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Mr. Davey: Does the right hon. Gentleman have no regrets about the structure of the railways that he chose? For example, Japan went for a privatised railway that was regionalised but vertically integrated, and its railway has been terribly successful—unlike the model that he chose.

Sir George Young: I do not agree with the hon. Gentleman. We looked quite hard at that model. It is very inflexible, and it is difficult to get in a succession of train operators if they also own the infrastructure. We set up a basic structure of unified network ownership: Railtrack; train operating companies, which run the services on franchises; and the so-called ROSCOs—the rolling stock companies—which own the rolling stock and lease it to the train operating companies.

Geraint Davies: Will the right hon. Gentleman give way?

Sir George Young: No. I must make progress.

There is also a transparent and independent system of regulation. As my hon. Friend the Member for Maidenhead (Mrs. May) said from the Front Bench, that core structure has rightly been virtually untouched by the Government.

However, another factor was at work before 1997, and it was every bit as important as the structure. We all know of some very odd structures that work well because people want to make them work. Before 1997, all the players were determined to work together to build a better and safer railway.

After privatisation, Ministers, Railtrack, the train operating companies, the franchising director, the regulator and all the new people who we attracted in from the other transport industries, such as shipping, aviation and buses, worked together with the excellent managers who joined from British Rail. We all believed that that was a new chapter in the history of the railways, in which we could access the funds we could never get from the Treasury, reverse decades of decline and play a key role in a more balanced transport policy. It may be an old-fashioned word, but there was trust between the key players.

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Initially, things went well, and the number of passengers started to rise. Indeed, more people now travel on the trains than at any time since 1945. More train services were put on. Indeed, there are now 25 per cent. more trains. Freight was attracted back off the roads. Safety and punctuality continued to improve, and key fare increases were pegged to protect commuters. The subsidy paid to the franchise operators was less than the subsidy paid to British Rail to run the network, and the planned investment in new rolling stock and stations increased substantially. Railtrack began ambitious plans to build new links between the lines north of London and those to the south of it and, as we have just heard, to modernise the west coast main line. Those who were running the system genuinely believed that there had been a renaissance in our railways and that, after decades of underinvestment, a new future was opening up.

Then we lost the 1997 election. It would be naive to blame everything that has gone wrong on the change of Government in 1997. I am not politicising the problem, and nor would I wish to. One of the difficulties that I faced was the absence of a consensus on how the railways should be run. Had we been re-elected in 1997, I am sure that we would have wanted to make modifications in the light of experience—as we had done with other privatisations—but I am convinced that we would have avoided the debacle of last October.

The key factor that I have just mentioned—the determination to make the new system a success, with everyone working as a team—began to be eroded after June 1997. The new Government had opposed privatisation, but they had neither the funds to renationalise the railways nor the political will to make privatisation work. Ministers started to settle old scores, sniping at some of the new train operators and at Railtrack. The team spirit gave way to the blame culture. The regulator was sacked, and a new and at times aggressive rail regulator began to make it difficult for Railtrack to raise the capital it needed. A new Strategic Rail Authority was set up between the Government and the industry, making things more complicated rather than simpler. The letting of new franchises was suspended, with short-term renewals instead of long-term contracts, and personality conflicts got in the way of the industry's needs.

Crucially, there were management failures at Railtrack and elsewhere. I was interested to read page 15 of the strategic plan, which states:

I agree. Management failures, principally at Railtrack, began the process of erosion of public confidence. After Hatfield, Railtrack lost its nerve. Then Gerald Corbett resigned and it lost the confidence of politicians and the City.

Without being party to the negotiations with Railtrack last summer, it is difficult for an outsider to comment on what went wrong. However, something clearly went wrong in the management of the dialogue between Railtrack and the Government. It may be that a key ingredient was missing—the will to find a way through the problem. The Secretary of State may never have wanted a deal, or the Treasury may have made it clear that it would not fund one at any price.

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If that is the case, Railtrack should have spotted what was going on and not overplayed its hand. If Railtrack's dividend policy was a problem, it should have put that issue on the table for discussion with the Government. If its policy on executive pay was a problem, that should also have been put on the table for discussion. If the Government had doubts about the competence of management, those doubts should have been talked through.

What actually happened, however, was that the Secretary of State was leaning over the patient discussing a cure at the same time as he had his foot on the oxygen pipe. Not surprisingly, the patient expired. Eventually, we will find out what went wrong, but the breakdown of that dialogue was a disaster. I have no doubt that the National Audit Office and the Public Accounts Committee will want to inquire into the actions of the Department for Transport, Local Government and the Regions. They rightly did that for the privatisation process and I have no doubt that they will do it with equal vigour for the de-privatisation process. I hope that they ask whether the Government costed the alternative when they pulled the rug from under Railtrack.

If the Secretary of State thought that he had a new, inexpensive and popular solution, he was wrong. His action has raised more questions than it has answered. The railways now face a period of uncertainty, with a question mark over investment and a field day for the lawyers. There will be more disruption, more delay, more discontinuity, more short-term franchises and an exodus of talent. I have no doubt whatever that the taxpayer and the passenger will pay more than they would have done if a sensible deal with Railtrack had been arrived at and that improvements will take longer.

The private money that was going to be invested by Railtrack in modernising the railways—£34 billion—is no longer available on the same terms, if at all. The Government will have to find more money themselves, and the history of the railways shows that Governments do not put up the money that is necessary. The action that the Government have taken to put Railtrack into receivership will have repercussions way beyond the railways. They will reverberate throughout the growing dialogue between the public and private sectors on joint ventures, and make the City and international investors ultra-cautious about investing in projects in partnership with the Government.

I note in passing that the Government's policy for the railways sits uneasily with their policy for London Underground. With the underground, the Government want to keep the operation of the trains in the public sector but use the private sector to modernise the infrastructure. However, with the railways, the Government are leaving the running of the trains in the private sector while the public sector assumes responsibility for the infrastructure. It is difficult to see a coherent approach in their transport policy.

What happens next? Let us look to the areas of agreement across the Floor. I accept, as do the Government, that there should be unified ownership of the railway network—the bits that do not move—and that the company that owns it, the son of Railtrack, should look to the private sector for the capital that is needed to modernise it. That should be off the Government's balance sheet. I have no difficulty with special-purpose vehicles, which are a new form of financial rolling stock.

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We agree that the trains should be run by companies in the private sector on franchises that are competitively bid for. Those companies can be sacked if they under- perform. We could never sack British Rail, so we have created something that we never had before—a competitive train operating industry. We agree that the companies should lease their trains from others if they want to. We also agree that there should be transparent and independent regulation of the industry to ensure fair play. So there is a quite a lot of common ground.

What is fragmented is the Government's response, with the Secretary of State and his Department being second- guessed and shadowed by Lord Birt and others in a number of unaccountable bodies at No. 10. It must be up to the Transport Secretary, who is accountable to Cabinet and answerable to this House, to come up with the strategy.

We have to sort out Railtrack quickly because that lies at the heart of the system. Without Railtrack or its successor functioning properly—instead of being run by receivers—there is nothing on which to build. If there is a way through the litigation and the various bids, it must be pursued. New long-term franchises must be let before blight descends, and we must stem the exodus of skills from the industry.

Finally, it is vital to restore the confidence of the private investor, as the Treasury will never fill the funding gap. That can be done if the will is there and if trust can be rebuilt. However, I do not believe that the current Secretary of State—admirable qualities though he may have—is the right person for that task. Having drawn his line in the sand, he is on the wrong side of it. The Prime Minister should ask someone else to begin the process of rebuilding.

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