| Previous Section | Index | Home Page |
Mrs. Ellman: Does the right hon. Gentleman accept that a company limited by guarantee does indeed make profits, but instead of distributing those profits to outside shareholders it reinvests them in the business of the company? Does he accept that that is the strength of a company limited by guarantee?
Mr. Redwood: That might be true or it might not be true. In the original version, I think that the Minister was calling it a not-for-profit company, and I assumed that it would follow the long tradition of such Labour adventures, and that the Government would run it rather like they ran the dome—very successfully not for profit, if I remember rightly. They ran the dome at a thumping loss, and there is a grave danger that they would do the same with a company limited by guarantee in the railway industry.
The Minister subsequently amplified his answer, and said that the intention would be to run the company for profit and to plough the profits back to build a stronger
balance sheet out of retained profit. That is still a return to the equity holder. It is just the same as any other private sector company trying to build capital value and asset value. A company in the private sector can always decide whether to distribute some or none of its profits, and makes half-yearly or annual decisions on that issue. Some companies in the private sector choose not to distribute anything, because they take the view that they can reinvest at such a good rate of return that it would be in the interest of their shareholders to do so.Any company limited by guarantee would be wise to try to budget for a profit and to build up reserves. What the hon. Member for Liverpool, Riverside (Mrs. Ellman) does not seem to understand—the Government clearly do not—is that there is a cost to capital involved. That cannot be avoided. The Government are trying to design a body that gets practically all its money by borrowing rather than by raising equity from private shareholders. The short-term effect of that will be dearer capital, not cheaper capital.
The current price of raising bond money for a vehicle like this would be 6, 7 or 8 per cent. The price of raising equity money would probably be 4 per cent. In the early years, adopting the Government's preferred route rather than the more normal route—involving a balance of "for profit" and "for dividend" shareholders, as well as some bondholders—would probably double the cashflow cost.
The hon. Lady must also understand this. If the Government want a grade A credit rating—as they said they did in response to a rare question that received an answer—they must realise that the cost will be enormous. They must now tell us how much money they will put on the balance sheet of the not-for-profit, or not-for-dividend, company to give it a chance of gaining a grade A credit rating.
Such ratings do not grow on trees. People do not suddenly say, "Here is Railtrack, in administration, with junk-bond status. Now it is to be transferred lock, stock and barrel to a company limited by guarantee. Whoopee! It has a triple-A rating! Aren't we lucky!" The bunch of assets and liabilities remains the same, and unless the Government inject an extremely large sum into its "not-for-dividend, not-for-profit, like the Dome" company, no one will touch it with a bargepole. It will still be given a junk-bond rating, and raising the capital will be very dear.
Mr. Stephen O'Brien (Eddisbury): As you see, Mr. Deputy Speaker, I found my right hon. Friend's analysis so compelling I had to move to my present place in order to intervene.
The most important consideration is, surely, the time cost. For such a rating to be given by the agencies, at least a three-year—perhaps a five-year—track record will be required. As well as the cost of the money itself, there will be a time element. The Government will have to underpin that by ensuring that there is no potential loss during the period involved.
Mr. Deputy Speaker: Order. The right hon. Member for Wokingham (Mr. Redwood) has been keeping well within the rules; I know he will appreciate that this is not a debate about Railtrack.
Mr. Redwood: I am grateful for your guidance, Mr. Deputy Speaker, but it so happens that I want to
proceed to the subject of information relating to timing, which is relevant to my hon. Friend's query and, indeed, probably what he had in mind.I asked the Secretary of State for Transport, Local Government and the Regions for his estimate of the time that Railtrack would remain in administration. The longer it stays in administration, of course, the worse its track record will be—so far we have seen mounting losses, worse delays and cancelled or delayed investment—which will make it even more difficult for money to be raised on any sensible basis for any company that the Government may wish to create after Railtrack ceases to be in administration.
One would have thought that the Government would have an estimate of the time that Railtrack would remain in administration. I have read estimates in the newspapers, and I have not seen Ministers rushing to deny them. Those estimates looked as if they had come from Government sources, but apparently not: when I asked my question in the House of Commons, which should always be first to hear interesting news, I was told that it was a matter for the administrator. So, no go there. What remarkable openness—never seen before.
Miss McIntosh: My right hon. Friend speaks of estimates. Will he take this opportunity to ask whether it is true that this is one Department that does not expect to reach the total of its estimated expenditure?
Mr. Redwood: I did not know that, and it is very interesting. My hon. Friend's intervention demonstrates the expertise she has gained from her excellent work on the Select Committee on Transport, Local Government and the Regions, to which I pay tribute.
Mr. Geoffrey Clifton-Brown (Cotswold): While we are on the subject of railway administration, may I mention that I tabled a written question to the Secretary of State for Transport, Local Government and the Regions about routine track and signal maintenance? The answer I received was that that was the responsibility not of the Government, but of the administrator. Does my right hon. Friend find it worrying that the Government are not concerned about safety in this context?
Mr. Redwood: I do indeed—and that is another point I was coming to. Having been thwarted after tabling so many written questions to the Secretary of State, I wrote a letter asking him to set out the position on safety. I think the Government have a clear moral and political obligation to accept ultimate responsibility, now that they have taken the law into their own hands and persuaded the court to put the railways into administration.
Labour, in opposition and subsequently in government, was always ready to rush to attack the privatised industry whenever a dreadful tragedy occurred. We all hate dreadful tragedies, and we all want the railways to be as safe as possible. I have never believed that company directors deliberately create unsafe companies—they know that that would be morally wrong and inhuman, as well as being bad for business—but the Labour party has sometimes appeared to allege that privatised companies somehow cannot be safe.
Now the Government have their way temporarily. The body is in administration; effectively it is operating under a lot of guidance, control and influence from the Secretary of State. Surely there is a moral and political obligation, if not a legal one—given the way in which the body is currently drawn up—for the Government to reassure us all that railway safety will be paramount, crucial and that no corners will be cut during administration.
Mr. Hugo Swire (East Devon): Does my right hon. Friend agree that, by that very act, the Government have so undermined the morale of those working in the industry that it could have ramifications in the run-up to Christmas, which is a particularly busy time for the railways?
Mr. Redwood: That is absolutely right. For that reason, we need more information about safety and morale. The terrible figures that are coming out of the railways show how much damage has been done to morale. That is not surprising when the shareholding of small shareholders and employees has been wiped out, and when many of the senior management have left because they have found it insufferable to work under those conditions. I believe that more senior management will leave, for understandable reasons.
Finally—there were many more examples, but I have taken just a selection for the purposes of this debate—I asked the Secretary of State for Transport, Local Government and the Regions what his estimate was of the cash needs of Railtrack in administration. I was told that any estimate of the cash needs would be "purely speculative". There we have it—the Government do not have a clue; or can it be that they are trying to withhold information from the House because it is deeply embarrassing? Surely not, so it must be that they do not have a clue; yet we have read in the newspapers that the industry has already gobbled up £800 million in administration—guaranteed by the Government, drawn down, presumably completely spent and used up—and that the cash requirement up to the end of March could be £3.5 billion.
Can the Government in this debate give an estimate of how big a financial black hole they have dug for themselves just up to March next year? It is not asking much. Surely they have to tell the administrator how much money will be available; surely he has to tell them what he thinks he may need. Huge sums of public money are involved, far bigger than the Government's increase in health expenditure. Should not the House of Commons be told?
I have asked today and in questions for a timetable setting out when the bidding will take place and when we can expect the railway to return to a life that may get it back to normal. I have asked the Government to set out their policy towards the railways. Again, answers came there none. I have asked them to set out how much money is available; there have been no answers. I have asked them to say who is allowed to bid; they have not told us. I have asked them to give a proper report on the progress of the company limited by guarantee; there has been one written answer with a few sketchy ideas, and since then a stony silence.
If the Government are serious about getting Railtrack out of administration within the next six months, surely the company limited by guarantee should be up and
running. Can we hear more about that today? Can we have some information about how the Secretary of State can both be presiding over the whole process and working with one of the bidding companies? Is he going to get that company off the ground? How much money has he got from the taxpayer, promised by the Chancellor of the Exchequer, to try to make it work? Can he give us a few more figures on the balance sheet of that incredible company, which the Government think will answer their prayers but which will be very difficult to get up and running?Some Labour Members seem to think that the railway industry that is now in administration is on a magical mystery tour that will end up in a cost-free nationalisation. The truth is that it is on a misery tour where the reality is declining services, cancelled trains, delayed trains, cancelled investment, delayed investment, hopes shattered, share price bombed out, employees robbed and shareholders about to sue the Government. What do we get from the Government? We do not even get any straight answers to simple factual questions. It is time they owned up and told us the truth.
| Next Section
| Index | Home Page |