Examination of Witness (Questions 100-119)|
WEDNESDAY 10 APRIL 2002
100. Good afternoon to you, Secretary of State.
Could I ask you to give us your name?
(Mr Byers) I am Stephen Byers, the Secretary of State
for Transport, Local Government and the Regions.
101. Thank you for coming. Do you have something
you would like to say to the Committee before you begin?
(Mr Byers) This is a very pleasant, modern, committee
102. We commissioned it especially for you.
It is not only built with public money but it is maintained on
a long term basis.
(Mr Byers) I know the financing of this building very
well, Chairman, because when I was Chief Secretary at the Treasury
I asked a number of questions about it.
103. So you are responsible. I should have known!
(Mr Byers) No. The answer I got was I was not responsible
because it was a "House matter".
104. Let us proceed. Do you have something to
say, Secretary of State?
(Mr Byers) No, I do not.
105. Can I ask you about your response to GNER's
concern about rolling stock replacement in short term franchises?
(Mr Byers) I can understand their concerns and it
is something we have looked at. It relates to the operation of
section 54 of the Act. I think the Committee will know that GNER
tendered for the long term franchise for the East Coast Main Line;
I took the decision that, in the circumstances, it would not be
appropriate to award a long term franchise because of the difficulties
working out the details of the upgrade that was needed for the
East Coast Main Line so a two-year extension was awarded to GNER.
They have expressed concerns about procuring new rolling stock
as a result of that, and we have obviously drawn their attention
to section 54 and the way in which that process would work, particularly
in supporting the costs of refurbishment of trains to part of
the franchise extension. The Strategic Rail Authority will continue
to work with GNER on this particular aspect, but there is a difficulty
which will be there until the detailed specification for the East
Coast Main Line upgrade is agreed and is clear. This goes back
to the problem I had when it came to whether or not we could award
a long term franchise. The sooner we can get the detail of the
upgrade worked out and agreed, then we can make progress and bring
certainty and GNER can proceed accordingly.
106. So you are really saying in effect that
they were right to say that rolling stock companies would not
be too happy, even with the section 54 of the Railways Act guarantee
to allow them to go ahead?
(Mr Byers) No. What I am saying is that section 54
has operated well in all other situations. There is a particular
problem with the GNER two-year extension which has nothing to
do with the two-year extension and has everything to do with the
fact that the detail of the upgrade on the East Coast Main Line
has not yet been agreed. We know there is a legacy from Railtrack,
and what they did and did not do. One of the things they failed
to do was work up in detail the upgrade that was needed on the
East Coast Main Line. In tackling that, Railtrack in administration
with the new leadership is looking in detail at the upgrade with
the Strategic Rail Authority and, as soon as we can get the details
of the upgrade in place, then the problem that GNER has at the
present time will be overcome.
107. You did say all short term franchises would
be replaced or extended before their expiry in 2003-04. What is
the minimum franchise period you would be expecting the Strategic
Rail Authority to negotiate?
(Mr Byers) I said it should beand I think I
used the phrase"horses for courses" and I think
you have to judge the circumstances for each individual franchise,
but I have to say the proposal which has come forward from Richard
Bowker which is looking at five year periods up to a maximum of
15 years is one which I think is worthy of a very detailed consideration,
because we can offer the possibility of a lengthy franchise for
15 years but with five year breaks which does provide the opportunity
of reviewing the situation on a regular basis.
108. What would you expect to be written in
for that termination if, for any reason, the core facilities were
not being provided? What kind of sanctions would you expect in
that five year break clause?
(Mr Byers) I think we need sanctions throughout the
period of the franchise, not just at a review period.
109. But you would expect the Strategic Rail
Authority to write in sufficient sanctions so that if the company
concerned were not delivering they could use that five year break
clause to end the franchise? Is that what you are saying, so we
can get it clear?
(Mr Byers) It would be for the Strategic Rail Authority
110. I am not suggesting you would want to do
it but would you expect the Strategic Rail Authority to put down
very firm sanctions at the five year break point?
(Mr Byers) I think I have said in evidence to this
Committee before that I see, and the Government sees, the franchise
process as being one of the most significant levers in improving
the quality of the railway system. I do not believe it has been
used as effectively in the past as it could have been to drive
up benefits to passengers and improve quality of service. I do
believe that with a new franchising regime there will be that
opportunity and yes, the implication of that, or the natural consequence,
will be that robust penalties and measures will need to be introduced
so that if there is not delivery on the terms of the franchise
then the appropriate steps can be taken at whatever time is relevant.
111. When you took the decision a couple of
weeks ago about providing the grant to Networkrail's bid for Railtrack
assets, my understanding of the situation was that you had been
told by both Swiftrail and Network Rail that administration was
likely to last at least another 18 months; that European law prevented
the Government continuing to provide state aid to Railtrack beyond
the 12 month periodthere is no provision in European law
to extend that state aid; and that you were facing a difficult
legal position because the shareholders would have had a much
stronger legal case had the administration gone to the Regulator
and secured a successful interim review. That was the backdrop
against which you took that decision. Is any of that inaccurate?
(Mr Byers) Yes, it is. I was not told by Swiftrail
or Network Rail that administration could take up to 18 months.
I think there was a general concern that I know members of this
Committee had and I had as well that administration would last
longer than anybody would have wanted and I think the Select Committee
in its own report said that the sooner Railtrack could come out
of administration so much to the good, and I happen to agree with
that. You are right to say that state aid has been approved up
until September. There is nothing to stop the Government reapplying
for an extension of that, if that is necessary. The legal position
is amazingly robust as far as the Government is concerned, and
if people want to bring a legal action they will be perfectly
entitled to do so but certainly all of the legal advice I have
received is that the basis on which this legal action has been
threatened just does not stack up; it is falsely basedand
we have said that very clearlyand most of those reasons
are inaccurate. The reason why we were prepared to support a grant
of £300 million was because there are real benefits from
an early exit from administration.
112. So you are not aware that the European
Commission has said publicly that there is no provision in European
law to extend the state-owned provision beyond 12 months?
(Mr Byers) They have not said it to me.
113. They have said it publicly.
(Mr Byers) Well, they have not said it to me.
114. Did you offer the same terms to Swiftrail
as you did to Network Rail, the offer of a £300 million grant
and the offer through the Strategic Rail Authority to provide
loans of last resort to raise and finance the new business?
(Mr Byers) The situation was that we were prepared
to be even handed with any organisation that had an interest in
being a successor to Railtrack. As far as Swiftrail was concerned,
and I think it is worth me saying this very clearly to the Committee
because there was some confusion in the House when I made the
statement about the Government support for an early exit, there
seemed to be an implication that there was an alternative proposal
that had been tabledthe implication being that that was
from Swiftrail. I have to say no such proposal has been tabled
by Swiftrail. Swiftrail did have discussions with my officials:
I think they also met the administrator and they may also have
met the CLG as well at some stage, but they never got to a situation
where they had a detailed proposal which they put forward to my
officials which we could then respond to in terms of the level
of financial support that might be available.
115. Did Network Rail then specifically come
to you and ask for that support, or did you offer it to them?
(Mr Byers) We said, and I said this in the House,
that we want to treat all interested parties equally. Just to
repeat the point I made a minute ago, Swiftrail did not come to
my Department with a worked up proposal which would have allowed
us to respond about the level of support available from the Government.
Had they done so, we would have wanted to have treated them in
the same way provided they offered the same benefits as we believe
Network Rail do.
116. So did Networkrail come to you and ask
for the £300 million, or did you offer it to them?
(Mr Byers) Network Rail came to Strategic Rail Authority
with a detailed proposition: we believed it had merits, as we
have said: we do believe a company limited by guarantee under
which any operating surplus is invested back into the railway
network is a model which is attractive: we believe it is a viable
successor to Railtrack and it was on that basis that we were prepared
to support a grant of £300 million provided it achieves an
early exit from administration. If we do not achieve an early
exit from administration, then the savings we would get from that
will not be accrued and, therefore, the money will not be available.
117. Let us be clear because it is important:
Network Rail asked you for financial support for their bid. Swiftrail
did not, but you would have offered it to either?
(Mr Byers) Well, we did not get to a situation where
Swiftrail came forward with a detailed proposal that would have
allowed us to have the discussion about the level of financial
support. We are not prepared to give £300 million to anybody
who might come along with any proposal.
118. That is comforting!
(Mr Byers) I thought you would be pleased to hear
that, Chairman. What we were prepared to do with Network Rail
is to support a proposition that we feel has merit because it
does achieve an early exit from administration; Swiftrail never
got to the situation where they were tabling detailed proposals
that would have allowed the Government to respond.
119. Which budget is this £300 million
coming out from?
(Mr Byers) It will come out of the 10 Year Plan, but
we do believe that the money will be self-financing. We do not
expect this money to be taken away from my budget because it will
be financed by other savings which will accrue to my budget. I
can take the Committee through in some detail the savings that
we will expect to get