Examination of Witness (Questions 502
WEDNESDAY 22 NOVEMBER 2000
502. Good afternoon, My Lord. Can I welcome
you to the Committee. We are always delighted to see your cheerful
(Lord Berkeley) Thank you, Madam Chairman.
503. Could I ask you to officially identify
yourself, for the record?
(Lord Berkeley) I am Lord Berkeley. I am Chairman
of the Rail Freight Group, which is a representative body of the
rail freight industry.
504. Does Your Lordship wish to make any general
(Lord Berkeley) Madam Chairman, if I could make just
a very short introduction, to set the scene. Rail freight traffic
is up 40 per cent in the last five years to about 100 million
tonne kilometres a year, which is roughly 10 per cent of the surface
transport market. In the ten-year plan, as the Committee knows,
the operators see the prospect and the intention of an 80 per
cent growth in the next ten years, new markets, new services,
bringing environmental benefit and, of course, reducing road congestion.
Up till the time of Hatfield the service was getting a lot better,
more reliable, and it is worth recording that about a billion
pounds (£1,000 million) worth of investment has been made
by the rail freight industry itself, the operators, the terminal
operators, and things like that. Madam Chairman, after Hatfield,
frankly, it is chaos; many trains have been cancelled, with little
information, and the freight customers do not come back as easily
as do passengers. One of my members has said, "That's 20
years' work down the plughole;" and we need therefore a quick
recovery, and this must never happen again. And my comment about
it is, it is a complete panic reaction on behalf of Railtrack
and it exposed a lack of management, a lack of leadership, and
a lack of understanding of what they own, and, frankly, an inability
to operate the network safely. Now I do not accept what the former
Chief Executive of Railtrack has said on many occasions, that
freight causes undue damage; in fact, he apologised for that in
The Guardian two days later, but it has done an incredible
amount of damage. And every other railway in Europe operates safely
and operates a service. So my paper, my supplementary evidence,
Madam Chairman, was really designed to stimulate some debate,
to try to avoid this chaos happening again, because it makes us
look like a third world country, with a railway system like this,
at the moment.
505. In view of that, My Lord, can I ask you,
has the Rail Regulator's periodic review of access charges been
too generous to Railtrack?
(Lord Berkeley) Madam Chairman, I find it very surprising,
because he has been wielding a big stick, if I can call it that,
for the last year, telling us all how he is going to get a grip
on Railtrack, and then suddenly he gives a very generous settlement;
and I would emphasise that, of course, this is not for freight;
he has done everything except for freight. We are saying to him,
for freight, "Well, if you can do it for passengers, you
must do it for freight." But I have to say that some of the
generosity is, in my view, misplaced; for example, on the West
Coast Main Line, my calculation is that he has probably given
them somewhere between two and four billion pounds more than they
deserve, because the transmission-based signalling, which brought
the cost overrun about, was entirely their own commercial fault.
They chose the wrong system, and we have been through it all before.
So I think he has been very generous. And, frankly, they have
avoided maintaining the track for five years, and they get an
accident, they have been paid for maintaining the track, and then,
when the accident happens, they go to Government and say, "Please
give us money to do what we should have done ourselves."
506. Then can I ask you, has the Regulator taken
sufficient action to ensure that Railtrack is properly accountable
for all that expenditure?
(Lord Berkeley) Madam Chairman, I do not think he
has yet, although he has started to; he is bringing in these reporters.
There are two aspects to this. One is that what the reporters
do not do, and I am hoping the SRA may do, is start off by saying
"Here's the output that we want for a particular improvement
enhancement. First of all, is it necessary to achieve the objective;
secondly, are there different ways of doing it, and which is the
best and which is the cheapest; and, thirdly, is there total transparency
of the tendering procedure, the output costs and Railtrack's add-on
costs." A lot of my colleagues in the industry say that,
for the station regeneration, which I accept has nothing to do
with freight, Railtrack's project management costs are 54 per
cent of the total cost of stationary generation.
507. Fifty-four per cent?
(Lord Berkeley) That is what I have been told by a
large number of people in the industry, and I cannot give a source,
Madam Chairman, because it is all confidential, and Railtrack
is a big company and companies are frightened of saying this in
public. I can say it because I am independent.
508. The thing is that I have been told, Lord
Berkeley; but the problem with this is this is anecdotal evidence.
I have been told that Railtrack is very good at doing up those
parts of the station which are on public view, but does not exactly
fall over itself to do anything about the bits that are 50 yards
outside the station. Is that the sort of suggestion that is being
made to you?
(Lord Berkeley) It is the same suggestion, Madam Chairman,
but, the work that they have done, I am saying, the costs are
well above what they should be.
509. That is a massive figure. It is very difficult
for the Committee, do not misunderstand me, we know your very
wide experience of the industry, but it is a bit difficult for
us to accept a figure like that, if we do not really have an identifiable
source, or someone who is prepared to put their head even an inch
above the parapet and give us real evidence. Am I to take it that
you are, in effect, reproducing something that has been said to
you, not something of which you have personal knowledge?
(Lord Berkeley) I have been given it verbally from
several sources who have been involved in it but obviously cannot
be named. I had understood that the Regulator had done some work
on it but I have not been able to find it and I have asked the
Regulator; now whether the Committee would be able to ask the
Regulator, because he does have the powers to go into Railtrack's
books and see if it is true or not.
510. Can I ask you, do you think the Regulator
was justified in reducing the level of efficiency expected from
Railtrack, in view of the prospect of rising prices in the construction
(Lord Berkeley) I do not think he was justified in
doing it, but not for the reasons that perhaps were inferred in
the second part of your question. I do not believe the contractors
are being at all inefficient, I think they are trying very hard,
and I think the problem is that they are not being managed properly.
I think they have a problem about getting possessions, they have
problems about getting materials and they have problems in being
told who is doing what, and where, and planning their work. And,
also, in the past, they have not had a long enough contract to
enable them to purchase what is standard equipment in every other
country of Europe, just about, very much automated track-laying
and ballast-cleaning, and things like that.
511. Yes, but the thing about that is that,
if I were running a company which assumed that it was going to
remain in the business of railway management, even if the contract
that I signed was only a few years long, because I was planning
to remain in that industry, presumably, I would want to equip
myself with capital equipment that could be used through a much
longer period than a short contract, surely?
(Lord Berkeley) I think, in general, Madam Chairman,
you are absolutely right, but, if you put yourself in the role
of one of these contractors, they have one client in the UK; if
they fall out with that client, for whatever reason, and it is
very easy to fall out between contractor/client, in any line of
business, their business is dead in the UK. Therefore, the risk
of buying many million pounds' worth of equipment is higher, and
that is not the main reason I have suggested in my paper that
Railtrack should be split up, but it is an additional reason.
512. Can I put it to you that, from the Rail
Modernisation Fund, do you consider that rail freight will receive
its fair share or will benefit from the fund?
(Lord Berkeley) Madam Chairman, I have tried quite
hard to find out what the Modernisation Fund could be spent on,
and could it be spent on freight; it can certainly be spent on
mixed development. I have not had a definitive answer from the
SRA, but my understanding is that it may not be used for freight-specific
projects, and that might have to come through a different route,
which is part of this £4 billion which was in the ten-year
plan allocated to freight, that is private and public, of which
I understand about £3.4 billion is public, and that would
include grants as well as infrastructure enhancement. I think
it is enough, if it is like that.
513. What about bottle-necks; the East Coast
line, which I use, has had problems with the passenger traffic
and freight, there are bottle-necks there. Do you see any of this
funding easing those bottle-necks?
(Lord Berkeley) I do; but that is part of the project.
Now whether it is part of the Rail Modernisation Fund or whether
it is done as part of the East Coast Main Line refranchising process
is something which I certainly do not know at the moment. All
I know is that there are these things being planned by the SRA
and Railtrack to provide a sort of parallel route for freight
up the East Coast Main Line, which, if they are implemented as
they say they are, will give reasonable overall journey times
for most of the traffic, and a great deal of extra capacity. Where
the funding is coming from is not quite clear to me at the moment,
because it is still pretty early days.
514. Is it not coming out of the Modernisation
(Lord Berkeley) It may do, but it may come as part
of the new Great North Eastern passenger franchise to provide
extra capacity, or to replace the capacity that the passenger
people are taking with additional freight capacity somewhere else.
515. Do you think the Strategic Rail Authority
is taking a sufficiently strategic approach to managing the competing
demands for passenger and rail freight?
(Lord Berkeley) I think the SRA has got a lot better
at doing it compared with when they first started, when I was
extremely worried. On the freight side, they are looking ten to
20 years ahead now, I understand, because I sit on a property
advisory group of the SRA; on the passenger side, sometimes they
look less far ahead. The problem is when the freight growth in
a particular area, for example, Southampton to the West Midlands,
is required to be done pretty soon and whereas the passenger franchise
on the Great Western is not required for two or three years' time;
somebody has got to make a decision, "Right, we're going
to do something now and not wait for five years," otherwise
freight will be constrained, seriously. I think everybody is talking
about the problem now, and I am pretty confident it will get resolved,
but it has not been yet, necessarily.
516. Why do you think the Government has chosen
not to take any equity in the immediate investment that they are
making over the next 10 years?
(Lord Berkeley) Madam Chairman, I find that very surprising,
that it has not, because it is my rough estimate that something
like 75 per cent of Railtrack's revenue is coming somehow from
the public purse, and to see that go to a private company, with
very little control or audit of how it is done, whether value
for money is being obtained, and having nothing at the end of
it, I think it is wrong, myself. Equity is one solution, and one
has got to be careful about contingent liability; bonds is another,
a trust is probably not the flavour of the month at the moment;
but all these things should be looked at so that we, the taxpayer,
have something to show for it at the end of it. Because it is
not just the fact that all this money is going, it is the fact
that we have to check that it is being spent wisely, and I have
given you one example, or a bad one, about stations; there are
many other examples. You get a quote from Railtrack for doing
something, one of my members wants a siding connection, or something,
it is very difficult to say, "Is that the right price; shouldn't
it be half that?" We got a quote for a level-crossing in
Scotland the other day, a million pounds for a level-crossing,
on a branch line; they had built exactly the same thing in Medway
Port for £80,000.
517. But, if you are the customer, surely, even
if you are spending a million pounds, which is a nice thought,
you do say to them, "Well, we've seen the same sort of project
done elsewhere and the prices quoted to us are rather different"?
(Lord Berkeley) If one knows that; but, on the other
hand, if you are the customer, and there is only one network,
and they are a monopoly supplier of services, and they say, "Tough;
that's the price," yes, you can go through the regulatory
process under Section 17 of the Railways Act, but we do not all
have lawyers growing on trees, it is very expensive.
Chairman: I should have thought that everybody
in the privatised railway industry had lawyers, whatever else
they have not got, they may not have maintenance and signal men,
but I think they have all got lawyers.
518. Can I just take you to that point and where
we were as far as the sort of options that there are at their
disposal. Which would be your preferred option?
(Lord Berkeley) My preferred option, for a start,
is to see Railtrack split into, I am suggesting, seven plcs, based
on the zones, because that would involve the least change to the
existing thing. The reason for that is that at the moment the
Regulator has very little power, apart from fining Railtrack,
which is a bit of a hiding to nothing, shall we say, or taking
their network licence away. He has to recommend to the Secretary
of State to take the licence away; well, if he does that, the
network will close down. But if there are six or seven zonal plcs,
each with their own licence, and if one was seen not to perform
they will know that it is possible to have their licence taken
away. So the first thing I would do is split it, like that, and
have the SRA and others and the new safety authority sort out
the co-ordination, which is a problem, but at least the Regulator
would have real power, he can take their licence away if they
do not perform.
519. We talked earlier about lawyers. You are
going into a minefield if you suggest that, and it is a private
company, it stands on its own, it is not that Government can take
it down that road, surely; they have not got that power, have
(Lord Berkeley) With respect, Madam Chairman, I think
the similar thing has happened in the gas industry; it was done
voluntarily, as I understand it, in the end. Yes, it might need
legislation, but I think it could be done voluntarily, given the