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Mr. Byers: That was an interesting intervention, although it was more of a winding-up speech. There is no chicanery here. I am sure that this was the right decision, and I am even more confident of that now than when I took it way back in October 2001. Politically, I can see the value of the private sector in some parts of public service, but I do not accept that contracting out to a private sector company that is accountable only to shareholders is the right way forward for good, high-quality public services. If we can get the private sector to work for the public service, that is acceptable. Railtrack was working in no one's interest, which is why I was not prepared to give it yet more public money when it came asking for it.
Mr. Blunt
: Does the right hon. Gentleman accept that the Government have any responsibility since 1997 for the institutional paralysis that seems to have overtaken Railtrack and its board because of their perceived and open attitude towards Railtrack?
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Mr. Byers: That certainly was not the thrust of Lord Cullen's judgment when he issued his public report on the tragic crash at Ladbroke Grove. It was Lord Cullen whom I quoted earlier, and he referred not to the actions of the Government but to the nature of Railtrack itself, which was suffering from institutional paralysis.
A lot has been made this afternoon of Railtrack's not being insolvent. My right hon. Friend the Secretary of State has gone through a number of clear statements showing that Railtrack itself told the Government that it was in great difficulties. Mr. Smith, an employee and senior member of Railtrack who was the interface between the company and the Government, wrote to the Government on 16 March 2001, when shares in Railtrack were trading on the market at £8 each. He said that in the view of Railtrack and its board, the true value of those shares was 60p each. Some Conservatives argue that we, the Government, allowed a false market to develop in Railtrack shares, but that letter shows who allowed that to happen.
Mr. Duncan: If Railtrack's insolvency was so inevitable, why did the right hon. Gentleman, as Secretary of State, threaten the regulator with a quick Bill to abolish him?
Mr. Byers: If the hon. Gentleman can rein himself in for a few minutes—I know that he finds that difficult—I will address the matter of the regulator.
Following Railtrack's letter of 16 March 2001 about its view of the value of the shares, it produced, on 31 March, its business plan for the five years to March 2006. The judge in the case called it a remarkable document. He said that it accepted that processes for maintaining and renewing the railway to an acceptable standard had clearly been broken, and that there were no robust plans in place to live within the rail regulator's targets, even before the lessons of the Hatfield derailment. There was a significant unwillingness by managers higher up to live within budgets and plans, and the business plan could not
That is Railtrack's own five-year business plan, which was produced at the end of March.
Railtrack's audited results for the year ending 31 March 2001 appeared on 24 May 2001. For the first time, the Railtrack Group had made a loss, after taxation, of £559 million—down from the previous year's profit of £295 million. That, I would have thought, would have given a stark warning to many of the private shareholders and small investors, to whom the hon. Member for Rutland and Melton and others have referred. A gap of £3.6 billion was disclosed between budgeted income and expenditure during what is called control period 2. The projected cost of the west coast main line had increased and escalated to £6.3 billion as a result of Railtrack's management. All that led Mr. Justice Lindsay in the High Court to comment:
"It would not, in my view, be unfair to comment that a company which needed, as did Railtrack, to give very careful attention to whether its accounts could properly be prepared on a going concern basis was a company which was likely to be heading towards seriously difficult times."
That was the view taken by the judge in the High Court case.
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The final piece of the jigsaw in respect of the real value of Railtrack came on 4 June 2001, when the financial brokers ABN Amro, released a circular with a selling recommendation to the market as to the value of Railtrack shares. It analysed the financial position of Railtrack in some detail and there were dire warnings. It said that investors should be in no doubt that their equity was in danger of being wiped out and that the rising levels of debt threatened to engulf the value of its regulated assets, rendering the equity worthless. The then current share price of 438p implied wildly optimistic outcomes. Based on its expectations of performance, Amro valued Railtrack's shares at 58p.
We can therefore see the financial position of Railtrack in the statements of Railtrack itself and from independent financial commentators who made it clear that the company was in great difficulties. Investors were warned to be careful in case their equity was wiped out. All the warning signs were there.
Then, of course, there is the view of the regulator. Conservative Members have made a big issue of the role played by the regulator. It was in many ways a unique privatised sector because, although regulation applied across all privatisations, Railtrack was the only privatised utility that depended on a public subsidy. Two thirds of its revenue came from taxpayers and no other regulator had the same responsibility. With the regulation of gas and electricity, for example, when the regulator makes his determinations, he is not signing a cheque on behalf of the Government. That is the difference: when the rail regulator makes a determination, it is not the shareholders or the private sector, but the taxpayer who bears the cost. We are talking about a structure that was set up under the Conservatives to make Railtrack work in the City: they introduced an independent regulator but, exceptionally, one who was using taxpayers' money to subsidise the company.
Mr. Byers: I want to deal with Mr. Winsor's view of Railtrack, but I will give way later.
Tom Winsor was the rail regulator at the relevant time and, on the evening of 12 June 2001, he made a speech to the Institute of Electrical and Electronics Engineers, which painted a bleak picture of Railtrack. He said that the west coast main line project had not been properly worked out and that things had got steadily worse, even after the Ladbroke Grove and Hatfield derailments. He said that Railtrack could not be trusted to deliver, that its share price had fallen below the 1996 offer price and that it had lost its essential skills base of engineers. The company, said Mr. Winsor, in a phrase to which my right hon. Friend the Secretary of State referred earlier,
"should put away the begging bowl and stop spending valuable management time hawking themselves unwanted round Whitehall and knuckle down to getting train services back to a sustainable level of reliability and quality of service".
That is what Tom Winsor wanted Railtrack to do.
Mr. Duncan:
The right hon. Gentleman makes a perfectly fair point when he describes the unique triangular relationship between the rail regulator, the
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Government and Railtrack. We accept that, but our case is that, because that relationship was enshrined in statute, the proper conduct of Government would have required him, as Secretary of State, and others in government to form public policy properly and to come honestly to the House and not do it on the sly, as we accuse him of doing, by applying improperly for a rail administration order and trying to ignore the statutory power of the regulator. If that is not true, why would Shriti Vadera have said:
"The rail regulator is the total wild card . . . I hope we are all aware of the risks here . . . We cannot silence him over the weekend and if he stands up and says he has a grand plan which could keep the company solvent, we're up the creek."?
Mr. Byers: I shall talk in detail about what happened but I want to address that point head on, as the politics of the decision are key.
The hon. Gentleman and the right hon. and learned Member for Rushcliffe seem to hold the view that once the Conservative Government had created this being called the rail regulator, with all his rights, responsibilities and duties, a new Government—a Labour Government in this case—could not touch him. That is the implication of what the hon. Gentleman said. The regulator was a Conservative creation, so how could the Labour Government have the audacity to unravel a Conservative privatisation?
Look at the facts that were before the court. I said clearly in court and to the rail regulator, who was acutely aware of the fact, that legislation would be needed and I would have to take it through the House and another place. Of course, that is what we would have done, had we needed to. Primary legislation would have been needed, but I have no doubt that, with my colleagues, we would have done what we needed to do if it was necessary because it was in the interests of the travelling public so to do.
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