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6.7 pm
Mr. John Redwood (Wokingham): I have declared my interests in the register.
The Secretary of State finds himself in a dreadful situation. I echo the comments of my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) and my right hon. Friend the Member for North-West Cambridgeshire (Sir B. Mawhinney), who spoke with considerable experience, about how much more costly it is now going to be to sort out the problems of our railway industry, how much delay there will be in sorting them out and how much confidence this Secretary of State, on behalf of this Government, has knocked out of the relationship between the Government and financiers, bank managers, bond financiers and those who raise equity money.
It is right for people to ask what the Opposition would do. I am very happy to suggest what could be done in this situation, as it is clearly well beyond the skills and attention of the Secretary of State. The legal position, as I understand it, is that the shareholders of Railtrack, at group level, retain residual assets. They must make their own decisions on whether they wish to continue trading those assets in some form or sell them and rescue what little money they can from the group assets that are not in administration. They also have a clear interest in the administrator obtaining best value, if he can secure value, for the assets in administration. That is also the legal duty with which the administrator is charged.
The Secretary of State is not in control of that process, nor should he be. Those are assets that have been placed into administrative receivership and now have to be sorted out as best they can by the administrator. The sooner that they are sold on to an owner who can do something with them and set about rebuilding the battered balance sheet, the better it will be.
The Secretary of State is in danger, I think, of misleading his own Back Benchers. He implies that his model of the not-for-profit company is the one that will naturally emerge from the administration process. That is by no means clear. Labour Back Benchers may be disappointed to discover that bids are received, and they may be even more disappointed if one or other of them is better than any bid that can be put forward by the not-for-profit company. We still do not know who will sponsor the not-for-profit company, how it will write a prospectus, how it will raise cash, who will serve on it and what type of guarantees it or other bidders will receive from the Government.
I hope that the Government are in no doubt that they will have to offer fair funding to any bidders. They should, of course, first apologise for the mess that they
have created, but the only sensible course that they can then follow is to state clearly to Parliament and the public, for the first time, what money is available to those who will be charged with the duty of running the Railtrack assets. Bidders will then be able to bid on the basis of greater certainty, and to ascribe a negative or positive value to the assets that are in administration. I fear that, in their current shape, the assets have a negative value, and that a substantial dowry will be required by whoever takes them on.It is obvious that Railtrack's balance sheet must be strengthened. In answer to one of my questions, the Secretary of State said that he hoped that the new company would have an A credit rating. There is no way that Railtrack, on paper, could command such a rating in its current guise. I would expect the balance sheet to require a sum well above £1 billion of additional equity, or surrogate equity, which I think is the Secretary of State's preferred route. He cannot quite bring himself to admit that he must inject new extra capital into a company whose shareholders he has just helped to bankrupt, but he will have to put in that equity, or surrogate equity, of well over £1 billion to give it any chance of securing some kind of credit rating in the City.
The Secretary of State seemed to know that on 3 July, when, in rejecting the idea of the not-for-profit public interest company that had been suggested by some Members, he told the House that it would cost £2 billion to buy out the shareholders—we know that he does not wish to do that now—and another £4 billion to sort out the bond holders, because there is that amount of bond finance in Railtrack. When I asked him today, in the House, whether he proposed to wipe out the bond holders or whether he was effectively offering a Government guarantee for the £4 billion, he characteristically declined to answer; but the question is terribly important to assessing the cost to the Secretary of State of the forced administration of the Railtrack enterprise.
Then there are the costs of the administration itself, which are likely to be high. Given the phenomenal legal bills that the Secretary of State and his advisers must be incurring, and those incurred by those advising the administrator, Railtrack and the regulator—many of which will be a charge on public funds—I suggest that there will be no change out of £100 million for the fees of lawyers, accountants and others involved in reporting on the progress of Railtrack, and the amount could escalate well beyond that. I should be delighted if the Minister intervened to assure me that the Government have received quotes for all those charges well in advance and the amount will be smaller, but I think that it would be safe to pencil in well over £100 million—something similar to the huge fees that the Government are running up in the public-private partnership negotiations in regard to London Underground, which remain stalled and mired in difficulty and uncertainty.
There is also the cost control that the company itself was minded to implement, but that is probably not currently being implemented by the administrator. I estimate that at least £250 million of costs would have been saved in the trading year ending next March, and will probably not materialise because a degree of management has been removed from the company, and the administrator is taking things more easily in an attempt to find out what is there and how he can proceed.
We then come to the £800 million that has already been guaranteed by the Government. That was squirrelled out by a question asked by someone else; I was not told, although I asked a direct question that should have required that answer. Anyway, we know that £800 million has already been guaranteed, or has gone, to deal with the day-to-day bills of the company in administration—and, given the cash forecasts that we have heard from the Secretary of State, presented by the company before he made his decision, there may be another £650 million to go out before the end of the year. I am sure that the Government will feel that they must guarantee that in some way.
If we leave aside the £4 billion of bond holders' money—there are different ways of treating it, but according to the Secretary of State it should all be a direct charge on public accounts—we arrive at a total of £2.8 billion by the end of the year to try to keep the company going, and start sorting out the problems in administration. I suggest that that is well in excess of anything that the Government needed to give, or would have granted, to the company before it was put into receivership.
I have asked the Secretary of State to tell the House how much would have gone into the company this year and next if plans had continued under the 2 April agreement, but I have received no answer. I think that Ministers should tell us how much they had planned to put in, both directly and through the Strategic Rail Authority; what the timing of the payments would have been; and what extra amount they estimated might be needed on top of that. I find it extraordinary that Ministers could sign off on a going-concern audit basis in the summer of this year, and a few weeks later be scrambling around saying that the company would become insolvent and something drastic would have to be done.
My right hon. and learned Friend the Member for Rushcliffe made a more general point about the cost of this Secretary of State to the Government. Let us take just the transport element of private finance under the 10-year plan—£35 billion, perhaps £34 billion. If we assume that the cost of the Secretary of State's damage amounts to only an extra 1 per cent. per annum in interest to allow for the greater hazards involved in doing business with the Government now, we are talking about an extra £3.5 billion over a typical 10-year term of debt.
That would be the extra cost of financing a programme of this size, and that is just one element. The Secretary of State will have to stand accused of increasing the costs of financing a number of Government programmes. The Government anticipated large sums of private money for other transport systems, health, educational establishments, prisons and a wide range of other public facilities. There is no doubt, given the City's current mood, that the price has just gone up. Some very smooth talking, and the removal of the Secretary of State, will be required to reassure people and put the price down again. [Laughter.] I am glad that the Government think that a matter for so much hilarity, but the public are not amused.
This has meant a delay in vital investment in the railway industry. It has interrupted the progress of an industry that the Government themselves said was going rather better as a result of privatisation. Before the general election—in May, in Westminster Hall—the hon. Member for Streatham (Keith Hill), then a transport Minister, made a very good speech praising the growth in traffic,
the improvement in investment and the new equipment that was coming to the railways—success that he believed had been achieved by the industry in privatised ownership since 1997. I found myself in full agreement with him. I did not confess that at the time because I knew that he had said those things because an election was coming up and he wanted to claim some credit for a Tory success a few years earlier. But I see that he is enjoying the situation now, because he knows that what he said was true, and that those who have taken over have made an awful mess. A new Secretary of State came in and overruled the perfectly sensible policy espoused by the hon. Gentleman and his then colleagues, causing the trouble that we are now seeing.Time does not permit me to say much more. Let me end by saying that this Secretary of State is going to send a huge bill to the travelling public, the taxpayer and the Government as a whole. It is a disgrace and he should go. We need someone who understands how the market works, and how to raise the colossal sums that we need to get the railways on the move.
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