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

Examination of Witness (Questions 840 - 859)



Chris Grayling

  840. Can I start, Mr Byers, with franchising. You will be aware that from October 1999 onwards the industry was very focused on 10 and 20-year franchises. When you took over as Secretary of State you said on June 18, "I am not going to embark on any big structural changes. What the industry needs now is a period of stability and certainty." What happened between the 18 June and 16 July to change your mind on that and to make you press ahead with two-year franchises? Was it your idea or the Department's idea or did the idea come from 10 Downing Street?
  (Mr Byers) I think the idea was mine as Secretary of State and the Department's. It would be inaccurate to present the policy as being one which was in favour of two-year franchises. What I wanted to move to was a situation where there was a greater degree of flexibility in terms of the type of franchise to be awarded in particular cases. In the way in which the regime was operating when I came in there was almost a presumption in favour of long-term franchises, 15 or 20 years. That may be appropriate in certain situations. I think I indicated to the Committee in my opening remarks that it may well be the case that the East Coast Main Line is a good example of where a long-term franchise will be appropriate because of the upgrade that is necessary and the long-term investment.

  841. That has already been recommended by the SRA.
  (Mr Byers) It was recommended by the SRA on balance. It was a close run thing as far as the SRA were concerned. However, in terms of other franchises there may well be benefits that can be achieved by either a short-term extension, if that is deemed to be appropriate, or where a shorter period of franchise may be regarded as necessary in the particular circumstance. What I was trying to do was a change of policy but it was almost "horses for courses", what type of franchise is best in the circumstance of each case and let's judge.

  842. With the finances for the modernisation of the network, the Regulator's most recent announcement shifted the funds available for renewal, maintenance and operational expenses for Railtrack (excluding the West Coast Main Line) by a very small amount, from £12.9 billion to £13.3 billion. Railtrack's recommendation was that a total of £17.1 billion should be spent. Was that sum correct? Will you be making that sum available to the successor body or will you only be making available to the successor body the £13.3 billion available to Railtrack?
  (Mr Byers) Our proposal at the moment is that the successor body should be operating within the financial framework within which Railtrack was operating and should not cost any more, so it will be within the remit established by the Rail Regulator.

  843. When you met on June 25 the Chairman of Railtrack did Railtrack actually ask you for more money and, if they did, how much did they ask you for and when?
  (Mr Byers) There was no meeting on June 25.

  844. I beg your pardon, July 25.
  (Mr Byers) On July 25 there was a meeting with the Chairman of Railtrack, as I said to the House yesterday. He outlined to me the particularly difficult financial circumstances that Railtrack were facing. He did not go into detailed figures but as a result of that meeting my officials met his advisers over the next few weeks to discuss the detail of the position as Railtrack faced it at that particular time.

  845. Did they actually ask you for more money?
  (Mr Byers) On 25 July Mr Robinson discussed a range of issues. He outlined to me in general terms the seriousness of Railtrack's financial situation, making clear that the position was far worse than he first thought. He spoke to me about needing a soft letter of comfort from the Government by the autumn before being able to access existing banking facilities. If Railtrack were unable to access these facilities or receive extra financial assistance from Government it was clear that on 8 November, when Railtrack was due to give its interim results, it would be unable to make a critical statement that it was a going concern. That was the conversation.

  846. We know Railtrack's business plan involved them seeking first of all to draw down funds that had already made available to them as credit facilities from the banks and subsequently to launch a bond issue which is where the cash for the next few months was coming from. My question to you again is did they actually ask the Government for more money or did they simply ask the Government for a letter of comfort which would enable them to proceed with that business plan?
  (Mr Byers) The conversation was if Railtrack were unable to access these facilities or receive extra financial assistance from Government —

  847. So they did not actually ask you for more money?
  (Mr Byers) The conversation was in relation to the need for a soft letter of comfort to be able to access existing banking facilities. The important point was from that meeting (because it was in outline only) detailed conversations then took place between his advisers and my officials in the Department.

  848. Let's be clear; there was never a specific request from Railtrack for additional Government funds over and above what was already being provided to them?
  (Mr Byers) On 25 July Mr Robinson came to me and said they had real difficulties.

  849. But he did not ask for a specific amount of money?
  (Mr Byers) What he did ask for was for a soft letter of comfort from the Government by the autumn before being able to access existing banking facilities. If Railtrack were unable to access these facilities, in other words if we did not give a soft letter of comfort, or if they did not or receive extra financial assistance from Government it was clear that on 8 November he would have difficulties when it came to him giving his interim results. But that was the first meeting of a number of meetings. Arising from that we then had, at Mr Robinson's request, a number of meetings between my officials and the advisers who were being employed by Railtrack.


  850. Because he was asking you for vast sums of money? He was asking for moneys to be brought forward?
  (Mr Byers) On 25 July that was not the detail of the conversation. 25 July was the first opportunity Mr Robinson had to alert me to the looming financial crisis faced by Railtrack. Following on from that there was a series of detailed conversations taking place between his advisers and my officials.

Chris Grayling

  851. There is an important point here from the Chief Executive of Railtrack and indeed from the Rail Regulator who called into question the Department's statement that Railtrack was insolvent on October 5. There are two possible avenues here. If it is the case that Railtrack had come to you looking for a letter of comfort and they were then seeking to launch a bond issue and draw down capital facilities, was it the case that you ever received from any of your advisors professional advice that had they been able to do those two things they would still have been facing insolvency as a company?
  (Mr Byers) The situation was that there was a series of meetings between officials and advisers for Railtrack, and on my behalf, following on from our meeting of 25 July. That led in due course to a situation where I then had to consider whether or not additional government money over and above the business plan that had already been agreed, over and above all of the financing arrangements which had been put in place, more money was needed by Railtrack, which is why on 5 October I had to take a decision whether to allow more Government money to go to Railtrack, additional Government money, or not.

  852. I am interpreting from the fact that you have not given me a direct answer to my question—at no point between 25 July and 5 October did Railtrack specifically ask you for an additional sum of money beyond that already committed?
  (Mr Byers) They did and that was part of what was called "Project Rainbow" which was their new restructuring proposals. As the Committee may know, when their advisers came to meet my officials there were three options which their advisers put to my officials. They were restructuring, renationalisation or receivership, as they put it. The restructuring option was the one that was worked on in some detail. This was to see what regime we could put in place that would be of benefit to Railtrack. That regime would have meant unspecified additional government money going into Railtrack.

  853. That was what your advisers said, but Railtrack itself never asked you for more money. What they asked you for was for Government backing to ensure that they could pursue their plan of raising capital in the markets and drawing down banks assets. I am referring to your statement to the Commons yesterday.
  (Mr Byers) No, that was in relation to the meeting on 25 July. As I think I said to the Committee earlier, that was the first of a series of meetings. It was a meeting where Mr Robinson outlined to me the financial difficulties that had been identified. He was a new Chairman of Railtrack. He had appointed new advisers. They had come to him and said, "We have had a very close look at the position of Railtrack and it is worse than we expected." Mr Robinson then came to see me on 25 July, outlined in broad terms the problems that he was facing, and said in the light of this could I agree that my officials would meet his advisers to go through the detail and I, of course, said yes. What then happened throughout August and September was a series of very detailed meetings about the financial situation that Railtrack faced. Arising from that there was a proposal—in fact there were separate proposals—which would have meant significant sums of additional Government money being provided to Railtrack and that was the consequence of those discussions.

  854. The situation over discussions with the Treasury which has been highlighted in the last few days, can we clarify that point; did you ever enquire about the possibility of extending public funds for Railtrack and, if so, what was the response?
  (Mr Byers) The Treasury, like other government departments, were involved throughout as we were working up the two programmes of work, if you like. Throughout August and September what we were doing, to begin with we were looking at the proposals that were being put to us by Railtrack for restructuring and the details contained within it. Towards the end of August I was concerned that we needed a fall-back, as it were, in case we decided that no extra government money should be made available, so we had two programmes of work going alongside each other. Of course, as is the very nature of the government, the Department will be working with the Treasury in working up those proposals and from time to time I had reports about the progress of those programmes of work. In the end it was on 5 October that I had all of the relevant advice and I took my decision.

  855. A very brief final point; did your Department in any way intervene with the Strategic Rail Authority over the Renewco issue and the repayment of £162 million which has been a matter of some dispute. I ask that because I know that the SRA has now offered that sum to Railtrack in receivership some three or four months after it was first due to be paid and Renewco was supposed to be set in play.
  (Mr Byers) That was a matter between the Strategic Rail Authority and Railtrack in line with the agreement that was entered into in April. My understanding, which is the understanding I reported to the House yesterday, was that the conditions that were attached to that, bearing in mind the agreement was to use best endeavours to achieve this particular outcome, the conditions were not met on 1 October and therefore the payment was not made. It is worth reminding the Committee, of course, that in the course of those discussions in August and September Railtrack indicated that even if Renewco, for which the £162 million was put in place, Railtrack would still need additional government support over and above that. I think if the Committee considers the £162 million in the context of the £700 million deficit which Railtrack would have had on 8 December, then one can see that there would still have been great difficulties as far as Railtrack was concerned.

  856. So your Government had no involvement in delaying or intervening in any way in that payment?
  (Mr Byers) We certainly did not block any payment of £162 million to Railtrack.

  857. Was there any discussion, theoretical or otherwise, in your Department before 25 July about the possibility of a future change in status for Railtrack, whether nationalisation, the move into a company limited by guarantee, or whatever?
  (Mr Byers) Not that I am aware of.

Miss McIntosh

  858. Mr Byers, you said in your evidence to us this afternoon that the Strategic Rail Authority will be the principal delivery agent. Why did you never meet Sir Alistair Morton as Chairman of that Authority?
  (Mr Byers) I did meet him.

  859. That is contradictory to the evidence we have taken, that up to the time that he resigned he said that he had asked for meetings with you and never had a meeting. I put a question to David Jamieson of the Department about what meetings Ministers had had with the SRA and the written answer came back that officials had met the Authority, but no minister (by implication) had met.
  (Mr Byers) I do not know about the details of that parliamentary reply but I do know because if you have a meeting with Sir Alastair Morton it is not something you forget, and I have certainly met Sir Alastair to discuss these matters.

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