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Jim Sheridan (Paisley and Renfrewshire, North) (Lab) rose—
Mr. Duncan: I wonder how many Railtrack shareholders there were in the hon. Gentleman's constituency.
Jim Sheridan: I do not have a clue, but may I ask the hon. Gentleman a question? I have listened long and hard to his speech, and he has mentioned the shareholders on numerous occasions. Is he going to express any interest whatever in the role of the taxpayer?
Mr. Duncan: The hon. Gentleman does not quite seem to be the brightest. I have mentioned this three times already, but I shall explain one more time so that he understands. The amount of money that has gone into the equivalent of Railtrack since its artificial insolvency, created by the Government, is far more than was ever predicted in the worst possible scenarios offered by consultants to the Secretary of State.
Let me say more about our case against the Government. There was one more obstacle—a formidable obstacle—to the Government's secret plan: the independent rail regulator. I emphasise the word "independent", as the holder of that office, established in 1993, oversees the economic regulation of the railways. Independence from the Government has always been critical, but the Government were very worried. Ministers and special advisers were quaking in their boots. Why? Because in situations that were difficult for Railtrack, the independent rail regulator had power to throw the company a financial lifeline. During the summer of 2001, the office of the rail regulator therefore posed a significant threat to the Government's secret plans. Perhaps that is why Brian Hackland, head of the Prime Minister's policy unit at No. 10, e-mailed colleagues in September 2001 to ask:
"Thwart" is a telling word. The regulator was a potential threat to the covert plan. Even the Chancellor's representative on Earth was panicking.
On 7 October 2001, the Secretary of State's officials called the High Court to secure the availability of the duty judge, Mr. Justice Lightman, to hear an urgent matter. It was a Sunday. Mr. Justice Lightman received a stack of papers from the Secretary of State's solicitors in the early afternoon, and a hearing was convened at the offices of the Government's solicitors at 5.45 pm.
As the House knows, it is the Government's duty, when engaged in any kind of litigation, to tell the whole story to the Court. They are not entitled to assume that the judge already knows the facts, and of course in this case the judge could not have known all the facts—until then, the Government had done an excellent job of keeping everything secret. It was crucial for the Secretary of State to convince the judge that the company was insolvent. If he could not do that, there could be no railway administration order—[Interruption.]
The hon. Member for Stockport (Ann Coffey), muttering from a sedentary position behind the Secretary of State, says that it was the Court case. It was not.
I remind the House that the legal advice that the Government had received from their own counsel was that a contested petition for administration was seriously risky and must be avoided. The advice from counsel that morning was carefully hedged. It was, I remind the House, that
But what was the evidence before him and, more important, before the Court? And was it complete?
On 23 October 2001, the Government helpfully placed in the House of Commons Library the papers that the judge saw on 7 October 2001. The papers were also produced in the Railtrack shareholders' case. A careful examination of them reveals not only what the judge was told but, more important, what he was not told.
It appears that many extraordinary assumptions were made about the judge's knowledge of the details of the rail regulator's powers, and about the fact that earlier in 2001, he had announced that he would carry out two interim reviews of Railtrack's financial requirements in the light of the Hatfield crash. The papers given to the judge do not adequately explain the nature of the rail regulator's powers—powers to advance potentially billions of pounds more in financial support to Railtrack—or the fact that he had twice announced, in January and May 2001, his intention to carry out such a review. The judge was told nothing of that. [Interruption.] The Secretary of State nods his head, but he will have to make a powerful case to deny this if he himself is not to be in the dock.
The railways' economic regulatory regime is extremely complex. No judge could be taken to know about it in the detail necessary to obviate the need to inform him of the rail regulator's powers and public statements in 2001.
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Mrs. Gwyneth Dunwoody (Crewe and Nantwich) (Lab): I am sure that the hon. Gentleman has studied the rail regulator's evidence. He will know that the regulator made a great point of coming before us and saying that although he had those powers, Railtrack had not asked him to use them. Indeed, the first contact was made only when he was asked for a £4 million cheque, on the weekend before Railtrack believed that it was going to become bankrupt. He was then asked if he could find the money in cash—I paraphrase his evidence, which the hon. Gentleman will have read—and he explained that that was not possible. Since then, he has slightly rewritten the way in which he gave that evidence, but the reality is surely that he made it clear that he was not asked to use those powers.
Mr. Duncan: I ask the hon. Lady to consider this issue seriously and even to contemplate revisiting it in her Committee. I believe that the rail regulator would tell the Committee that he did not protest about the insolvency because he did not believe that a case for insolvency existed, and certainly not to the point where what he would consider a dishonest case was put to the judge. That is crucial to the judgment of the propriety of what we are debating today.
As I said, the railways' economic regulatory regime is extremely complex and no judge could be taken to know about it in detail. Indeed, if he could be taken to have such detailed knowledge, why was it necessary to explain to him—in the papers given to him and in the oral hearing—much simpler and more easily accessible features of that regime: the railway administration provisions of the railways legislation?
The evidence of insolvency put before the judge was extremely thin.
Mr. Darling: Railtrack was represented at that hearing. Why did it not object to the order, and why did it not point out that there could have been a further regulatory review?
Mr. Duncan: In my view, Railtrack should have done so and is culpable for not having done so. The principal basis of the Government's case that Railtrack was insolvent was a report from Arthur Andersen, which stated:
"We have no information regarding Ariel's ability to raise additional funding via alternative sources."
The report was heavily relied upon as evidence of Railtrack's insolvency. The evidence of the then rail regulator to the High Court in the shareholders' case says that if Arthur Andersen did not know about the rail regulator's power to award additional money to Railtrack in higher access charges, someone should have told it, and in any case, someone should have told the Court.
Will the Secretary of State tell the House why the Court was not told about the availability of an alternative source of finance via the rail regulator, and whether it was assumed that a bald statement that the Government had decided to introduce a Bill to enable the Secretary of State to give directions to the rail regulator was enough to excuse the need to provide such an explanation.
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Mr. Bernard Jenkin (North Essex) (Con): May I point out that the rail regulator was appointed by the Deputy Prime Minister, who was then Secretary of State for the Environment, Transport and the Regions, and that it was widely regarded as a controversial appointment? It is not surprising that Railtrack did not apply to the regulator, who was throughout the period—how shall I put it?—perhaps struggling to establish his political independence.
Mr. Duncan: My hon. Friend, having held the post of shadow Secretary of State in the past, has considerable expertise in this matter, and I hear what he says.
Why, too, one might ask, was there no mention by the rail regulator of the Hatfield statement on 15 January 2001 or again on 24 May? That provided undeniably crucial information about the willingness of the rail regulator to conduct an interim review, but it was not disclosed to the judge. The Secretary of State may say that the judge was told that the independence of the rail regulator would soon be blown away, so there was no need to tell the judge about his powers. However, the right hon. Member for North Tyneside told the House on 13 November 2001 that if the judge had known that the rail regulator had the power to do an interim review and had started the process, he would probably not have made the administration order. That is a stark admission, as it could only be because, until the rail regulator's independence had been removed and he had been stopped from doing an interim review, the company was not insolvent.
The independence had not been removed and the rail regulator showed, by his offer to Railtrack on 6 October, when senior management called the regulator to ask for a review—to be told that he was willing to start the process and make an announcement to that effect—that he had not been stopped from carrying out that review. The Government had tried to intimidate him with the threat of legislation, but the rail regulator was not intimidated. It was Railtrack that had been scared witless by the threat, which is why it foolishly turned down the rail regulator's offer to start the interim review process. It could not be assumed that a short Bill to enable the Secretary of State to give directions to the rail regulator would pass in time to stop the regulator's interim review proceeding. The right hon. Member for North Tyneside admitted in court in 2005 that it could not have been passed in time.
Given that when the rail regulator did carry out the interim financial review, which the Government had been prepared to legislate to stop—this was after Network Rail took over—he awarded the company an extra £7.4 billion over and above his October 2000 settlement to the company, how could it possibly have been assumed that Railtrack was insolvent when that jurisdiction was still in place in October 2001? Members have been quizzing me on that matter again today, and those are the facts.
Until the legislation could be passed and brought into effect—if, indeed, it could be passed at all—the jurisdiction of the rail regulator and his announced intention to use it meant that Railtrack was not insolvent. That much is apparent from the internal communications from and between the Treasury and the Department for Transport, Local Government and the Regions. For example, why else would
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Ms Vadera say in her e-mail of 2 October 2001 that the rail regulator was the "total wild card" and that everyone should be aware of the risks, including the possibility that
"if he stands up and says he has a grand plan which could keep the company solvent we're up the creek"?
In particular, I say again, the use of the word "keep" clearly indicates that the company was not insolvent and that the Government knew it.
Secondly, why would Mr. Linnard be recorded as saying that emergency legislation would be needed
Why would numerous meeting notes and e-mails speak of the need for legislation to close off Railtrack's escape route via the rail regulator? Why would Mr. Rowlands, in his minute to the Secretary of State of 31 August, have said:
the rail regulator, given that
He explained that emergency legislation would "remove" the regulator's
Why, at the transport stocktaking on 18 September, did Mr. Rowlands say that Railtrack could fight the petition for railway administration in court and might win, and that the regulator had to be "closed off"? Why would the Government's counsel advise that a contested petition for administration was
if the company was genuinely insolvent?
There are many other such examples, but they all point to one thing: the company was not insolvent and the jurisdiction of the rail regulator was the one thing that would keep it solvent.
If, as might be asserted, the company was insolvent despite the powers and declared intention of the rail regulator to carry out an interim review, it would not have been necessary for the Government to go to such extraordinary lengths to neutralise it with their disgraceful emergency legislation, and to keep secret the fact that they planned to do just that. That was why the legislation was needed.Nothing of all that was put to the judge on 7 October 2001.
Recent statements on behalf of the Secretary of State have said that it was the High Court, not the Government, that put Railtrack into administration. The House knows that. What needs to be disclosed and explained concerns the facts that the High Court was and was not given to enable it to make that decision.
The Secretary of State has said, and will no doubt say again, that Railtrack did not oppose the application for the administration order. We know that too, but it is completely irrelevant. It was the Government's obligation to tell the whole story to the judge, whatever was or was not said by Railtrack.
By the time of the Court hearing, Railtrack's senior management had made many mistakes. Perhaps the greatest was not to realise how the powers of the rail regulator insulated and protected the company against a political assault of that kind. By then, they were like
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rabbits frozen in the headlights of the Government juggernaut bearing down on them. The Secretary of State must now explain the actions of his predecessor and his officials and advisers in this sorry affair.
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