Select Committee on Environment, Transport and Regional Affairs Minutes of Evidence

Examination of Witnesses (Questions 700 - 719)



  700. I was going to ask you about that considerable interest, if I might, Sir Alastair. In July of this year, the then Chief Executive of Railtrack, Mr Corbett, with the full support of his Finance Director, who is now Chief Executive of Railtrack, said in evidence that Railtrack had proposed to your authority that they should invest in preference shares in Railtrack, ("they" being your authority), "as the most efficient way to lever public money into Railtrack". When Mr Marshall last week was questioned on this, he said that they considered many options but they came out, as Mr Corbett said, with this as being the best option. Why have you rejected them?
  (Sir Alastair Morton) I was asked about this the last time I was here. I said that being a shareholder in Railtrack does not convey much control. You have more control by conditions of lending, conditions of contract, and so on. Wringing your hands as a shareholder is not a very controlling form of activity. What may be said—and this is a political decision, I seem to remember saying, but I am open to correction as to what I said—this is a political decision about return on investment. If the Government says it wants to put money in and get a return on it, that is a different political statement from it wants to put money in as grants.

  701. I understand that, Sir Alastair, but of course your good self and your authority are in a very influential and important (some might say in a critical) position in this interface between the changes we all want to see in the railways—you have referred to some of them—Railtrack's performance as a company, and confidence in that company in the future. You have mentioned that. Also, the massive amounts of public money. This may not surprise you but £4 billion has been made available to the Regulator as a direct grant, which is over twice as much as the gross proceeds from the Railtrack sale. The latest capitalisation figures that I have is that at the end of July capitalisation for Railtrack was 5.2 billion and at the end of October it was 4.7 billion. You are proposing to give to a private monopoly company nearly as much as the capitalisation of the whole of the company. How is the public interest being protected in those circumstances?
  (Sir Alastair Morton) This money will not pass across to Railtrack, these grants to which you are referring, until three or four years hence; about three or four years from now. By then, of course, a lot of the things we are discussing will become clearer. I say that by way of qualification. If things get worse, we may arrive at that nuclear situation. I hope they will not get worse, I have no reason to expect that they will get worse, but if they do get worse. That is the first point I would like to make. The second point I would like to make is a question in my mind of return on investment. Does the Government want to grant money to this private sector enterprise and say, "There you are, chaps. Go away and use it well. It is yours." That is the decision which the Government has taken so far. The alternative decision would be to say, "We are going to advance this money to Railtrack and we are going to advance it on conditions." The Government did not take that decision. I would be comfortable with either decision. The second, that it be advanced, does recommend itself to a person like me who believes in return on investment, but I think this is a political decision.

  702. But you see, Sir Alastair, Mr Marshall last week—and I am using my memory so I will stand to be somewhat corrected, but I do not think I am wrong although I may paraphrase slightly—in answer to a direct question made it clear to the Committee that without this 4 billion grant, whatever period of time it is paid over, whenever it is made available, the West Coast Main Line project simply would not go ahead. If they had to raise that 4 billion on the capital market, he said that they would have to take on board another rights issue to the value of £1 billion; so it is not just a matter, is it, of the Government saying, "We want to pump prime this." This is not a partnership surely when the Government are paying for four-fifths of this project; are saving Railtrack another £1 billion in call-outs to its shares; and the project will not go ahead under Railtrack. That is not a partnership, is it?
  (Sir Alastair Morton) It is a grant.

  703. It is not a partnership. If you take all the points—
  (Sir Alastair Morton) I understand your question, sir. It is a grant, it is a gift.

  704. Unless you challenge me on the points I have made about our evidence, take the other points into account as well as the grant, you said that you wanted a partnership with Railtrack. What sort of partnership is it that provides four-fifths of the money in a direct interest-free grant to a private monopoly company? The company tell us that the project would not go ahead without that grant. That saving the company another £1 billion in rights issue, which would be a call on the company's finances, what sort of partnership is that? I put it to you.
  (Sir Alastair Morton) I have given you a point of view but may I take it round the regulatory loop. I do not speak for the Regulator, so I hope he will agree with the general course of what I am saying. The definition of the regulatory settlement is to cover operations, maintenance and renewal costs, and to make it possible for Railtrack to fund its investment programme without undue difficulty. Now within that there is this word "renewal". What happened on the West Coast Main Line was that they moved from an upgrade to a new form of signalling, to a renewal of an existing type of line side signalling, and the costs went through the roof—for that reason amongst others. Whatever the reasons were, they were included in the renewal programme. Being in the renewal programme, they became part of the Regulator's five-yearly settlement. He did a lot of hard work with his consultants on the total cost of that renewal programme and it came out to the number it came out at. He put forward, as being the amount that had to be passed into Railtrack by one of two methods: track access charges, which are paid by the TOCs, assisted by us; or direct grant, Government having made it quite clear that it was willing to consider direct grant from us to Railtrack as one of the channels. So the money was to go in for a renewal programme by direct grant from us. But it was a renewal and, therefore, it was part of the regulatory settlement. The question you are asking—and again I think the answer is political rather than from me—is was this really a renewal programme or is it a major enhancement of the system to have this line resignalled in this way? It was decided that it was part of the renewal programme. Therefore, it would go ahead under the way the regulatory plan is set up.

  705. Yes, I think we are aware of that. I simply want to ask one more question. I understand that the notion of the SRA taking over Railtrack's offer of preference shares as the best—not one of the options—but the best way of levering in private money, you have rejected that as an authority?
  (Sir Alastair Morton) I did not recommend it to the Government, no.

  706. Would you care to elaborate now or at some future date to the Committee why you did not recommend that? That was not a political decision but it was your decision.
  (Sir Alastair Morton) Not to recommend but I did not have the final say. My decision not to recommend it was based on a view. It had two parts, which I think I have referred to. One part is what I thought of it as a proposition for an investment. I thought it would bring more trouble than it was worth. There are other ways of getting a return on your investment. They were not proposing voting shares and half interest in the company or 25 per cent interest in the votes of the company, I can assure you. The other point was that it was categorised as renewals and, therefore, went into the regulatory settlement. Therefore, that was not a way one would normally have dealt with the regulatory settlement, passing money that way. So you had two reasons. One, why I did not recommend it and the other, why it did not become part of the plan. Both add up and it did not happen.

Mr Olner

  707. Sir Alastair, I have followed with interest, and I am sure other people have, your answers to the questions about money. I think the general public would be looking at your authority to say, "There is all that money there. Are we really getting value for money?" What do you see as your role in achieving that?
  (Sir Alastair Morton) Our role in achieving value for money is to look at the total amount of money going out and the total socio-economic return and the total cash return, and see what the total benefits are—very much including what I briefly call socio-economic, meaning things that cannot necessarily be expressed in cash.

  708. As a Strategic Rail Authority you get advised regularly by all of the users or parts that make up our railways. Do you get advice as to what is happening at the moment?
  (Sir Alastair Morton) You mean the train operators, the passengers, all the stakeholders in the system?

  709. Yes.
  (Sir Alastair Morton) We certainly hear a lot from lots of them, yes. The Rail Passengers' Council and the Regional Committees are very active in telling us what they think. The operators are pretty active in telling the Franchising Director what they think. We do have contact with the other parties like the contractors. We meet most of the people who are proposing to do business one way or another. We talk to the local authorities who are concerned about services. We see a very great deal of the PTEs, the Passenger Transport Executives.

  710. Have you been told today, or perhaps you will be told tomorrow, why there were a further two derailments late last night?
  (Sir Alastair Morton) I think first you would have to tell me whether those are the sorts of derailments that are two-a-penny normally and they probably were. There are always derailments on the railways. The railways are not some sacred, perfectly conditioned, fully functioning thing. They have always had their little derailments, their bumps in the night.

  711. We have had rather a lot lately, have we not?
  (Sir Alastair Morton) Stick to the definitions. If they were the two-a-penny variety, then I do not think there would be a great call for people to come tearing along to tell us. We would probably have heard in the normal reporting system somewhere along the way.

  712. One of these has damaged four miles of track.
  (Sir Alastair Morton) That often happens. It is usually tidied up within hours.

  713. So it is all tidied up now?
  (Sir Alastair Morton) I do not know, to be honest.
  (Mr Grant) It is not. Railtrack are inspecting it. It is quite a bit of line so they are inspecting it. That was the last report we had before we came to the meeting. It was a freight train and the last couple of carriages came off and dragged it for quite a few miles, so the damage is being checked on the sleepers, etcetera.

  714. You are convinced, Sir Alastair, that this will be put right in a couple of hours?
  (Sir Alastair Morton) Not in a couple of hours, clearly. It will be put right. It is the sort of thing that does happen on the railway. Just like when there is an accident on the motorway, the wreckage is cleared away reasonably rapidly, with all due despatch.

  715. I have to say that I think the travelling public have been extremely tolerant over the past few weeks. It seems to me they need a champion to ensure that what is to happen really does happen and happens for the better. It does concern me that you are perhaps not being vigorous enough, as a Strategic Rail Authority, in banging the table a bit.
  (Sir Alastair Morton) I can assure you they will tell you they have had some table banging, probably more than they would like, from a number of parties on the Government side, including me. We are strategic, we are not a railway management authority. It is not our task to put a crane train and spares train and sleeper train out on the circuit at Northampton, no matter what elsewhere might be needed.


  716. If it were, Sir Alastair, you would have heard from us before.
  (Sir Alastair Morton) I accept that. I think the answer concerns the ailments of the system: if there is a system reason why nobody fixes that quickly, that concerns us. If there is a system reason why this broken rail problem seems to go on bumping along at the same high level as opposed to coming down sharply, which we all hoped it would by now, if there is a system reason for that, that involves us; but actually finding that the third rail from the left is cracked and doing something about it, is not our business.

Mr Stevenson

  717. Can I bring you back to the SRA's strategic plan. When you gave evidence to us in July, you did say that you would be expecting to produce it late October, early November. Could I ask when the date of publication of this will be, since we are nearly at the end of November.
  (Sir Alastair Morton) We announced in late October that some working groups have been set up within the industry and convened by us, supervised by a steering group, chaired by me, to look at a number of questions affecting the possible smoother running of the industry. We said that these were trying to come up with industry solutions that could be voluntarily adopted to eliminate conflicts of interest, conflicts of priority, friction, operating difficulties between the parties, whether that be operators and Railtrack, or whether it be maintenance of the track and somebody else, the suppliers of rolling stock or whatever. We said these would report in early December. They are all going to report by 5 December to the Steering Committee. We said that their conclusions would not only be discussed with Ministers, in case action was needed by Ministers, but would also condition our Strategic Plan. If people come up with a way of looking at line speed restrictions in a totally different way, (just to think of an example), it would be useful to be able to reflect the kind of co-operation that is required for the way we say things can be handled in future in the strategic plan. So we put the plan back to January in that announcement.

  718. Back to January. That has basically been delayed because of the recent happenings on the railway?
  (Sir Alastair Morton) Yes.

Mr Donohoe

  719. What evaluation do you involve yourself in as far as input into new products through R&D is concerned, if any at all? Do you have any understanding about what the levels of R&D are within industry in the United Kingdom?
  (Sir Alastair Morton) We have a concern about it. It is not, to date, something we have involved ourselves heavily in. We see it as something that is going to ask more and more from us in future, partly for funding reasons and partly for strategic reasons. The first push in that direction came from Sir David Davies, who suggested we should convene rather more research than was going on. There is a concern, which we share, that there is not enough research and technological development going on since privatisation.

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