Select Committee on Transport, Local Government and the Regions Minutes of Evidence

Examination of Witness (Questions 820 - 839)




  820. Good afternoon, I am grateful to you for coming. Would you be kind enough to identify yourself for the record.
  (Mr Byers) I am Stephen Byers, the Secretary of State for Transport, Local Government and the Regions.

  821. Can I ask you, Secretary of State, if you have anything you would like to say.
  (Mr Byers) Mrs Dunwoody, if I could make a relatively brief opening statement to the Committee. And can I begin by saying, as this is the first time I have had the pleasure of appearing in front of your Select Committee since my appointment on 7 June, that I would like to think that we will have a long and constructive relationship —

  822. Seldom have men made offers like that to me so I can assure you I accept!
  (Mr Byers) Thank you so much!—A long and constructive relationship with you as Chairman of the Committee and myself as Secretary of State for the Department. Mrs Dunwoody, it was a year ago that the rail industry was just recovering from the aftermath of the terrible events at Ladbroke Grove when the accident at Hatfield threw the industry, and particularly Railtrack, into turmoil. Partly as a result of Hatfield, Railtrack came to the Government for more money and in April of this year we agreed a deal with them based on their business plan at that time. We agreed to bring forward £1.5 billion of investment, the first installment of which was paid on 1 October this year, a sum of £337 million paid in full. My decision on 5 October to refuse further funding to Railtrack was not an easy one, but I firmly believe that Railtrack had become not part of the solution for our railways but indeed was a major problem. We had to say, "Enough is enough, let's get to the root cause of this. Let's look at the structure and put it right so that the extra money we intend to put into railways secures real value for money and an improved service to the travelling public." Railtrack went into administration because it was insolvent. My petition to the High Court was unopposed. Our evidence showed a deficit for Railtrack of £700 million by 8 December this year rising to £1.7 billion by March of next year. Little wonder that faced with these facts Mr Justice Lightman, the High Court Judge said: "This is clearly a case where the making of an Order is not only appropriate but absolutely essential; I shall therefore make the Order immediately." Mrs Dunwoody, you will know that the House has had the opportunity to discuss on three separate occasions the circumstances leading up to the granting of that petition on 7 October. We now need, I believe, to concentrate on the measures that have to be introduced and the steps that need to be taken if we are to create a railway system which is fit for the 21st Century, and I would certainly very much welcome the views and recommendations of the Committee on the action necessary to achieve this particular objective. As the Committee has identified in your earlier reports to the House, Railtrack had many failings, but Railtrack, in reality, is only part of the jigsaw that is the modern railway system, and I want this afternoon to share with the Committee part of mine and the Government's wider vision for the railway network. We first must consider the successor to Railtrack. There are some excellent people working at Railtrack and throughout the railway industry, but Railtrack was not delivering and these excellent people deserve to work in a structure that does. The Committee knows that we are proposing to the administrators a company limited by guarantee to take over Railtrack's stewardship of the network. It would include membership representing the industry and those with an interest in it, and that is only right, but the membership would not be involved in running the railway or taking any day-to-day decisions. The company would be run by a professional board of directors. The directors of that board would be charged with one aim and one aim only; to deliver a safe and efficient railway system. But the company limited by guarantee is only one possible model. We welcome the interest that has been shown by other third parties in Railtrack and look forward to seeing if and how that interest will be translated into firm proposals for the administrator. All will be considered fairly and on their merits and I have issued guidelines detailing the principal issues which I will consider before approving a transfer of Railtrack's undertaking. We will only proceed when we are happy that the successor to Railtrack can really deliver for industry and for the travelling public. The Ten-Year Plan, published last year, and coming into effect in April this year, was a milestone in transport planning. It contains key targets for the railway: a 50 per cent increase in passenger growth; up to 80 per cent growth in rail freight; and less over-crowding, particularly on busy commuter lines. We remain, in Government, committed to these targets despite the disruption caused by last October's crash at Hatfield. Among other things, Hatfield proved a stark warning to the industry of the continuing need to maintain and improve safety standards. Hatfield also caused massive disruption across much of the network. Some of the effects are still being felt. Six months after Hatfield there were still 1,000 temporary speed restrictions in place. As the Committee will know, the Strategic Rail Authority is our principal delivery agent. I am pleased that Richard Bowker is to become its new Chairman. He brings commitment, energy, clear vision and a great knowledge of the industry. The Strategic Rail Authority will be publishing its first Strategic Plan shortly. It will set out how the Ten-Year Plan is to be delivered and how to create a safer, better and bigger railway. The publication of the Strategic Plan will be a major event in the development of our railway for the future. As the Committee will also know, I have issued in draft form new Directions and Guidance to the Strategic Rail Authority. These are not about prescription or second-guessing. When finalised they will set the overall framework in which this Government body will operate. I have no intention of getting involved in detailed operational issues that properly belong to the Strategic Rail Authority, but I do believe on behalf of Government that it is right to set objectives and the 12 objectives set out in the draft Directions and Guidance are, I think, the key priorities for the future: to secure progressive improvements in the performance of the franchised rail services and improve levels of customer satisfaction with the quality of stations and services (and, as we have just heard from the Honourable Member for Wakefield, we know that is something that clearly does need to be addressed as a matter of urgency); to manage passenger franchises actively; to take opportunities to achieve improvements in terms of existing passenger franchises both in relation to performance and otherwise; to extend or replace existing passenger franchises in due time before expiry, or earlier where to do so is warranted by the potential benefits to passengers and other users, and is affordable; to carry out a national passenger survey twice a year; to keep under review the level of regulated and unregulated fares; to implement an improved system of support to freight operations; to replace the existing freight facilities and track access grant schemes; to secure increases in the capacity of the railway to accommodate the expected growth in passenger and freight traffic; to develop a policy for the allocation of capacity amongst users; and to ensure that rolling stock is available so that train operators are able to accommodate expected passenger growth in appropriate model standards of comfort and safety and, specifically, in order to replace the existing Mark I stock as it is progressively removed from the network between now and 2004. And the final two objectives: to achieve a significant improvement in the resilience of railway operations; and to promote co-operation among different parts of the rail industry. In addition to the Directions and Guidance, I also want the Strategic Rail Authority to be flexible in its approach to franchising. In some cases 20-year franchises will be appropriate. Indeed, the Strategic Rail Authority is now in the final stages of negotiating a new 20-year franchise on Chiltern. In other cases short extensions may well be the answer, as with the East Coast Main Line. Here a new long franchise may be appropriate but it would be premature to commit to it at this particular stage. I also want to see franchise bids invited againsta clear specification of core outputs so that everybody can be clear what they are trying to achieve and we can enable bids to be properly evaluated one against the other. The Ten-Year Plan backs up our vision with a commitment to massive investment. Over the ten years of the plan, public support to the railway will be some £30 billion, far higher than in the past ten years. Public funding will lever in some £34 billion of private finance on the Channel Tunnel Rail Link, on new rolling stock, and on major schemes to expand the network such as the planned upgrade of the East Coast Main Line. Mrs Dunwoody, money and commitment alone will not be enough to transform the railway over the next ten years. We also need to tackle some practical problems, including the current shortages of drivers, signalling engineers and other key staff. The Strategic Rail Authority is working with the industry and government agencies to ensure that the right people are trained and available in the right places. The short-term approach to training and skills development that we have seen over recent years is now leading to real difficulties. We must now invest for the long term and that means providing a structure in which the talents of individuals are enhanced by high-quality training. Mrs Dunwoody, the action we have taken in relation to Railtrack is an important first step towards creating a railway system fit for the fourth largest economy in the world. But I am clear that much more needs to be done. We need to have a successor to Railtrack that concentrates on operations, maintenance and renewals; a strategic plan which is an agenda; a franchising regime which uses its powers as a key lever to drive up quality, investment, both public and private, which brings real benefits for passengers and freight; a skilled workforce to meet the demands of the industry. Some might say that this is too bold and ambitious but I do believe it is a vision that can be achieved.

  823. Thank you, Secretary of State. We will want to question you on various aspects of that statement. I want, if I may, just to ask you a couple of questions. You will have read the evidence given to us by the Rail Regulator and you will also know that, whatever form the successor to Railtrack takes, one of the ways in which certainly the private sector and banking sector will expect to have their interests protected is by the role of the Regulator who acts as a vital arbitrator in the case of any difficulty. Do you feel that the Rail Regulator was sufficiently consulted in the talks between yourself and other members of the industry before your decision to go for administration was announced to him on the Friday before the relevant date?
  (Mr Byers) It was Friday 5 October, Mrs Dunwoody, when I met the Regulator to inform him of the decision that I had taken earlier that day in relation to Railtrack's request for further additional funding from the Government. In practice, it was very difficult to consult the Regulator before that decision for a simple reason, which was the discussions that had been taking place with Railtrack and with their advisers were taking place in the strictest of confidence. As you will be aware, as Secretary of State I am under no legal obligation to inform the Regulator of discussions of that nature. It would have been open—and I think the Rail Regulator in his evidence to the Committee made this very clear—to Railtrack to have made an approach to the Regulator at any time during that period?.

  824. Were you aware that he had not done that?
  (Mr Byers) I learned that from the Regulator in his evidence last week. I was aware from Railtrack that they had not approached the Regulator; that was clearly a decision for Railtrack.

  825. Did you ask them why they had not done that when this was a recognised route by which they could have raised money?
  (Mr Byers) I understood it was a decision that Railtrack themselves had taken.

  826. That was what they said to you at the time?
  (Mr Byers) I cannot recollect in detail but it was clearly a decision Railtrack had taken. Whether they expressed it openly in those terms I really cannot remember.

  827. Were you surprised that they had not chosen that route to raise extra cash?
  (Mr Byers) I would have thought that they would have considered some of the comments which have been made by the Rail Regulator about the position of Railtrack. Clearly it was an avenue open to them and, for whatever reasons, Railtrack chose not to go down that particular avenue.

  828. Were you aware that Sir Alistair Morton regarded the right of the Regulator to raise money in this fashion as the right to take money out of the pockets of the Strategic Rail Authority?
  (Mr Byers) Sir Alistair Morton expresses himself in his own colourful way and I am aware of his own particular views, yes.

  829. Do you feel that the reaction of the Regulator, which was one of considerable shock according to the evidence he gave us, was justified by the fact that he felt his role had been undermined and it was impossible for him to continue?
  (Mr Byers) I did not read the Regulator's evidence in that way, Mrs Dunwoody. Thankfully, because of the transcript that you made available yesterday, I was able to read the transcript and the message I got from the Rail Regulator's evidence was that if Parliament, both the Commons and the Lords, had agreed to proposals to constrain him, then his independence would have been affected. But clearly he said to the Committee for him it was "business as usual" and I think what is particularly noteworthy is on the evening of 6 October he indicated, certainly in evidence before the Select Committee last week, that he said to Railtrack if they applied for an interim review then he would certainly give it appropriate consideration.

  830. He also said they did not ask for that because they had put a 24-limit on the length of time this should take.
  (Mr Byers) I cannot really understand that because Railtrack was aware that there was a petition being made to the High Court on the Sunday. That petition of course was from myself because I had evidence which led me to believe that Railtrack was not solvent. Railtrack attended in the High Court on the Sunday afternoon with counsel and they did not oppose or challenge the petition that I presented.

  831. You do not think you undermined the role of the Regulator?
  (Mr Byers) No, the nature of conversation—and it is important for the Committee to be aware of this—was it was the Regulator himself who said almost "what if?" It was not me volunteering that there was a potential for the introduction of emergency legislation if that were necessary. It was a consequence arising from a comment that Mr Winsor himself had made. I put it to the Committee that had I not disclosed the decision that Government had taken then, quite rightly, people could have alleged that we were misleading the Regulator as to the approach of the Government. I was simply very open and very honest with the Regulator in response to an issue that he himself raised.

Mr Stevenson

  832. I would like to ask the Secretary of State questions in two areas, if I may. The first is on the options that may be forthcoming from the administrator which might determine the successor to Railtrack. One of those options that I think is being suggested is that a private sector buyer headed by a consortium that may be based in Germany would be interested in buying Railtrack lock, stock and barrel. Could the Secretary of State confirm that as a possible option?
  (Mr Byers) What the Government has done is to make sure that there is what we regard as an appropriate vehicle to take Railtrack out of administration and that is why we have worked up the model of a company limited by guarantee which we feel is an appropriate model. It overcomes many of the flaws and weaknesses that we have seen with Railtrack. However, we do believe it is right that we should not close the door on other proposals coming forward. I think some two weeks ago I issued some guidelines when I answered in a Parliamentary question outlining the sorts of issues that we would want to take into account when considering whether or not I should approve a successor for Railtrack under the powers that I have under the Railways Act of 1993, and you are right to say that one of those organisations so far which has expressed some interest is a German company called WestLB. They have made an approach in outline to the administrator and it is the administrator who will deal with these issues as the first port of call. I understand that they are now working up a more detailed proposal which they will put to the administrator in due course.

  833. But I understand, Secretary of State, that you will make the final decision?
  (Mr Byers) The sequence will be that the administrator will effectively make a recommendation. Railway administration is a very unique form of administration in that normally if would be for the administrator to take the final decision. With railway administration it is unique in that the administrator will take a decision as to what he believes is the right conclusion, taking into account all of the interests but then that has to be approved by the Secretary of State.

  834. Fine. Given that you have, I think, consistently indicated, and yesterday you specifically said, that Railtrack plc—and I think I quote you not too incorrectly—had put the interests of its shareholders before that of the railway infrastructure. Given that is the case, how are you going to ensure that another private company is not going to do exactly the same thing?
  (Mr Byers) This is going to be one of the issues that will need to be considered when we look at whatever proposals come from the administrator.

  835. Could I pass on to my second area. You describe, Secretary of State, the rail system as a "jigsaw", some may describe it as a "maze" and you will be aware of the consistent evidence that the Committee has received over recent times from, I think I am correct in saying, every organisation that has given evidence to this Committee, that one of the major problems confronting the industry is fragmentation. You are aware of that?
  (Mr Byers) Yes.

  836. It is consistent right across the board. That being the case, how do you think that Railtrack Mark II (or Renewco, whatever it may be) plus up to 15 special purpose vehicles, Renewco having responsibility for maintenance and renewal but the Strategic Rail Authority and special purpose vehicles having responsibility for major new infrastructure, plus the possibility of six or more regional companies, is going to reduce fragmentation in the industry?
  (Mr Byers) I am not sure that is the model that we will end up with at the conclusion of the period of administration.

  837. Are you saying that you are not in favour of special purpose vehicles?
  (Mr Byers) What I am saying is we should not see it in terms of special purpose vehicles causing the fragmentation that you are perhaps concerned about. My own view is that the bodies that will take over those major upgrades, for example the East Coast Main Line, the one that is due to come up in the not-too-distant future, would be a very good example of where special purpose vehicles might be used, and there we would expect the Government, the Strategic Rail Authority and the private sector to be involved in working up the details but there will need to be an oversight by the successor of Railtrack or else you create the sorts of divisions that you are particularly concerned with.

  838. It is not a matter of any individual creating the divisions; surely it is that sort of structure that inevitably will lead to further fragmentation? I fail to understand, perhaps you could help me, given that the system which included Railtrack plc was described as "blighted by fragmentation" from the word go, how the creation of up to 15 special purpose vehicles, how a distinction between Renewco for maintenance and renewal and SRA special purpose vehicles for major upgrades, and up to six regional companies, is going to reduce fragmentation. I simply do not understand that and perhaps you might be able to help me.
  (Mr Byers) I will certainly do my best to try to explain how I think it might be a better system that overcomes some of the problems we have at present. One of the big issues that we have at the moment—and this was also referred to in one of the reports from this Select Committee—has been the lack of what I would call a "clear line of sight". In other words, sometimes it is very difficult to identify who is responsible for certain events which take place which means very often—and we have all been aware of this within the railway industry in recent years there has developed almost a blame culture where people point the finger at each other but no one part of the industry is prepared to put up their hand up and say, "Yes, we are responsible for this and we need to improve it in the future." I do think it is important to bear this in mind, and I can understand why given what has happened since October 5 that people, understandably, are concentrating on Railtrack, but I think it would be a terrible mistake if that is all we looked at because what has happened with Railtrack, as I said in my opening remarks, is really one part of the jigsaw, of the maze if you like. What we have got do is to make sure that when this period of administration is over we have not only have a successor to Railtrack but we also address some of those key issues like the role of the Regulator, like the Strategic Plan from the Strategic Rail Authority, like how we can use the franchising regime in a more positive way than perhaps it has been so far. I do believe that by using all of those levers then we can overcome the sorts of fragmentation you are so concerned about.

  839. I have listened very carefully to your answers and we will have to assess how persuasive your answers are. Given that whatever successor to Railtrack is, it will have to be backed up by considerable amounts of public money, I think that is a foregone conclusion, and that money will in the main, if not entirely, be directed through the Strategic Rail Authority who will be responsible for the dispersement of that money consistent with policy objectives and also responsible for major infrastructure developments with special purpose vehicles, and the need to simplify the industry is an overriding consideration. I put it to you what do we need a successor to Railtrack for? Why can it not be done through the SRA?
  (Mr Byers) We need a body which will hold the operating licence and will do simple things and do them well, which means operations, maintenance and renewal, and that is their overriding priority, and not to be distracted by the big enhancement projects. The difficulty, so I have been told, at the heart of the Railtrack was that in order to enhance shareholder value and make a profit—there is not much profit from operations, maintenance and renewals works, the real profit comes from the major upgrade—a lot of time is spent looking at that particular part of their responsibility. I believe that with the new company that we are proposing taking over from Railtrack, concentrating just on running the track and getting that right as far as the network is concerned and the other responsibilities as well, then that is what they need to be concentrating on. I do think we need a dedicated body to do that and it does not fit in with the role of a Strategic Rail Authority which is really a body at arm's length from government but which sets the strategic objectives of the railway network. Some would say it is a bit ironic that we have got a Strategic Rail Authority at the moment which does not have a Strategic Plan but we will have an Strategic Plan in the not-too-distant future and the SRA also has the responsibility for the franchising programme as well. I think there are distinct roles to play and that has to be done by the Strategic Rail Authority and I do believe a successor to Railtrack is necessary in order to do those basic things—operations, renewals and maintenance and do them well and do them on time.

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