Examination of Witness (Questions 900
WEDNESDAY 14 NOVEMBER 2001
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
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 uncertaintiesand 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
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
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
(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.
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
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.
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
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
918. Who is paying for the east coast main line
(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.