Previous SectionIndexHome Page

Adam Afriyie (Windsor) (Con): My concern, like that of many others throughout the country, is for the smaller shareholders, especially the elderly and those with pension funds. It seems to me that questions in the House are not often directly answered. Will the Secretary of State answer this: does he accept, on behalf of his Government, any responsibility at all for the plight of the shareholders who have been harmed?

Mr. Darling: The responsibility for the shareholders lay with the directors of Railtrack. Railtrack had allowed itself—[Interruption.] Let me just demonstrate, to answer the hon. Gentleman's question. This is what the directors of Railtrack told the Department when assessing the situation that they faced on 27 July 2001. They said that they had

that committed facilities

that they had "major drawdown" expected on bank lines; and thought it would be "problematic around October".

Their access to the bond market was "doubtful", as was the ability of the board to sign off on the bond prospectus.

The point is that the directors of the company had a clear responsibility to the shareholders. It appears that they thought that the only way around that was to come back to the taxpayer and say, "Please bail us out."

Mr. Crispin Blunt (Reigate) (Con) rose—

Mr. Bellingham rose—

Mr. Darling: I will give way in a minute.
24 Oct 2005 : Column 46

It is worth reminding the House that on 20 August the directors of Railtrack were proposing to set aside the regulatory regime for four years—so much for the much vaunted independent economic regulation. They wanted unconditional funding from the taxpayer. They wanted to emerge after the four-year period with their shares worth between £3.50 and £5—and of course the Government would have to underwrite that value. In the meantime, they were going to carry on with a dividend of 20p per share. In other words: everything courtesy of the taxpayer.

Mr. Blunt rose—

Mr. Bellingham rose—

Mr. Darling: Let me put this to the hon. Gentlemen—if they accept that this was a company with deep-seated financial and management problems: how on earth could the Government be justified in simply saying, "Have some more money"?

Mr. Blunt: The fact is that the company was operating in an environment in which very shortly after it was taken into administration it required another £7 billion to underwrite it or to keep it in operation. When the Secretary of State describes the circumstances known to the directors, that was the environment in which the company was operating prior to October 2001. Subsequently, is it not true that the Government had to give the company, as Network Rail, £14 billion to achieve solvency?

Mr. Darling: The hon. Gentleman ignores the fact that the company did not have only financial problems. Everybody accepts that in the late 1990s and the first part of 2000, and after Hatfield, it became apparent that the deep-seated problem of successive years of lack of maintenance meant that costs were rising. However, it was to do with the management as well.

It is worth repeating Railtrack's comments about the genesis of its problems because they show that the problems were due to management as much as finance. Railtrack defined the problems as lack of any recent major projects experience inherited from British Rail. It did not have the expertise in-house to deal with such matters. The company defined another problem as

years in advance of its ability sensibly to price the risks or lay them off on contractors. It also stated that that was compounded by guaranteeing outputs without adequate timetabling work and without scoping infrastructure works. That, in turn, was compounded by more traffic and a declining infrastructure.

In other words, the company's problems were not only financial but due to management. In the days following the judgment, the hon. Member for Rutland and Melton appeared reluctant to admit that the Tory position was to give that poorly managed company, which had financial problems, more money.

Mr. Bellingham: Let me revert to the point that my hon. Friend the Member for Reigate (Mr. Blunt) made. If the company had not been forced into insolvency, it
24 Oct 2005 : Column 47
would have remained a FTSE company and retained access to global capital markets, which Network Rail does not possess because its only source of finance is the Government. Will the Secretary of State confirm the figure of £14 billion? How much extra has the process cost the taxpayer?

Mr. Darling: The point is that the company was insolvent. It approached the Government to say that it could not make ends meet. Paragraph 105 of the judgment refers to a representative of Railtrack's advisers, Credit Suisse: First Boston, and states:

Yet Conservative Members' central argument is that the Government should have given Railtrack more money through a regulatory review. That is nonsense.

What were the Government supposed to do with a company that was painting a picture throughout 2001 of financial difficulties and self-confessed management failings? The Tory answer is, "Give them more money." I do not believe that the majority of people would agree with such a proposition.

John Bercow (Buckingham) (Con): I appreciate that the Secretary of State is in a difficult position and that he is probably trying to tough it out. However, will he tell us whether, in reflecting on the behaviour and language of the Chancellor of the Exchequer's special adviser, he believes that it was seemly, measured, transparent and reasonable? If so, he has lost his moral compass.

Mr. Darling: The hon. Gentleman has said some silly things in his time and his comment is up there among them. The central charge against the Government in the Opposition motion is that Ministers acted inappropriately. The Opposition used more florid language, but that is the charge. The Secretary of State and Ministers—they make the decisions—acted correctly when faced with a company that had deep financial problems and deep-seated management difficulties. It is becoming increasingly apparent that the Opposition would have asked the regulator to undertake a further review and would have given the company more money. [Interruption.]

Mr. Deputy Speaker (Sir Alan Haselhurst): Order. We cannot have a chorus of sedentary comments. The subject of the debate is heady stuff, but it must be conducted in an orderly manner.

Mr. Darling: The Opposition view is, to some extent, that of Mr. Robinson, chairman of Railtrack. The judge said:

24 Oct 2005 : Column 48

Railtrack's own evidence was that it was unable to pay its debts—

which the judge described as "a hopeless proposition." That gets to the nub of the Opposition's case. They appear to say that the Government should have funded Railtrack without limit and without condition, which, as the judge says, is "a hopeless proposition." That is why, as I say, the Government were entirely right to take the necessary steps to develop plans in the event that it should prove necessary to put in place a body to take over running the railways if the company failed. It was almost inevitable that it would fail.

Next Section IndexHome Page