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

Examination of Witness (Questions 900 - 919)



  900. I am very mindful of them and how long will it be before the whole company comes out of administration, given its present cost of £450 an hour?
  (Mr Byers) Mr Bloom gave evidence before the Committee and made clear the time that he thought it may last. He has a huge job of work to do and he outlined this to the select committee a couple of weeks ago, I believe. He is aware of the guidelines. He will have to balance them with his own legal duties. He has a duty to the shareholders which he has to discharge and, at the end, we have to decide whether or not we approve the scheme that he brings forward. It would be inappropriate for me to try to constrain him.

Dr John Pugh

  901. In your own document your Department says, "Confidence in the railways has been severely shaken by recent events." I think we would all agree there is uncertainty about the administration, uncertainty about the shape of the new company, uncertainty about credit rating and how that problem is going to be resolved, uncertainty as to whether special purpose vehicles will work on rail, uncertainty as to how the competing stake holders, if not a proper company, will dovetail together. Given those uncertainties—and any one of those is a severe problem for the railways - can you give some likely dates by which some of these uncertainties, which are manifest throughout the whole industry, are going to be cleared up?
  (Mr Byers) I would like to think that certainly in relation to the credit rating of our proposition for a company limited by guarantee I have made clear through parliamentary replies exactly what credit rating we are aiming to achieve and the mechanism by which we believe we will be able to achieve it. We have this period of administration where we can introduce certainty where there is uncertainty at the present time. I do think though that we have been able to make it clear since administration exactly what our proposals are as a government but of course it will be for the administrator as to whether or not to determine the scheme that will come out of administration. A number of the issues that you have raised as being areas of uncertainty I would like to think that we have been able to clarify over the last two or three weeks. Where there is uncertainty still in place, we will use this period of administration to put in place very clear and very precise proposals. That will be our intention. For some of it, we obviously have to wait for the administrator and decisions that he will take but the point I was trying to make in my opening remarks to the Committee is that we now have this golden opportunity to remodel the railway structure. It is not just Railtrack; there are lots of other parts of the jigsaw that we need to look at as well.

  902. Your message to the rail industry is there is not as much uncertainty out there as they think there is?
  (Mr Byers) I am not sure they do. I am sure it will come as no surprise to the Committee to know that I have had a series of meetings over the last few weeks with all of the key players in the industry to take them through what we are proposing, to explain the mechanisms that we intend to use. I think a lot of them have been reassured. A lot of them are very interested in the opportunities which are now going to be made available and we must ensure that we continue to talk to the industry so that they are aware of exactly what proposals we intend to bring forward. We are doing that. We are consulting widely and I think the industry has appreciated that particular approach.

  903. Please do not take this as a completely facetious question: could we take this as prima facie evidence that your actions on 5 October and subsequently were forced upon you rather than premeditated, because if they were premeditated they were extremely badly premeditated.
  (Mr Byers) On the one hand I am being accused by Railtrack of having embarked on a military style operation.


  904. I think that was regarded as the slightly more ridiculous of their assertions.
  (Mr Byers) My own position is, when I came in having been appointed after the general election, I wanted a period of stability in the industry because that would have been the best thing for the industry, to see if Railtrack could have got itself sorted out. I made a number of speeches to that effect and I do not apologise for that. It was not until 25 July when John Robinson came in that it was clear that we would have to look at it again. Either we would have to put extra money in or there would be a period where we would have to look at the possibility in due course, when it became clear, of railway administration. What I could not do before 5 October, because a decision had not been taken until 5 October, was to publicly say, "These are the proposals that we want to put in place." It is only since 5 October, the decision not to provide additional government money, and then on 7 October, the decision of the High Court to grant my application for railway administration, that we have been able to discuss with people what the new network might look like. I can understand the frustration that people have but it could not have been any other way.

Dr John Pugh

  905. We have listened to people talking about vertical integration and there is a view that train operating companies ought to have a stake in the track, in which case there is an element of frustration with freight and other people who want to use the same track. When you go back to the old scenario of the train operating companies working with Railtrack, you have the conflict between real and rail. Either way, you have friction. Is this not why we had British Rail in the first place and, to some extent, is not the only option open to government now to resurrect something like British Rail or countenance a greater level of government involvement than we have had since privatisation?
  (Mr Byers) The situation that we now face provides us with an opportunity of getting the industry to work together in a far more cooperative way than it has done under the regime since 1993 and certainly since 1996 with the flotation of Railtrack. What we need to look at are ways in which processes, mechanisms if you like, whereby a proper dialogue and communication can take place between those people with those responsibilities. It may be the case that vertical integration may be an option which is pursued. I have an open mind on whether or not that will be a good move but I would be interested to see what proposals might come forward. That might be a way in which one could overcome these sorts of problems.

  906. Specifically, are you agreeing with me that we are looking at a greater era of government involvement in the rail industry?
  (Mr Byers) There is a pretty large level of government involvement in the industry with £30 billion of investment going in over the next ten years, but I am clear that a company limited by guarantee, which is the model that we are putting forward, will be independent of government, will not be controlled by government. I want the Strategic Rail Authority to be at arm's length from government. What I believe we can achieve, with proper directions and guidance from myself as Secretary of State, is the industry at least pointing in the right direction. All pointing in the same direction would be an achievement for the railway industry, given what has happened over the last few years. I am confident that, through the changes we have introduced, that is something we will be able to achieve.


  907. Is it not true that ultimately the government will have to underwrite the commitments of the railway industry? Now, it does it by passing the money round in a very complicated circle but ultimately the taxpayer and the passenger are the people who are coughing up at every level.
  (Mr Byers) Hatfield is probably a good example of what happens in practice. The railways are an essential public service. In the end, the judgment has to be will the government stand to one side and see them collapse. While I am Secretary of State, certainly we will not allow that to happen.

  Mr O'Brien: Long before you took over the stewardship of transport, this Committee debated and discussed the question of rail investment, renewal, maintenance and the development of the national rail network. On 29 March this year, we published a report. The consensus was unanimous. I quote: "There is much criticism of the way Railtrack has handled its relationship with its dependent customers since the railways were privatised. We recommend that measures to improve Railtrack's accountability to its customers be introduced without delay to ensure that the company performs in accordance with the contracts it has entered into." Would you say you have been following that guidance from this select committee?


  908. If not, why not?
  (Mr Byers) I read with very great interest the report of 29 March. I think I quoted from it yesterday in the debate in the House.

  909. Three of our reports. We are tremendously impressed.
  (Mr Byers) It is a sign that I do not sleep at nights.

  910. It is a sign that someone in your Department has taken to reading them, which is a very great encouragement.
  (Mr Byers) I read them myself. There were a number of recommendations contained in the report of 29 March which I think we do need to give proper and detailed consideration to. What I would like to think is that, whether it is a company limited by guarantee or whether it is another body that might be interested, they will need to look very seriously at the recommendations this select committee has made, because what we do not want, and what we must ensure we do not have, is a successor to Railtrack that makes the same mistakes. There is a very good set of recommendations in your report which highlights some of the major failings of Railtrack in very strong language for a select committee. We know the problems because Railtrack has experienced them. We have to learn the lessons from those issues and we have to make sure that any successor body does not repeat the mistakes of Railtrack.

Mr O'Brien

  911. One other issue which I think is important with regard to the work of the select committee is that we do not hop around from twig to twig when something comes up. If I can quote something else from this report: "We therefore strongly recommend that the government should consider a number of options; that it should take a majority stake in Railtrack and use that stake to exercise influence over the management and policies of the company; that it should take Railtrack, haul it back into public ownership and it should consider the role and responsibilities of the Strategic Rail Authority in relation to maintenance, renewal and development of the Railtrack network." Do you not think it strange that Members of this Committee are now arguing against the recommendations that we made on 29 March?
  (Mr Byers) I think I said that not all the recommendations were ones that the government would want to endorse. I noted that particular recommendation. I believe that having a private sector company, which the company limited by guarantee would be, but without the conflict of having to enhance shareholder value, is one way that we will be able to improve the quality of the railway service. There may be other people who disagree. I think Mr Stevenson from his questioning may not be totally happy with that particular model.

Mr Stevenson

  912. I do not know how the Secretary of State got that impression.
  (Mr Byers) It must be your body language. I read the select committee's report and we will need to see what comes out of this period of administration. To be very open with the select committee, public ownership is not one of the options that the government is pursuing.

Mr O'Brien

  913. One of the other aspects that we developed in our previous reports was that it had been revealed that Railtrack did not adequately take knowledge of the conditions of its assets. If we have a business that does not assess the benefits or the condition of the business that it runs, how can it succeed in providing the service that passengers are entitled to and expect?
  (Mr Byers) It is a fundamental weakness. Many of us have been surprised by the fact that a company like Railtrack did not have an up to date record of the conditions of its assets. I think it was one of the requirements that the regulator has laid down that still has not been achieved. Mr Marshall said that when he gave evidence a couple of weeks ago.


  914. He said it would be completed but it would not mean a great deal.
  (Mr Byers) Did he say when it would be completed?

  Andrew Bennett: Some time.


  915. I think we ought to stick to the rule that I ask you the questions.
  (Mr Byers) It is a serious point because for a company like Railtrack not to know the conditions of its assets is deeply worrying.

Mr O'Brien

  916. If I could now turn to an issue which involves my constituents and the areas I represent, we were advised by Railtrack that the east coast main line would be increased in four phases and the improvement to Leeds City Station was the first phase. Following that, Railtrack is on record as saying they cannot handle the other three phases which include the improvements to Wakefield Station which serves my constituency and about half a million customers around there. With a view to trying to encourage more passengers and freight onto the railways, how do you see those three phases being completed in view of the programme that was set originally which did give encouragement to people to use the east coast main line?
  (Mr Byers) It has given people like myself who use the east coast main line a lot of hope that there will be improvements in the future. What happened at Leeds City Station is a very good example of the problem we had. The way in which that project has been managed is a sign of not being able to control big projects. It is probably worth stressing to the Committee that my decision in relation to the franchise and not agreeing to a 20 year franchise has not affected the timetable for the upgrade of the east coast main line. Phase two is still on schedule. The franchising process is quite separate from the upgrade arrangements. In September, the Strategic Rail Authority allocated another £17 million for development work for phase two of the project to make sure it continued on time. The work is continuing on schedule. I take the point from Mr O'Brien that we should see, in line with the original proposals, the improvement works in stations like Wakefield which were originally promised as part of the upgrade on the east coast main line. There has been no delay. Money is being committed through the Strategic Rail Authority to see the project development work take place. Because it is such a major project, my recollection is that phase two is not due to be completed until 2006-07. That is one of the reasons why my decision on the franchise does not actually affect the upgrade work itself.

  917. Can I have an assurance from you that, when decisions are taken agreed between government and Railtrack or whoever the new company may be within 12 weeks they will not be changed, as we have seen and experienced from the April to July decision when assurance was given, promises were made and within 12 weeks the whole thing was turned upside down? Can we be sure that that will not happen again?
  (Mr Byers) I would hope that one of the things we will be able to see is a far greater degree of both clarity and certainty being introduced into the railway network, a far more focused approach, one in which the industry is working together, not at odds with each other, which is often the case at the present time.

Mr Stevenson

  918. Who is paying for the east coast main line in total?
  (Mr Byers) The Strategic Rail Authority is paying for the development work at the present time.

  919. That money is coming from?
  (Mr Byers) It comes from the government.

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