Examination of Witness (Questions 254
WEDNESDAY 12 JULY 2000
MR T WINSOR
254. May I warmly welcome you this afternoon?
Would you like to identify yourself? You have been having an exciting
time with us over a couple of weeks.
(Mr Winsor) I am Tom Winsor. I am the Rail Regulator.
255. Did you want to say anything in an opening
(Mr Winsor) Thank you; very briefly.
I have been in this job now for exactly one year and, if I may
say so, I think this inquiry into rail investment is very timely.
However, because I am at a critical stage in determining the structure
and level of Railtrack's access chargesthat is to say the
process known as the periodic reviewI understand that I
shall be called before this Committee again in the autumn. I believe
that the Committee is mindful of the sensitivity of my position
only weeks away from publishing conclusions on the periodic review
and has therefore accepted that I cannot answer specific questions
on the review in advance of my conclusions at the end of this
month, and I am grateful to the Committee for that understanding.
However, I should like to make some general points about the periodic
review which the Committee may find helpful. The present financial
framework for the industry is deficient. It was ill thought through
at the time. It was done in a rush. There was no specification
of what Railtrack had to do for the access charges which it receives
and very little was done at that time to encourage the making
of investment. As well as setting Railtrack's charges for the
next five years, I am completely rewriting the entire financial
framework of the industry to define the outputs, the things Railtrack
have to deliver, and also to promote investment in the railways.
That is what I should like to say on the periodic review. I have
one or two other opening remarks, if I may. I should also like
to say that I very much welcome the Transport Bill. I welcome
the clarification and simplification of the relative roles of
the Regulator and the SRA in the Bill. I welcome the Government's
public commitment to independent regulation. Railway investment
requires a public/private partnership and the SRA is a key player
in that partnership, the public partner of the private railway
companies. The SRA is also a major funder of the railway and it
is the Regulator's role to ensure fairness in that partnership.
I do this by setting the charges and the SRA then makes the decision
as to what they want to use taxpayers' money to buy at those prices.
These checks and balances in the system are highly important for
investor confidence. It is for me as Regulator to ensure that
Railtrack delivers on the commitments which it has made. Condition
7 of Railtrack's network licence is a very powerful tool in my
armoury. I have used it twice already. It was added to the original
licence, which was very weak and remains in all other respects
very weak. There is much strength therefore in that area in relation
to investment, maintenance, enhancement, development of the network.
In other respects, the network licence which Railtrack holds is
not fit for purpose for a private sector company. I am going to
put that right by amending Railtrack's licenceI hope with
the company's agreement, but if not, then I shall use other meansto
establish new conditions requiring reporting in relation to the
maintenance and enhancement of the network, an establishment of
a reliable and comprehensive register, a database of Railtrack's
assets, their capability and their condition, controls on the
disposal of assets by Railtrack, including land assets which may
be needed for the development of the industryfor example
for freight terminals, station carparks and so ona ringfencing
of Railtrack's regulated activities and improving the company's
dealings with its dependent customers which in past years I know
from personal experience have been lamentable. My policy as Regulator
is fair and proportionate, proactive and vigilant regulation in
the public interest, to facilitate the achievement of the legitimate
objectives of the railway industry, to meet and promote the public
interest. I want the railway companies to be successful. I said
that when I appeared before this Committee on 23 June 1999 and
I have said it in every public statement I have made ever since.
I want them to invest. I want them to invest strongly and to invest
competently, to expand the capacity of the railway and to improve
the services which they provide to passengers and freight customers.
256. You have pushed a few buttons which we
all agree with there. We quite understand the restraints upon
you. I am going to ask you about your job as the Chief Legal Adviser
and General Counsel to the Regulator when the framework was being
put in place. You have been a bit brutal about it today. Can you
tell us what role you had in the drawing up of the first round
of access contracts?
(Mr Winsor) Yes. I was Chief Legal Adviser to the
first Rail Regulator and latterly General Counsel from July 1993
to July 1995. In that capacity I had a fairly significant role
in the establishment of the templates for the access contracts
between Railtrack and its customers. Why do I criticise the quality
of the contracts when my own hands and fingerprints are on them?
257. We are always interested when poachers
turn gamekeeper what they have to say for themselves.
(Mr Winsor) I became a gamekeeper, then a poacher,
now a gamekeeper again.
258. Even more interesting.
(Mr Winsor) It is a revolving door. I did not win
every battle that I fought within the Office of the Rail Regulator.
It is as simple as that. I believed that those access contracts
needed to be far more specific, to contain far stronger obligations
on Railtrack and the train operators one to another so as to be
much clearer as to what Railtrack and the train operatorsmainly
Railtrackhad to deliver for the access charges and what
would happen if things went wrong. I lost internal battles. There
are some aspects of that contractual matrix of which I am very
pleased and very proud, but there are other aspects where I believe
the decisions taken at the time were very poor. Why did I not
press my case? I pressed it as hard as I possibly could, but I
was an adviser, I was not a maker of decisions.
259. It is always interesting when the advisers
become the responsible people. May I refer you to some evidence
we took from Railtrack at our meeting on Wednesday, 5 July? May
I repeat very briefly what Mr Corbett said? It is paragraph 45
where I referred to Railtrack's memorandum and the £2 billion
more than was allowed in the current track charges and their statement
that to carry on with the level of investment to maintain the
serviceability of the existing network with higher expected traffic
volumes and delivering improved outputs they would require a substantial
increase in track access charges. I asked whether it had been
agreed. Mr Corbett's reply was, "No, that has not yet been
agreed. When we were set up the Regulator made an assessment of
how much we would need to spend on renewing the network. Because
of the growth in the network we have, in fact, spent £2 billion
more than that assessment. The Regulator is in the process of
setting the track access charges for the next five years. We hope
that he will take into account the actual costs that we have incurred
in the last five years in renewing the network and then, of course,
he will take into account the further increase in renewals that
there will have to be as the network continues to grow. The bottom
line of all of that does mean there will have to be a substantial
increase". Are you able to help us as to what the level of
increase might be?
(Mr Winsor) No, because I shall be announcing my final
conclusions on that matter in a very short time. I can give you
some general remarks, if you wish. The matter has not been agreed
because it is part of the periodic review. The timetable for the
periodic review was set in 1995 and I cannot change it. There
are some things I should love to change about the matrix in the
railway and which I am already changing and in some respects have
already changed. I cannot change the structure and level of access
charges until 1 April 2001; but I shall do it then. I shall be
announcing in a very short time my draft conclusions, to be confirmed