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Mr. Christopher Chope (Christchurch): I am delighted that so many hon. Members have joined us for the first of two debates today on Railtrack and the Secretary of State for Transport, Local Government and the Regions. We also have an interesting Select Committee meeting on the subject tomorrow.
Over the weekend of 5 to 7 October, the Government engaged in an act of confiscation without compensation against Railtrack. Until recently, Railtrack was one of the top 100 quoted companies in the country. By their action, the Government precipitated one of the largest ever corporate failures in the United Kingdom. The events leading up to that weekend and the role of the Secretary of State are the subject of a major debate in the House this afternoon. The motion in the name of my right hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith), which I enthusiastically support, condemns the Government and the Secretary of State and calls on the Secretary of State to resign his post.
In our debate, I shall concentrate on the implications of 7 October, when the order that put Railtrack plc into railway administration was made. The actions of the Secretary of State over that weekend have made the problems of the railways far worse for the travelling public, those who work for Railtrack and the taxpayer. The travelling public are faced with a long period of uncertainty during which vital decisions on investment will be delayed. The situation for those who work for Railtrack is even worse. More than 10,500 of Railtrack's 12,000 employees are angry and disillusioned, having lost £1,000 or more each from their savings in Railtrack shares. One signalman, a lifelong Labour supporterbut not any morehas lost £33,000. The Conservative party regards those shareholders as loyal employees of a company providing a vital public service, while the Labour party's view is to condemn them as naive, greedy and deserving of the fate that has befallen them. The Liberal Democrat party, in the words of its amendment on the Order Paper, "regrets the confusion arising".
It is more than confusion; it is confiscation. Indeed, some shareholders draw a parallel with the confiscation without compensation that President Mugabe resorted to against white farmers. The Government of Zimbabwe regard the mass trespass of their supporters on to private farms not as a threatening act but merely as the logical consequence of refusal to do as instructedthe same defence used by the Secretary of State in countering charges that he threatened the Rail Regulator. Fortunately, in this country the rule of law and parliamentary democracy still function, and that is why aggrieved Railtrack shareholders are intent on seeking compensation through the courts, while the independent regulator and the chief executive of Railtrack have spoken out fearlessly against the actions of the Secretary of State.
I ask the Minister a simple question: how can one run a better railway by making employees angry at their betrayal? I will give way to the hon. Gentleman if he wishes to reply to that nowor perhaps he will reply to it at the end of the debate. The answer, of course, is that
We have heard that American fund managers, far from being attracted to invest in the railways, will stop investing as a direct result of what the Secretary of State has done. Franklin Mutual of New Jersey, which has one of the largest holdings in Railtrack with 4 per cent. of the shares, said that the Secretary of State's political decision to force the company into administration has changed for ever its involvement in the British market.
Mr. Chope : If the hon. Gentleman wishes to expand on that, I shall give way to him. Franklin Mutual is absolutely right. It runs an investment organisation and realises as a result of the Government's action that they can no longer be trusted. David Winters, Franklin Mutual's portfolio manager, said:
Without private sector investment, the Government's 10-year transport plan for the railways is unachievable. To deliver a "bigger, better, safer railway" requires £60 billion. It is common ground, at least between the Government and the Conservative party, that all that money cannot be afforded by British taxpayers.
The Secretary of State led us to believe that placing Railtrack into administration reduces the burden on British taxpayers. Is it not odd, then, that on Sunday a senior official in the Department for Transport, Local Government and the Regions said:
That official reported that the Secretary of State had become so isolated from the Chancellor that he had had to enlist the help of the Deputy Prime Minister to obtain a more sympathetic hearing. As someone who once served as a Transport Minister, I can only say that if the relationship between the Department for Transport, Local Government and the Regions and the Chancellor of the Exchequer is worse than ever before, it must be dire indeed.
It would be extraordinarily out of character for the Chancellor of the Exchequer or any Treasury Minister to be at odds with a Secretary of State who had just taken a course of action to save taxpayers' money. The perception in the Treasury and elsewhere is that taxpayers will have to foot a much larger bill as a result of railway administration. The implications extend not just to investment in Railtrack and the railway infrastructure, but to all the Government's public private partnerships. Last Sunday, the Independent on Sunday printed an article under the headline, "Railtrack collapse might cost British taxpayers an extra £7.5bn." The article included a reference to whether we would receive the investment, and at what price, in the public private partnership being arranged for the London underground. It seems that the price will be significantly above what it would have been before the Government's actions on 5 to 7 October.
Under the Government's 10-year transport plan, the Strategic Rail Authority is responsible for using public funding to attract private sector investment to enhance the railways. How will Railtrack administration facilitate that objective?
The Secretary of State recently appointed a new chairman of the Strategic Rail Authority at an annual salary of £250,000 for a five-year contract. Has his remit changed from that of his predecessor and, if so, in what way? The glossy leaflet produced jointly by the Strategic Rail Authority and the Office of the Rail Regulator in May this year stated:
Nine months have now passed since the Strategic Rail Authority started operations, but it has not yet produced a strategy. A strategy document has been promised for this month. I hope that the Minister can tell us this morning when it will be published and whether it will address the issue of how the strategic objectives will be furthered by putting Railtrack into administration. There are rumours that the document may be published in a truncated form and issued subject to review, which would not be of much use in setting a clear strategy for the railways.
What about the role of the Rail Regulator? I asked the Minister to explain how the Rail Regulator will fulfil his principal statutory duty to regulate Railtrack's stewardship of the national rail network now that it is in administration. The Rail Regulator is statutorily independent of the Government. Parliament invested him with a range of statutory powers under the Railways Act 1993, as amended by the Transport Act 2000 and the Competition Act 1998. His job is to ensure that Railtrack's incomea combination of private finance and public subsidy that is set by the regulatoris spent on the right things at the right time.
How can investors in any company that emerges from the Railtrack administration be assured that the Rail Regulator will not be second-guessed and threatened by the Secretary of State? Does the Minister accept that the Secretary of State's actions on 7 October have destroyed at a stroke the credibility of the Rail Regulator's independence? Is it not obvious that the role of a regulator will vary greatly, depending on whether the company that takes Railtrack out of administration is a not-for-profit company or a for-profit company?
The administrator is legally independent of the Government and is obliged to consider all offers for the business on their merits. However, how can companies and organisations interested in taking Railtrack out of administration be convinced of the administrator's freedom of action? In his initial statement following the railway administration order, the Secretary of State made it clear that he was wedded to the creation of a not-for-profit company staffed by a miscellany of Government toadies. At that stage, the Secretary of State had it in mind that the chairman of Railtrack would be one such toady, but it was great to discover that he was not to be seduced in that way.
Mr. Patrick McLoughlin (West Derbyshire): My hon. Friend has hit on a very important point. Bearing in mind the vicious way in which the Secretary of State attacked the chairman of Railtrack in his statement to the House a few weeks ago, is it not surprising that he was the first person to come to the Secretary of State's mind as chairman of the new company?
Mr. Chope : My hon. Friend is absolutely right. The Secretary of State is behaving in an extraordinary way. He is making many enemies among those who have made career changes in order to do their best to provide a good railway for our country. When they do not do as the Secretary of State insists, all they get is abuse. The issue is one of trust in the Secretary of State. When he decides, under schedule 7 to the Railways Act 1993, whether to accept the administrator's proposals, he will be judge and jury in his own favour on his own pet proposal.
What are the implications for the administrator's freedom of action? For example, what freedom is he being given to reduce the staff overhead, which Railtrack had been preparing to announce in October? Is the £800 million that has been allocated to keep the administrator in funds the only payment that he will receive, or will there be more? Are those payments coming from the DTLR budget or from the contingency reserve?
When will a new business plan be produced? When will a prospectus be prepared? How is the anger of 10,500 employees who have lost their savings to be assuaged? The Government are talking about special purpose vehicles. How will that safeguard the west coast line project? How will not-for-profit companies be able to create surpluses? All the statements by the Secretary of State suggest that they will be able to create surpluses and will not be at risk of making any losses. The only way in which they can create surpluses is by charging more for access to the tracks. Where are the upgrades to come from, and how are they to be financed? How will the risks of performance and train operator compensation be handled through special purpose vehicles? The Minr needs to answer a whole host of questions.
Mr. John Smith (Vale of Glamorgan): As the hon. Gentleman draws to a conclusion, I wonder whether he intends to refer at all to the customers of Railtrack, as so far he has not done so. Is anything to be gained by customers or taxpayers from bailing out an incompetent company, and what price is he prepared to pay for that?
Mr. Chope : I did refer to customers and to taxpayers; perhaps the hon. Member for Vale of Glamorgan (Mr. Smith) was preparing his notes for his own speech. I am keeping mine shorter than the normal 20 minutes because I know that many hon. Members want to join in.
Mr. Chope : No. Those who work for Railtrack, private sector investors and taxpayers all have a role to play in solving the problems precipitated by the Secretary of State. One thing above all is clear: there will be no solution without his resignation.
Geraint Davies (Croydon, Central): The first thing that I want to say is that the Secretary of State's decision was the right decision, a brave decision and a hard decision. The alternative proposed by the Opposition is to drip-feed, unsustainably, a casualty that was on a life-support system.
In the run-up to 1997, when the Conservative Government were facing inevitable election defeat, they sold off Railtrack at a fraction of its valuearound £2 billion, although the markets valued it at around £8 billion. That is acknowledged by the Public Accounts
I remember seeing the headline of an article in the trade press in which Railtrack put the case that signal investment did not make business sense. It made safety sense, but it did not make business sense to Railtrack's incompetent managers. When I say "incompetent managers", I am, of course, referring to Mr. Winsor's testimony to the Select Committee on Transport, Local Government and the Regions:
Chris Grayling (Epsom and Ewell): If Railtrack was badly structured and incapable of delivering success, why did the Government choose to make it the principle investment vehicle in their 10-year plan?
Geraint Davies : The 10-year plan was predicated on our starting point. However, we are moving toward a stakeholder model. A non-profit making corporate governance will bring together the various stakeholders who were in the business of blaming each other for our shambolic railway system. The shambles was caused by the previous Government's under-investment combined with an absurd and unsustainable corporate structure. We shall move toward train operating companies, the Strategic Rail Authority, customers and employees working together for a better future that will be supported by record Government investment, which is something that we did not see when the Conservatives were in government.
Mr. Eric Pickles (Brentwood and Ongar): I am concerned about the hon. Gentleman's political career. Earlier, he rebuked the Deputy Prime Minister for suggesting that safety had not been compromised under privatisation. Will he clarify those remarks? Was the Deputy Prime Minister wrong?
Geraint Davies : The Deputy Prime Minister will stand by his remarks. The regulator requires the system to be safe, but in a private corporation such as Railtrack there is evidence, which I quoted, that there is a trade-off between investment and shareholder needs. Investment in signals, which is an overhead, has a bearing on safety. There has been an on-going discussion about signals, investment and time scale. It would be silly to suggest that there was not a trade-off between investment and shareholder needs.
The Government inherited Frankenstein's monster. To pretend that that will scare away investors in the private market is to misunderstand that market. There is no doubt that the hon. Member for Christchurch (Mr. Chope) has correctly quoted American fund managers. If one can, one will invest in what appears to be a risk-free corporation. If one can buy shares in the knowledge that the Government will always bail one out, one will invest more money. Compare that with, for instance, private finance initiatives, of which the Government have completed more than 100. On 26 November the National Audit Office will publish a report on the relative success of all those projects.
I will not run through all the questions, but one was about the level of risk transfer and added value. There is not much risk transfer if the corporation thinks that it will be continually bailed out by the taxpayer. That was the false market of Railtrackthe absurd monster that was created by the Conservatives, who sit here smirking. I presume that their policy would have been to continue to drip-feed that monster never-ending amounts of money simply to support their prejudice. The British public know that that would not be the right thing to do, although it would be the easy thing to do. We have done the right thing, which is to issue no blank cheques. I know that the hon. Member for West Derbyshire (Mr. McLoughlin) wants to offer £1 billion from his coffers.
Mr. McLoughlin : I should like to take the hon. Gentleman back to what he was he saying about safety. It is important that this point is not misunderstood. Does he say that the Health and Safety Executive has failed in its duty on railway safety over the past five years?
Geraint Davies : No, of course I do not. I simply say that Railtrack is losing confidence and has issued press releases saying that various investments in safety matters did not make business sense. That is clearly borne out by the cuts that Railtrack has made. It seems rich that in his opening remarks the hon. Member for Christchurch said that the workers had been betrayed on the issue of costs, yet a moment later he asked the Minister to clarify what facility there was to reduce the staff overhead as Railtrack planned. In his opening remarks the plan was to look after the workers, yet later it was to sack half of them to reduce overheads. That is ridiculous.
There have been horrendous failures in rail safety such as at Paddington and Hatfield. It was notable that the then chairman of Railtrack, Gerald Corbett, who had apparently been running a very safe system, closed it down to change all the tracks. We are led to believe that until that point the system was safe, yet all of a sudden he had to close it down and then he resigned and ran off to India to go on a diet, having been given an undisclosed amount of money. We are supposed to support that system of secrecy. The same week that Gerald Corbett went off to India with his massive pay packet, Kevin Keegan, another well-known figure, resigned because he was not doing his job properly. He did not take any money with him. The whole system was absurd.
Chris Grayling : I thank the hon. Gentleman for giving way again. This is a hugely important point. Is he aware that Lord Cullen made two very clear statements in his second reportfirst, that the nature of the privatisation of the railways did not have an adverse effect on safety and secondly, that the railways have continued to become safer since privatisation? None of us feel anything but the deepest horror and shock about the accidents at Ladbroke Grove and Hatfield, but they are not typical of the safety trends in the rail industry.
Geraint Davies : There certainly have been fewer fatalities and greater safety over time. My point, as the hon. Member for Epsom and Ewell will know if he was listening, was that the chairman of Railtrack was in charge of a system that was apparently completely safe, in the aftermath of Paddington but decided to close down the rail industry because it was not safe. Either it was safe or it was not. I respect what Lord Cullen said, but it is strange. He said, too, that in the immediate aftermath of the sale there should not necessarily have been a systemic reason for safety problems. It is bizarre to say, "This is a completely safe system," and at the same time say also that it is fair to close it down because there are problems with the track.
The previous Administration had no record of building public-private partnerships or levering in private money; they sold off our assets on the cheap. However, there is an enormous groundswell of investment from this Government. The Conservative policy on the tube was simply to sell it off, but when the
The Conservative focus on the issue is non-strategic; the Opposition are not addressing the strategic interests of a customer-driven rail network in the new millennium. They are interested only in the tittle-tattle of who said what in a meeting. That is all they talk about in the Tea Room. What the public want to know is whether they can get on a train, and whether they can have an environmentally sustainable fast system that works for Britain. They were let down by 20 years of under-investment and the virtual destruction of the rail system as the Conservative forces backed away from the public, who threw them out on their ear.
We are now rebuilding a new corporate governance to bring together the different parts of the rail industry to work with a public investment commitment that has never been seen before. That will renew the culture of working with the private sector, perhaps on project-based delivery to provide the best value for money and the best quality for customers. Workers, customers, Government, business and environmentalists will clap their hands and welcome this great change.
I wish the Secretary of State the best of luck. I am sure that he will not be distracted by the rubbish, tittle-tattle and trivia of Conservative Members, who will stay in opposition for many years to come.
Mr. Edward O'Hara (in the Chair): Order. It may assist the many hon. Members who want to participate in the debate to know that the winding-up speeches will start at 12 o'clock and the Minister must be called not later than 12.20 pm.
Mr. John Horam (Orpington): The speech of the hon. Member for Croydon, Central (Geraint Davies) was typical of Labour contributions to debates on the railways: they simply retell history and give no reason why, if what happened was so catastrophic, they did not do something at the start of their Administration, rather than wait for four and a half years. They claim that they are doing something decisive, but they are merely reacting in panic to events to which they have contributed.
The second aspect of the Government's lamentable performance since they came to office is that they have simply dumped everything on the Railtrack management and staff in a disgraceful manner. They inherited the innovative and new structure of Railtrack and the operating companies when they came into office. They had the opportunity to nurse it and to achieve the good management that would have delivered better service and, crucially, retained private sector confidence so that private money could be levered in, as was intended all along.
The hon. Gentleman talked about the Government's expertise and success but totally ignored the fact that my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) created the present structures. He introduced the public-private partnership and the private finance initiative, and was extremely successful in dealing with prisons, roads and motorways. That happened well before the hon. Gentleman was even a Member of the House of Commons, and he should not rewrite history in the way that he did.
Geraint Davies : It is worth telling the hon. Gentleman that, as leader of Croydon council, I oversaw the tramlink public-private partnership. We started discussing the issue in 1986 and it went through the House under the previous Conservative Government. The idea that I have no hands-on experience of projects worth hundreds of millions pounds is quite false.
Mr. Horam : I accept what the hon. Gentleman says about tramlinks, which are an excellent idea. He should not, however, distort the history of the private finance initiative and public-private partnerships, which were well advanced before a Labour Administration ever thought of them. The Government have simply carried on with the good aspects of Conservative Government policy but, sadly, they have failed to take advantage of some initiatives.
When they came into office, the Government had an opportunity to manage the situation in a way that would have produced better results for those who use trains regularly or take long journeys and for employeesmy hon. Friend the Member for Christchurch (Mr. Chope) was right to focus on those groups. The Government had an opportunity to make the industry viable but, sadly, they failed.
We are where we are today because the Government failed to take the opportunities offered by the innovative and new structure that they inherited from the Conservative Government. They have totally failed, and it is apparent to all concernedMembers of Parliament, railway users and Railtrack employees, who are undoubtedly angrythat the Secretary of State is in a mess.
In a spirit of fairness, I fully accept that the railway management cannot entirely escape blame. It did not always live up to its operational responsibilities in the way that we would have wished. Equally, the Rail Regulator cannot entirely escape blame for some of the things that happened. He gave punctuality and regularity of service too much priority over safety, which gave Railtrack wrong incentives, for which we have paid. However, when anything has gone wrong in the past four and half years, Ministers have regularly and repeatedly dumped all the blame on the Railtrack managementthe executives and boardlike a shot.
I know Railtrack well because I represent a commuter constituency in outer London, and I have often talked to Railtrack and Connex, which is my local operator. I know that their morale has suffered because repeated and unfair Government statements have dumped all the blame on them. Even this summer, when I last talked to Railtrack, it thought that things were beginning to come
A propos the remarks made by my hon. Friend the Member for Christchurch about the relationship between the Treasury and the Department for Transport, Local Government and the Regions, it is probably true that a Blairite Minister was confronted with a Chancellor of the Exchequer who was not always his best friend.
The Under-Secretary of State for Transport, Local Government and the Regions, the hon. Member for Plymouth, Devonport (Mr. Jamieson), knows that a Treasury Minister should be in the Chamber as well, because the Treasury is, to a considerable extent, to blame for some of the problems that have occurred in the industry. In relation to London Underground and Railtrack, the Chancellor of the Exchequer's attitude has not been fundamentally posited on giving a better service to users and a better job to employees. He has simply considered the subjects from a narrow Treasury point of view.
It is sad that what has to be done with Railtrack was already beginning to be done. It needs to be run in a decentralised way, with the organisation structured so that it can respond sensibly to the investment needs of operating companies.
Mr. Geoffrey Clifton-Brown (Cotswold): After privatisation, had passenger numbers on railways not reached a post-war high? Passenger numbers, investment and safety levels were increasing. Now there is a complete lack of confidence in the railway system. Surely my hon. Friend's constituents want increased investment in the railways and some hope that their rail service will improve.
Mr. Horam : My hon. Friend is right to stress hope. The present situation is disastrous. I talked this morning to servants of the House, some of whom are my constituents. They said that their train was late every day last week as they came to work. Such problems are regular. Overcrowding is severe and safety remains a problem. People want hope, but at the moment they have no hope. Hope has receded as a result of the measures taken by Ministers.
The company could have been nursed into life, but now we face total uncertainty. We do not know whether a not-for-profit company, another private organisation or something else will succeed Railtrack. There is huge delay. What will happen to schemes that my local Connex rail managers had banked on to improve problems such as overcrowding and regularity? For
Mr. Don Foster (Bath): The hon. Gentleman talks about a lack of investment. Will he confirm that on 18 February, long before the Secretary of State's action, Railtrack announced that it was slashing its major project budget?
They had not been put on hold before that. I have talked to Connex South Eastern, my local rail operator, which was to have talks in September about the schemes that I mentionedplatform lengthening, signal re-siting and so forthto improve the capacity of trains. Those talks have been postponed because Railtrack was put into administration.
It suggests that the delay will be between six months and two years, so I disagree with the hon. Member for Bath (Mr. Foster). A package was clearly emerging for my local rail operator, which is the only one about which I can confirm anything, but all that has been put into the future.
I have pressed the Minister on such matters before and I will do so again. I want to know when there will be clear investment plans that will benefit the users of the railway. I also want to see the commuters into central London getting proper priority against the more visible main line track improvements. London is one of the great wealth creators of the country, as I am sure the hon. Member for Croydon, Central will agree. I will continue to press the Minister, because transport under this Government has been a disaster. Jonathan Porritt, appointed by the Government as chairman of the Sustainable Development Commission, singled out transport as the biggest area of total disaster under this Government when he made a speech at the beginning of this year in the presence of the Minister for the Environment and others.
Transport, whether one examines the case of Railtrack or that of London Underground, has gone backwards under the Government. We are now worse off than we were five years ago, when progress was being made. That is a disgrace, and I am delighted that my hon. Friend the Member for Christchurch secured this debate so that we could discuss these important issues.
A specific aspect of the placing of Railtrack in administration was featured on the front page of the South Wales Echo last week. The newspaper pointed out that we have been assured by the Secretary of State that, under any new arrangement anticipated by the Government, the Vale of Glamorgan railway line will be reopened for a passenger service at the beginning of 2003. That will be the largest single investment in railways in Wales since the days of Beeching. The service will be fine and passengers will flock to it and be able to catch the train, which will now run from Barry all the way to Bridgend, to stations in Rhws and in Llanilltud Fawr. If we are lucky, it will run to Llandow, but we will have to wait and see.
My other point is one that I did not anticipate making until I heard the speeches of Conservative Members. Sitting here, I wondered what sort of "Alice in Wonderland" world we were living in. I never thought that we would hear Tory Members, with their alleged commitment to the private sector and their ideological commitment to free enterprise and the market, defend a clearly incompetent company. Mr. Winsor made it clear, in his evidence to the Select Committee, that the company was incompetent and believed that if it could not keep going back to the regulator for more money, it could go straight to the Government and demand whatever it wanted for as long as it wanted.
Railtrack believed that the Government would carry on pouring money into a black hole, irrespective of the outrageous record of this allegedly private company. I have had the privilege of managing a limited company and recognising the commercial disciplines of answering to its shareholders andmost important in any successful companymeeting its customers' needs. If a private company fails to meet its customers' needs, it will never satisfy its shareholders. Yet Conservative Members want to bail out a failing company. Until now we have not heard a figure, and I hope that at some stage in the debate they will tell right hon. and hon. Members exactly how much taxpayers' money they would be prepared to use to bail out a failing private sector company. Will it be £1 billion extra to bail out their shareholder friends, or £1.5 billion, or £2 billion?
I look forward with interest to hearing what price a party committed ideologically to privatisation and the success and achievement of the private sector is prepared to pay to bail out a failing private sector company. I have never heard anything so absurd in my life. Somehow, the Opposition suggest, confidence in the private sector and private-sector partnerships will be regained by a massive taxpayers' bail-out, but that is not how the private sector works. If investors see that money is being pumped in to bail out a failing company, they will desert that company as surely as night follows day. Exactly how much taxpayers' money should be spent on bailing out an incompetent company?
I picked up a point from this morning's debate that is important for the people of this country. What alternative do the Opposition propose? We have heard no alternatives apart from some fuzzy reference to a decentralised organisationa suggestion that came from a member of a party that created one of the most centralised, centrally planned and inefficient structures ever seen. Let us hear of an alternative. And what of their crocodile tears for small shareholders? They do not give a damn about small shareholdersthey care only
Geraint Davies : Does my hon. Friend think that the Opposition might move towards privatising the industry again, given that it originally cost £6 billion, which, along with the £1.5 billion compensation package, comes to quite a lot of money? Everything added together comes to a total of £13.5 billion. Does he think that they will propose privatisation again, as it was clearly such a good idea?
Mr. Smith : My hon. Friend makes an interesting point. After this morning's contributions from the Tory Opposition, I would think them capable of doing it again. The company was privatised in an ill-considered way and was given a huge advantage when the taxpayer was ripped off by its undervaluation. It was given a huge capital base to work from as well as revenue support from central Government. The fact that it failed so badly only shows how incompetent the company was.
The regulator has been mentioned in the debatespecifically, the disagreement between the regulator and the Secretary of State. That does not bother me so much; what interests me is that the regulator said that the company had neglected both its assets and its customers. I think that he was right.
Mr. Clifton-Brown : I think that the hon. Gentleman needs a little breakand to keep taking the tablets. Does he think that lambasting the private sector as he is doing will make it more or less likely that it will invest the £30 billion that the Government need for their 10-year plan?
Mr. Smith : The hon. Gentleman has no idea what he is talking about, unfortunately. Unlike him, I have worked for the private sector and for a limited company. I know how the real world works. I am not running down the private sectorfar from it. The private sector will see through the Conservative party's ridiculous proposals quicker than anyone else.
The structure of any future company must be customer focused and customer driven. From my limited experience I suggest that, whatever formula the Government devise for partnerships, they recognise their strengths and weaknesses and the fact that one cannot make the private sector do what it is unable to do. It is driven by a commercial imperative, so they should ensure that any accountabilities and responsibilities belong to the relevant part of the partnership.
Similarly, one cannot ask the Government and the public sector to do what they cannot do. The successful formula is one that demarcates responsibilities clearly and gives the two sectors the freedom to do what they do
I want to make a point that has been overlooked in at least two contributions to the debate. There is a difference between a not-for-profit company and a non-profit-making company. It is wise not to confuse the two. We should strive for a not-for-profit company that is organised on clear commercial lines, but is customer driven.
Two weeks later, he turned Government policy and the previous statements of the Strategic Rail Authority on their head by saying that he wanted to progress not 20-year franchises, but two-year franchises. Nine days after that was the famous meeting between him, his officials and John Robinson, the chairman of Railtrack, at which there was or was not, depending on whom one believes, a discussion about Railtrack's viability as a business.
The dominant issue over the past three months is whether Railtrack was really insolvent or whether the Government attempted to push it into insolvency to deliver nationalisation at no cost. If it was insolvent, what happened between May and October to make it so? There is no evidence of any major adverse financial developments. The financial results due at the end of October were likely to be in line with market expectations, so what problems did Railtrack face?
The first problem was that the regulator's review had offered the company an increase in spending for repairs, renewals and operational expenses for the next five years from £12.9 billion to £13.3 billion. That is extremely little, given the huge challenge that Railtrack faces if it is to cope simply with the increase in passengers during the past five years, let alone the Government's target of a 50 per cent. increase in the next 10 years.
Another problem concerns Renewco, the company agreed by the Government to be established as an alternative vehicle for some of the investment finance. It was due to be set up in June, but it was delayed and delayed and never happened. The £162 million grant that was supposed to underpin the next stage of investment never appeared. Then the Government scrapped their own regulatory system to remove any option that the industry had to sort out its financial predicaments.
On what information did the Secretary of State act? He did not talk to the Strategic Rail Authority, the regulator or, I suspect, the Minister. So who was involved in the discussions? What due diligence was there with regard to the financial position? Did the Secretary of State really take his decision on the basis of a single meeting with the Railtrack chairman, or had he already taken it? Was he looking for an excuse? We now
I listened with interest to the thoughtful and analytical speech of the hon. Member for Christchurch (Mr. Chope), whom I congratulate on securing this Adjournment debate. However, I remind him that one is in danger of losing the plot if one exaggerates too much. The hon. Gentleman went way over the top by comparing the Secretary of State's actions to those of President Mugabe in Zimbabwe. I noted with interest that his thoughtful speech neither acknowledged that significant problems needed to be tackled nor offered solutions.
I also noted with interest the sedentary suggestion that the hon. Member for Brentwood and Ongar (Mr. Pickles) would give us some solutions. We look forward to them. I understand that he will suggest the precise sum that should be invested. I have taken a small risk
There is no doubt that significant problems needed to be tackled within Railtrack. At least the hon. Member for Orpington (Mr. Horam) was prepared to acknowledge that there were some problems with the management of Railtrack. There were concerns about the golden goodbyes that various people were given. When he retired, one of the recipients, Mr. Gerald Corbett, was prepared to acknowledge that there were significant problems with Railtrack. There were concerns about the management and supervision of contractors, project cost overruns and the organisation's financial viability. As hon. Members will no doubt discuss later in great detail, Railtrack was placed on credit watch and its rating was reduced. We are all aware of its frequent attempts to go around Whitehall with its begging bowl and its plans to sack one in 12 of its staff. I do not entirely share the view, but there are concerns in some quarters that safety remains a problem, as the hon. Member for Orpington said.
Many of those who are close to what is happening are highly critical. The hon. Member for Vale of Glamorgan (Mr. Smith) referred to the critical comments that the Rail Regulator, Mr. Tom Winsor, made about Railtrack during his evidence to the Select Committee last week. For example, he said:
The train operating companies have been critical of Railtrack. The passenger figures for the four weeks up to 13 October have fallen by 2 per cent., which means that more than 2 million passengers have deserted the railways. Phil White is the chief executive of the largest train operating company, National Express, which has nine out of the 25 rail franchises. He has blamed Railtrack for much of the problem:
I was fascinated to hear from the hon. Member for Orpington that he had had discussions with Railtrack as recently as this summer, when he was told, "we are beginning to come round". We were promised that the problems would be over by last Christmas, but now we are told that the company is still coming round.
There were significant problems with Railtrack, and the Government had to make a decision. One solution, which was not sensible, was to continue to pour more and more taxpayers' money into this ailing and failing company. The time had come to pull the plug and to find an alternative way forward. Let us remember that Railtrack's advisers calculated that there were only three options: to restructure, to renationalise or to put the company into receivership. The Secretary of State's decision was correct. For far too long there has been an obscene conflict in a monopoly between shareholder profit and passenger safety; it had to be brought to an end.
Mr. Foster : There were many difficulties in the funding arrangements, but the real difficulty was Railtrack's inability to attract the necessary private sector finance to carry out its work. I remind the hon. Gentleman of my earlier intervention: it was in February, not in the past few weeks, that Railtrack acknowledged that it must make significant reductions in its funding for a variety of projects. Something had to be done, and the not-for-profit public interest company approach is correct. I would say that, of course, because Liberal Democrats proposed the idea on 14 February 2001. One week after we proposed it, the Institute for Public Policy Research came up with a similar proposal.
My criticism of the Secretary of State relates to the way in which he has handled the issue. There is no doubt in my mind that had he given serious thought to the matter at an earlier date, when everybody knew the problems, there would have been a variety of ways in which to introduce the new model. He did not have to adopt the nuclear option. There would have been an opportunity for discussions with Railtrack given that its advisers had raised that possibility. The speed with which the Secretary of State operated, and the way in which he did so, has led to considerable confusion.
There is also confusion about who owns which assets. That is an understandable concern for Railtrack's shareholders. However, the shareholders should point the finger of blame not at the Secretary of State but at Railtrack's managers, who have let the shareholders down.
Huge confusion has arisen about who said what to whom and when. The hon. Member for Croydon, Central (Geraint Davies) has described that debate as "tittle-tattle". The travelling public are not interested in thatthey want to know when they will have a safe, reliable and affordable railway. Many key issues relating to the future of our railways need to be addressed. They include not just the structure of Railtrack, but ways of reducing fragmentation, sorting out the problem of ridiculously high fares, bringing together train and track, further improving safety and so on. Those are the issues that the travelling public are concerned about. They will not be interested if Members on both sides of the House spend all their time discussing what the hon. Member for Croydon, Central described as tittle-tattle. They want to know how the Secretary of State will end the current confusion and how we will move forward.
Mr. Eric Pickles (Brentwood and Ongar): I congratulate my hon. Friend the Member for Christchurch (Mr. Chope) on securing this excellent debate. As the hon. Member for Bath (Mr. Foster) said, he approached it analytically and with his customary moderate and middle-of-the-road style, which was most welcome and refreshing.
My hon. Friend the Member for Orpington (Mr. Horam) said, rightly, that the Government were reaping what they had sown and and that they had failed to take various opportunities that were offered to them. My hon. Friend the Member for Epsom and Ewell (Chris Grayling) raised some pertinent points on whether Railtrack was bust. I suspect that we shall remember the opening part of the debate and the speech of the hon. Member for Croydon, Central (Geraint Davies), who organised the equivalent of a parliamentary egging of the Deputy Prime Minister by suggesting that he was silly to suggest that privatisation had not in any way compromised safety. I wish the hon. Gentleman godspeed when he leaves the Chamber.
Geraint Davies : It is quite wrong for the hon. Gentleman to suggest that I said that my right hon. Friend the Deputy Prime Minister was silly. I simply made a point about what Railtrack had done and what was said in the pressthat it had closed down the system and issued press notices saying that there was a trade-off between signal investment and business sense.
Mr. Mike Hancock (in the Chair): Order. I remind the hon. Gentleman that the Minister will expect and need 10 minutes in which to reply. If the hon. Gentleman takes further interventions, he will not have extra time.
We need to know whether Railtrack was bust. The various questions would then be relevant. Was Railtrack bust according to the classic balance sheet or cashflow definition? We know, because my hon. Friend the Member for Epsom and Ewell said so, that Railtrack was operating from its business plan and there was nothing new. Everyone knew what the position was and it was clear that the company needed an extra £1.5 billion in January and March this year. The hon. Member for Bath reminded us that Railtrack was taking steps to cut back, but he drew the wrong conclusion. On 2 April an agreement was made between the Strategic Rail Authority, the Government and Railtrack to obtain the extra £1.5 billion.
We know that that work was undertaken with City advisers Lazard and with Linklaters and Paine to create a company, to which my hon. Friend the Member for Epsom and Ewell referred, called Renewco. Half was to be owned by Railtrack and half by the Strategic Rail Authority. We also know that by triggering Renewco, Railtrack would have received £162 million under schedule D of the April agreement. That in turn would have generated an extra £318 million from the banks, so Railtrack would have had not much less than £0.5 billion at its disposal. With the Government's payment of £330 million, on which the Secretary of State was keen to comment, and the extra money, Railtrack would have received only a little less than £1 billion.
We now know that during the summer, the Treasury dragged its feet on the creation of Renewco. We know that until days before the Government pulled the plug on Railtrack, they were still promising the £162 million. That was equivalent to saying, "The cheque is in the post". The Government are now able to pay the £162 million, so they have made an offer to Railtrack. What has changed? Why can they now pay the money? The only explanation is that offering the money earlier would have prevented Railtrack from going into receivership. It is because of the Government's decision that Railtrack is in precisely that position.
As for future funding, a chief civil servant at the Department for Transport, Local Government and the Regions said at a meeting with Credit Suisse First Boston that the creation of a not-for-profit company would be neither appropriate nor attractive. Before the Select Committee, the regulator warned the Secretary of State against a decision that would fundamentally undermine policy on public-private partnership deals. In future, City institutions will be looking for between 0.5 per cent. and 1.5 per cent. on all deals.
In a few weeks, the first of two public-private partnership deals involving London Underground and two consortiumsMetronet and TubeLineswill be signed. Some £8 billion will have to be raised. The City estimates that an extra £10 million a year in interest will have to be paid as a direct result of decisions taken by the Secretary of State. That is £10 million less for public services and improvements to the line. Hospitals, roads and rail will cost more because this Government have decided to pull the plug on Railtrack. In an earlier intervention, the hon. Member for Oldham, East and Saddleworth (Mr. Woolas), who is Parliamentary
We hear the mocking of those hard workers who decided that they wanted not only to work for the rail industry but to make a contribution. Some 92 per cent. of Railtrack employees made investments. They are not highly paid: a grade 1 signaller gets a little less than £12,000, and a clerical worker gets only £18,000. Overnight, those people have had the equivalent of a wage cut. Signallers lost 9 per cent., and clerical workers lost 6 per cent. Some signalling managers lost £7,500, and some assistant area production managers lost £20,000. Most of those shareholders decided to take script dividends because they were committed to the railways. However, the Government have kicked them in the teeth.
That railway worker was encouraged by the Government to take out an employee share ownership scheme. Today, we will see whether the Secretary of State is prepared to do the right thing and put the interests of the railways above those of his own political career, and whether he will ensure that the only blockage to substantial investment in the railways is the Secretary of State himself. We look forward to his ultimate departure.
The Parliamentary Under-Secretary of State for Transport, Local Government and the Regions (Mr. David Jamieson) : I congratulate the hon. Member for Christchurch (Mr. Chope) on securing the debate. I constantly marvel at how often Conservative Members give us an opportunity microscopically to examine their handling of transport when they were in government. I believe that the hon. Gentleman was a barrister in his former incarnation. If this had been a court of law, Mr. Hancock, you as the judge would have thrown the case out after a few minutes owing to the total lack of evidence.
People who listen to these debates or read Hansard will be interested to note how Conservative Members talk endlessly about personalities, but seldom about the needs of passengers. The former Prime Minister, Winston Churchill, must have been in a debate like this when he said,
Today's Opposition Benches confront us with a row of budgies, endlessly repeating half truths, hearsay, innuendo, supposition and false rumour. One of those false rumours, which seriously undermines the Tories' case, was the newspaper story that occasioned the
The hon. Member for Christchurch raised several matters. The new chairman of the SRA, Richard Bowker, will consider a strategic plan, and I anticipate that that will be published by the end of the month.
I have already dealt with funding for the administration in a written answer. The immediate funds are to be provided from the contingency reserve, to be replaced by departmental funding in the winter supplementary round.
I liked the summary by my hon. Friend the Member for Croydon, Central (Geraint Davies) of how privatisation was undertaken. The people who should be in the dock are sitting on the Opposition Benches, not the Labour Benches. Sir Philip Beck, who was the chairman of Railtrack until early this year, said on the "Today" programme as recently as 9 November:
My hon. Friend the Member for Vale of Glamorgan (Mr. Smith) raised a good point and even invited the hon. Member for Brentwood and Ongar (Mr. Pickles) to intervene. He did not and I shall give him a further opportunity.
Mr. Jamieson : The hon. Gentleman has not heard what I want him to intervene about yet. He should be patient. My hon. Friend invited him to tell us how much would be needed to compensate the shareholders at the suggested level of £3.60 per share. Like the hon. Member for Bath (Mr. Foster), I wrote down a figure. We will see whether the hon. Gentleman gives us a figure that matches those that we have before us.
Mr. Pickles : I will just finish my point, Mr. Hancock. The shareholders have made it clear that they do not require any help from the Government. There are plenty of assets in Railtrack. The Minister must therefore address the problem of finding that investment.
When asked by my hon. Friend the Member for Vale of Glamorgan, the hon. Gentleman said from a sedentary position that he would say how much they would compensate to the penny. He did not. I can tell him what the figure is. I do not know whether the hon. Member for Bath has written down a similar figure. To compensate the shareholders at the level that has been talked about would cost £1.5 billion. I should be interested to know whether the hon. Gentleman has cleared that with the shadow Chancellor who, only last week, told us that he wanted the state's proportion of gross domestic product to be reduced to 35 per cent. I do not know how he will do that in the context of providing £1.5 billion.
Mr. Jamieson : The hon. Gentleman must be patient; I am just warming to my task. If that £1.5 billion is to be paid to the shareholders, how will that improve any of the services for the travelling public?
My right hon. Friend the Secretary of State was faced with continuing and increasing difficulties with Railtrack. On 15 October he outlined the further measures that he intended to take to put the travelling public first. That was his priority. The House will be familiar with the history of Railtrack. I will not delve into all the details today, but in 1996 Railtrack was privatised. It was the only publicly floated utility that was directly subsidised by the Government; the subsidy made up for two thirds of its revenue. After the Hatfield crash, the whole of the network was urgently reviewed and fundamental safety issues were addressed.
As always in these debates, there is not enough time for the Minister to give a full response to every point. This has been a curtain-raiser for our debate this afternoon on the Floor of the House. I am sure that we shall hear again this afternoon what we heard this morning. We have a Tory party that is putting passengers in second place. We have a Labour Government who are putting taxpayers and the travelling public first. I know where the interests of the British people lie. The people will listen to what we have to say and not to the Opposition's obsession with personalities.