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

Examination of Witness (Questions 880 - 899)



  880. The Government will have to pay more.
  (Mr Winsor) Yes and the Strategic Rail Authority have welcomed the proposed controls on the disposal of land and they know that if I make a compensating adjustment in the periodic review that will flow through to the Strategic Rail Authority and therefore the Treasury. That is what being strategic about the railway means; or it is part of it anyway.

  881. What is your reaction to Railtrack expressing the view that the periodic review may not have provided Railtrack with a capacity to fund £8 billion of investment over the next five years?
  (Mr Winsor) I disagree, but then they would say that would they not?

  882. Where does your disagreement lie? You have already said that they cannot sell off land. We have already seen the numbers of passengers and the amount of freight falling in the emergency conditions in which we find ourselves, so where does your disagreement with Railtrack lie?
  (Mr Winsor) The disagreement with Railtrack so far on the periodic review—they have not said they will not accept it, they are just huffing and puffing a bit for now—does not really focus on the controls on the disposal of land. That is a relatively minor matter. They dislike the efficiency assumptions of 17 per cent, they dislike the performance improvements that we are requiring of them and they dislike the fact that some of the income they are going to get will be deferred until 2006. Those are the key things which Railtrack dislike, but Railtrack is going to have to assess the periodic review as a package rather than individual elements. The company cannot expect to go through a period of 18 months, 15 consultation documents, 24 consultants' reports, endless hearings and meetings and workshops and everything and then, when the final conclusions are announced as a package, decide that they will accept all of them except three and carry on negotiating. I am afraid that is not the way these things are done. Railtrack now has a decision to make. It either accepts the review or it goes to the Competition Commission or it gets the money from some other source.

  883. Could you just tell the Committee where the compensation in a different way will come from?
  (Mr Winsor) How we would compensate them for the land disposals?

  884. Or if the numbers of passengers and the amount of freight are not those which have been forecast and factored into the projected figures.
  (Mr Winsor) I am trying to improve Railtrack's incentives so that it has more of an interest in the volume of traffic moved on the railway. Until now for each additional train that ran it actually cost Railtrack more money than the revenue it would get from the additional train. I have introduced the volume incentive as part of the periodic review so that Railtrack has an economic interest in getting more trains on the track, getting more passengers on the railway. Nevertheless, if Railtrack is in significant difficulty, having been an efficient and competent company, then there are ways in which the company can be compensated in the 2006 periodic review by adjusting the regulatory asset base.

Mr Stevenson

  885. Could you just remind the Committee what the fundamental requirements of Railtrack's licence are?
  (Mr Winsor) As it stands at the moment the fundamental requirement is a rather dull and weak document but it does have a number of important respects, the most important of which is condition 7 which requires Railtrack to maintain, enhance, renew and develop the network in accordance with best practice.

  886. Would you agree that Railtrack are a private monopoly company?
  (Mr Winsor) They certainly are.

  887. You have mentioned on two occasions during your evidence this afternoon 50:50 fare box and Government of the £15 billion over ten years and, I am paraphrasing slightly, 50:50 Railtrack and Government on the £8 billion for the next five years. I think that is what you said. Are you able to advise the Committee how much of what percentage of Railtrack's revenue is coming from the public purse and are you able to advise the Committee what percentage of Railtrack's capital requirements is coming from the public purse under the plans which have been announced?
  (Mr Winsor) I would rather give you a note about that but it is broadly, as far as the future is concerned, 50:50.

  888. On both counts 50 per cent of revenue is coming from the Government, the taxpayer, and 50 per cent of Railtrack's revenue for the future is coming from access charges and so on.
  (Mr Winsor) Yes. I do not wish to mislead you. The way in which Railtrack receives its money is a variety of sources, but the principal two are: direct Government grant from the Strategic Rail Authority of £4.7 billion in the next five years; and the rest from passenger track access charges and a significant proportion of those track access charges comes from Government.

  889. You do describe yourself as the economic regulator, so economic questions are your forte. I am interested in what proportion of Railtrack's revenue in total is coming from the public purse.
  (Mr Winsor) Broadly 50 per cent.

  890. Including access charges.
  (Mr Winsor) Yes; sorry, that includes access charges.

  891. Could you let us have a note on that and the capital as well?
  (Mr Winsor) Yes, I shall do that.

  892. That would be helpful. May I ask you now about this 50:50 and the sort of partnership which you imply: 50 per cent from Railtrack and 50 per cent from Government? We received evidence from Mr Marshall, who has been appointed Chief Executive of Railtrack, in answer to our questions that if the £4 billion grant which has been provided to Railtrack, although it is not directly identified for the West Coast Main Line, he did accept that if that £4 billion which has come through your offices and through the Government's SRA were not available then the West Coast Main Line would not go ahead. Were you aware of that before you decided to recommend this £4 billion grant?
  (Mr Winsor) The £4 billion grant is not earmarked for the West Coast Main Line but nevertheless you are right, if the money simply did not materialise, if the Government decided not to give the grant of £4 billion, then Railtrack would have a massive hole in its revenues and would be unable to afford to do large projects such as the West Coast Main Line. Yes, I was aware.

  893. You say that and officially that is the case but in questioning last week in this room I asked Mr Marshall whether the West Coast Main Line would go ahead if it were not for the £4 billion grant. He said no, it would be impossible. Were you aware of that?
  (Mr Winsor) Yes.

  894. You were. Is it fair then to assume that you understood that without that direct grant this private monopoly company simply would not fulfil its licence condition?
  (Mr Winsor) The licence condition requires the company to do these things, maintain, enhance, improve the network, in accordance with the reasonable requirements of customers and funders to the greatest extent reasonably practicable having regard to financial considerations. We cannot compel the company to do something for which it does not have funding.

  895. Unless of course the Government provides that funding.
  (Mr Winsor) The funding must come from somewhere; it must either come from the Government or customers.

  896. When Railtrack decided in September 1999 to revise its West Coast Main Line upgrade dramatically from £2.3 billion to £5.8 billion—I am not sure whether you were in office then . . .
  (Mr Winsor) Yes, I was.

  897. . . . were you aware of that decision or was it one taken by Railtrack alone?
  (Mr Winsor) Yes, I was aware of the decision because they came and told us.

  898. Was that before or after the decision?
  (Mr Winsor) The company made the decision and then they told us about the decision. That does not mean to say we accepted the decision.

  899. The point I am trying to elicit from you is that they, a private monopoly company, took this decision, which meant the cost went up from £2.3 billion to £5.8 billion, and you were told about it afterwards.
  (Mr Winsor) We were told about it but it was not the company's decision to put the costs up and put all the costs onto the public purse. That was a decision for me as the economic regulator and for the Government as to how much it was prepared to pay.

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