as the franchising programme came
to an end. What exactly does that mean? What would that expenditure
of £866,000 have gone on?
(Sir John Bourn) If I may say so,
of course they are technically the Franchising Director's accounts.
33. In that case perhaps the Franchising
Director can answer it.
(Mr O'Brien) That heading A2 largely
relates to the money that we spent during the franchising programme
on professional fees, lawyers, accountants.
34. Or did not spend as the case may be.
(Mr O'Brien) Quite and this was
towards the end of the franchising programme and we managed to
spend not as much money as we thought we might.
Mr Wardle: I anticipate the Chairman
saying something like, "Order, order", so I shall leave
my last question which he may or may not give me until when we
come back.
Chairman: We will re-convene in ten
minutes.
The Committee suspended from 16.59 pm to
5.05 pm for a division in the House
Chairman: Mr Wardle, do you want
to ask a last question?
Mr Wardle
35. If I may, I would like to dig into the
further notes on the accounts to get to the facts on which Mr
O'Brien can perhaps throw some light. At the foot of page 70 in
paragraph 7 there is reference to a £16.1 million rebate
from British Rail. It says it is explained in the previous year's
accounts. Sadly, I do not have those accounts. In a sentence,
sir, what was that?
(Mr O'Brien) In the course of that
year we were at the start of the franchising programme and some
of the estimates that British Rail had made of the amount of money
that they needed to run the train services were slightly out and
that is the adjustment.
36. I see and on page 70, paragraph 5 there
is reference to privatisation costs of £25.5 million and
redundancy costs of £33 million met by BR. Can you enlarge
on that just a little?
(Mr O'Brien) Those were the costs
which I understand were sustained by British Rail as part of their
bit in the privatisation process in terms of the privatisation
costs.
37. Preparing for the handover to franchisees.
Is that right? Does the world at large know that British Rail
spent £25 million in that fashion?
(Mr O'Brien) I think it does.
38. Is it hidden away in the notes to the
accounts?
(Mr O'Brien) It is hidden--I am
sorry it is included in the accounts of British Rail.
Mr Wardle: And suitably highlighted.
Of course that is not your responsibility. The Chairman, I know,
will allow me to finish on a hypothetical case. This has nothing
to do with this but I cannot resist it as you are here. Take the
hypothetical case of a train due to leave Charing Cross station
at 9.10 am. The up-train comes in late and the train does not
turn round, in spite of everybody's valiant and noble efforts,
until 9.35. Along comes the ticket inspector and on board is somebody
who has got a cheap return which says if you travel after 9.30
you do not have to pay a surcharge but if you travel before 9.30
you have got to pay an extra tenner please. If the inspector were
to say in such a hypothetical case the train is scheduled to leave
at 9.10 and therefore you are on the 9.10 as opposed to the 9.30
train, should the member of the public have to pay the tenner
or not? Thank you Chairman. You have got to answer, Mr O'Brien,
that is why I am thanking the Chairman.
Chairman
39. It is hypothetical not rhetorical.
(Mr O'Brien) I think the strict
answer is in the case you are quoting it is usually when the train
is due to arrive at its destination rather than the start but
in a case like that, frankly, we would expect the train company
to use its discretion.
2 Note by Witness: Eurostar, the operator of passenger
rail services to the continent, is also involved, but does not
come under the auspices of the Franchising Director. Back
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