Select Committee on Public Accounts Minutes of Evidence


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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