Examination of Witness (Questions 780
WEDNESDAY 7 NOVEMBER 2001
780. That would be a decision Parliament would
(Mr Winsor) It is for Parliament to take that decision,
not the Secretary of State.
781. Did you feel that your position had been
undermined when the Secretary of State indicated to you, as your
contemporaneous notes have indicated, that he had these powers?
(Mr Winsor) I do not think I felt it had been undermined
at that time. Clearly there was a prospect that if the steps he
indicated he would be prepared to take were carried out, then
my position would be undermined when Parliament had decided that
it should be.
782. Would you have resigned then?
(Mr Winsor) If Parliament had taken away my independence,
then I would have given very serious consideration to resigning.
783. Parliament was not given the opportunity.
Did you back off because the Secretary of State threatened to
introduce these emergency powers?
(Mr Winsor) No.
784. Why did you not apply for an interim review?
(Mr Winsor) It is not for me to apply for an interim
review. It is for Railtrack to apply for an interim review.
785. They asked for an interim review. Why did
you not process it?
(Mr Winsor) No, they did not ask for an interim review.
They said if they asked for one could I do it by Sunday night.
I said on the basis of the information they gave meand
I do not think they gave me all the information I neededI
could not do an interim review which would lead to the result
they needed by the Sunday night.
786. So you thought it was not a very serious
(Mr Winsor) I was surprised at how sketchy the information
was that a company facing administration late that Saturday night
could give me when I was, I believe, the only available remedy.
But there you are. It was for them to make their case. They made
no case for an interim review. They said they were nowhere near
being able to do so. They said the only review which would be
worthwhile would be a review in relation to the regulatory gap
and the consequences of Hatfieldwhich are enormous pieces
of worka review which was carried out, completed and implemented
by Monday so they had the cash on Monday. It is a completely remarkable
state of affairs that the company had kept this information from
me for so long and then gave me an impossibly short time over
a weekend to do an interim review. It would have been perverseand
this is the answer to your questionfor me to commence a
review which Railtrack had told me would be pointless.
(Mr Winsor) Because they said that the only review
which was of any use to them was one that led to them getting
an unspecified number of hundreds of millions of pounds
788. Four hundred and fifty-five million.
(Mr Winsor)in cash on Monday.
789. It was due to be paid on 1 October. They
gave you six days. They only had six days to put together the
(Mr Winsor) There were going into administration.
790. They were solvent if the Government had
paid that money.
(Mr Winsor) No, there were not six days. There was
one day and it was a Sunday. They phoned me on the Saturday night
and they said that the Government was going to court on Sunday
afternoon and they needed a review completed in order to prevent
that happening. That is what they said to me; not six days, one
791. I am sorry to be so pedantic, but had the
£445 million been paid on 1 October, do you accept that the
company would still have been solvent?
(Mr Winsor) Yes, I believe that the company on 5 October,
on the facts available to me, was solvent. But Railtrack failed
to disclose to me their true position and instead they pursued
their policy of talking only to the Government and not to me.
I know that Mr Marshall has said that as far as he was concerned
the company was solvent on 5 October. On the information available
to me, as I virtually disclosed to the Secretary of State, I agreed,
but what was it that happened on or just around 5 October which
meant that a company which was solvent on 5 October was insolvent
on 7 October?
792. Because the £445 million had not been
(Mr Winsor) But they did not tell me that.
793. You must have known because you were invited
in by the Secretary of State on the evening before. He must have
put to you how serious the situation was.
(Mr Winsor) No, he did not mention figures. He said
that the company had a yawning gap in terms of the consequences
of Hatfield, West Coast and other matters, that the financial
position of the company had been very closely looked into over
a period by the Government's financial advisers and they were
satisfied that the company was insolvent. That really surprised
me, of course it did, but it is for the court to make a determination
as to whether or not the company is insolvent and the High Court
decided, on the basis of the information given to it on Sunday
afternoon, that the company was insolvent. It is a question for
the directors as to how the company could be insolvent on the
Sunday, when it was not insolvent according to their evidence
on the Friday.
It appears to me from an examination of the
papers lodged with the High Court and the transcript of the oral
proceedings that afternoon and the skeleton arguments which I
have seen prepared by leading counsel that Railtrack thoughtand
this is the thing which swung them from being solvent to insolventthat
because the Secretary of State had made a policy decision that
he was not going to provide any more money to the company above
the regulatory settlementand the £445 million is part
of the regulatory settlementand had effectively neutralised
the Regulatorand it had not happened and it still has not
happenedbecause of those two factors, Railtrack could not
get a bond issue away. If it could not do that, it could not draw
on its existing undrawn and committed banking facilities, and
as a result of that it was insolvent. The papers provided to the
court proceed on the assumption that regulation had been or was
inevitably to be neutralised, when it was not, and it still has
not been. It seems to me that at no point during the court proceedings
was the possibility of an interim review even mentioned. Indeed
the court appears to have been satisfied that Railtrack had no
alternative sources of funding. It seems to me that those engaged
in this process at the timeand this was the board of Railtrack
who, in my view, made this material errorseem to have regarded
a statement by the Secretary of State that he would be willing
to introduce a Bill into Parliament as equivalent in effect in
all material respects to a statute already enacted and brought
794. With the greatest respect, when has the
present Government been outvoted?
(Mr Winsor) Well, you are a parliamentarian and I
am not. I am afraid I do not know. You will correct me.
795. The reality is that they did not discuss
it with you and they had been given clear advice that they could
not get the bond away because they could not give the written
undertaking that was required of them.
(Mr Winsor) The more remarkable thing is what could
Railtrack have done to prevent insolvency? Having been faced with
the statement by the Secretary of State to the Chairman of RailtrackI
was not present and do not know what happenedthere are
several things Railtrack could have done at least to buy itself
more time. It could have enforced the legally binding contract
with the Strategic Rail Authority which provides that the company,
if the Renewco arrangements are not set upand the £445
million comes under Renewcowould have 21 days (paragraph
3.3) in which to find an alternative structure and then it would
have a right to apply for an interim review.
796. And they did not.
(Mr Winsor) And they did not exercise that contractual
right. I do not know why. Under the Railway Administration Rules
2001, Railtrack also had a right, as I understand it, to two days'
notice of the petition. They waived that right.
(Mr Winsor) I do not know. They did not oppose the
petition for administration and they made a statement to the court,
which I believe was likely to bebut I was not present,
I do not knowthat in light of the circumstances they had
no credible alternative to administration. I do not know why they
did that. I do not know why they did not oppose the petition and
I believe that is a matter for the company not for me. I am genuinely
surprised and puzzled.
798. What is your assessment of Railtrack's
commercial and managerial competence?
(Mr Winsor) Its commercial competence is diminished
because it has now gone into administration. I do not think that
is what you mean. How good are they at their job?
799. Given the events and circumstances you
have described to us, how good were Railtrack at their job and
did they act in such a way that would attract commercial confidence?
(Mr Winsor) I believe that they are the authors of
their own misfortune. When I was asked by the present Secretary
of State for my opinion of Railtrack at my first meeting with
the Secretary of State shortly after the election this year, I
said that I believed that the core problem with the railway industry
was the competence of the management of the company. I still believe
that. I believe that the company spent too long complaining about
multiple stakeholder pressures and interfaces and failed to understand
the simple realities of its business which are this: you do not
neglect your assets and you are not hostile to your customers.
The company had, as I said in my speech in June, almost a policy,
certainly latterly, of neglecting their assets. They have been
trying very hard to get on top of that now, but the legacy of
that policy was very severe and they are still feeling it, and
their hostility to their customers. Dealing with Railtrack is
a very, very difficult and unpromising process.
What I have said to Railtrack over and over
again, both publicly, but particularly privately, is that Railtrack
should not complain about multiple stakeholders pulling them in
different directions; they should just realise that they have
one person to satisfy, only one, and that is the customer. If
they deliver to the customer a quality service at a fair price
in a timely, competent and efficient way, with skill, diligence,
prudence and foresightwhich are standards which are across
the board in the commercial worldthen the customer will
be happy. The result is that the Strategic Rail Authority, which
is a very important quasi-customer, will be happy, the HSE will
be happy, because the operations will be safe, the PTEs will be
happy, the local authorities, the other stakeholders and the Regulator
will be happy. John Robinson told me shortly after he was appointed
that when he got into Railtrack House he wondered why there were
so many people dealing with regulatory affairs. I said I thought
there were too many people dealing with regulatory affairs, the
interface facing the Regulator. It was as though the company only
wanted to please the Regulator. Why was that? Because the position,
the empowerment, the accountability to the customer, was woefully
weak. What I said to John Robinson was that I did not want his
guys to be thinking about how to please the Regulator or get the
Regulator of their back. I wanted them to think only one thing:
customer. The Regulator should recede into the background. That
is not to say he should lose his powers or his jurisdiction or
anything like that, far from it. The ORR and the other regulatory
authorities, the HSE and so on, should recede into the background
because we are not needed to take a high profile forward-looking,
proactive view with the company. I believe John Robinson understood
that message and he accepted that message. The company's rhetoric,
other than with John Robinson, was inconsistent with that because
they still went on complaining about too many people pulling them
in different directions. I think the simple commercial reality
was: you serve your customer, you look after your assetsthis
is an asset-intensive company, it has to know what it has got,
what condition they are in and what it takes to look after them.
Look after your assets, look after your customers and you will
be a success.