APPENDIX 6: MEMORANDUM FROM TOM WINSOR
[BYERS.23]
Meeting—19 June 2001
1. Thank you for your e-mail of 24 November 2005
containing the formal request of the Committee that I submit written
evidence about my recollection of the meeting which I had
on 19 June 2001 with Mr Byers and his officials, insofar as it
may be relevant to the Committee's inquiry.
Minutes of the meeting
2. I have seen a copy of the official note of the
meeting which is in the form of a minute dated 3 July 2001
from David Hill, Mr Byers' private secretary, to David Rowlands.[132]
I have also seen a copy of David Hill's manuscript notes
taken at the meeting on 19 June 2001.[133]
3. Apart from Mr Byers and me, those present at the
meeting were Nicola Shaw, one of my deputy directors, Sir Richard
Mottram (Permanent Secretary at DTLR), David Rowlands (Grade 2),
Bob Linnard (Grade 3), Dan Corry (special adviser) and Mr Byers'
private secretary. I was not introduced to Mr Evans and do not
know who he is.
4. Although in office it was my practice to make
my own detailed notes of important meetings, I do not believe
I did so on this occasion.
DTLR relations
5. When I went into Mr Byers' room for the meeting
on 19 June 2001, I was surprised to see so many DTLR officials
at the meeting, but of course I had no objection. It was a businesslike
meeting, but there was certainly no warmth or affinity between
the two organisations, even though we were both parts of government
and should have regarded ourselves as being on the same side.
The atmosphere was cold and a little hostile.
6. At the time I put this down to the fact that the
senior DTLR officials present had never been much in sympathy
with my policy or approach—Sir Richard Mottram was a particular
sceptic—and some of them might perhaps still have felt aggrieved
in relation to my having increased Railtrack's revenues by 50%
in October 2000, a decision which had to some extent caught them
out and caused considerable budgetary difficulties in the DTLR.
7. Although I could not of course have been aware
of it at the time, there may have been a second reason, one
that can be inferred only now the papers in the recent Railtrack
shareholders case have been produced. Contrary to what Mr Byers
is recorded as having said to me in the meeting—about not
going in for huge restructuring—DTLR and Treasury officials
had been working on options for changing Railtrack's status or
making other radical changes to the industry—which would
undoubtedly have affected Railtrack—since at least 5 February
2001.[134] The briefing
provided to Mr Byers on 12 June 2001 by Mr Coulshed,
the Head of DTLR's Railways Sponsorship Division, contained a
fairly detailed survey of options for changing Railtrack's status
which, it says, had been discussed with DTLR's legal directorate.[135]
Those papers explain, in what appear to be approving terms, that
certain options—renationalisation of Railtrack or converting
the company into a not-for-profit trust—would open up the
chance of curtailing the powers of the Rail Regulator or even
abolishing the office altogether. So Mr Byers and the DTLR
people in the meeting knew that these things were under active
consideration, but of course they did not tell me.
Factual context
8. My recollection of the meeting is reasonably good—although
at this distance in time, of course not perfect—for two
reasons. The first is that I had not met Mr Byers before, and
I was interested to gauge his interest in his brief and what his
approach was likely to be. The second is that The Financial
Times was briefed about the meeting afterwards.
9. The post-Hatfield condition of the network and
of Railtrack itself was a major issue. Railtrack was haemorrhaging
money and, despite two enforcement orders from me, the operational
integrity of the network was still very fragile. On 15 January
2001, and again on 24 May 2001, I had announced via
the Stock Exchange my willingness to consider carrying out an
interim access charges review to assess Railtrack's additional
financial needs in the light of Hatfield and possibly to raise
Railtrack's income to finance more work on the network. Despite
those public statements, we at ORR had received at least one report
that Railtrack had been going around Whitehall pleading poverty
and suggesting some form of financial bail-out from the Government.
This would have improperly circumvented the regulatory regime
and it was important that the new (i.e. post-election)
Ministers gave it short shrift. Railtrack's drastically reduced
share price had just caused the company to fall out of the FTSE
100, and there had been a very pessimistic report from ABN Amro
about the company's financial position and the value of its equity.
10. The predicament of Railtrack and the network
had led to a great deal of speculation about the future of the
company and the possible restructuring of the industry. We were
fairly used to some commentators and the chairman of the Strategic
Rail Authority advocating these changes, but I detected that the
mood had changed. On 19 February 2001 BBC2 Newsnight broadcast
a piece which appeared to me to have been briefed by the Government
(although of course I do not know if it was). It was in fairly
dramatic language, as these things often are, but I thought it
had an official feel. The programme spoke of "the officials
who control the railways plotting to carve up the industry"
and of "a covert operation under way to prepare for a new
structure after the election, a structure where Railtrack …
is killed off or severely curtailed". It said that "the
[Rail Regulator] has most to lose if Railtrack's role is downgraded"
and that the Strategic Rail Authority "has most to gain from
Railtrack's demise". It said that a "source close to
Government [had] told Newsnight that … the Government is
trying to keep a lid on all this until after the election."
A transcript of the piece is enclosed.[136]
11. On 12 June 2001—a week before my meeting
with Mr Byers—I made a speech at the Institution
of Electrical Engineers in which I referred to the serious condition
of Railtrack and the fact that some people were advocating Railtrack's
conversion into a not-for-profit trust, undergoing a collective
buyout by the train operators, becoming vertically integrated,
being taken over or even going into insolvent liquidation. I enclose
a copy of my speech.[137]
12. Because there was so much misinformation and
negative briefing about how Railtrack could and should be held
to account, I had written and—on 12 June 2001—published
a major document entitled The Accountability of Railtrack.
It was produced to counter the arguments that Railtrack was a
law unto itself and could flout the public interest as it liked.
It explained that we at ORR had been carrying out a major programme
of the reform of the company's accountability to its customers
and the public interest through major changes to its financial,
regulatory and contractual environment.
13. I was very critical of Railtrack's senior management's
apparent pleas to Government for more money when I had already
virtually promised them an interim access charges review to reconsider
the company's post-Hatfield financial position once network performance
had been restored. On 30 April 2001, my chief economist had been
reported in The Financial Times dealing with the impression—we
thought fuelled by Railtrack—that it would always be bailed
out with public funds. I enclose a copy of the FT article.[138]
14. I went into the meeting on 19 June 2001 also
knowing that, despite having given Railtrack an extra two months
to produce its annual network management statement (an extension
of the normal 31 March deadline to 31 May 2001), the document
which the company had produced was the worst to date, the train
operators had severely criticised it and I intended to reject
it (which I did publicly on 26 June 2001, a week after my
meeting with Mr Byers).
15. The railway had been going through the deepest
crisis it had faced in peacetime, and on 19 June 2001 it
was far from out of it. There was now a new Secretary of State
and his approach was going to be very important. In the light
of all this, I wanted to talk to Mr Byers about Railtrack's
financial position and the industry position generally. And I wanted
to see if I could determine whether he was sympathetic to the
talk about restructuring, conversion, regulatory reform and the
rest.
16. The second reason why I remember the meeting
as I do is that a number of the most important points which were
discussed were leaked to Juliette Jowit, transport correspondent
of The Financial Times. She rang me shortly after the meeting
and asked me what I had discussed with Mr Byers. I was surprised
she even knew there had been a meeting, and I refused to tell
her what had been said. She then asked me to confirm a number
of things which had been discussed, and her information was very
good indeed. Nothing was exaggerated. I still refused to discuss
it, but her briefing was obviously good enough to allow her to
write the piece anyway. Her article appeared on page 1 of the
FT on 25 June 2001. I enclose a copy.[139]
17. I was very disappointed that it had been considered
by someone on the DTLR side of the meeting to be appropriate to
brief that meeting to the press without my knowledge. I was also
very struck when, a week later, Mr Linnard told me that DTLR believed
that I had been the one who had briefed the meeting to Ms Jowit,
which of course I emphatically denied. I told him that if
it had not been DTLR officials, the leak must have been made on
a political level. After that, I decided to take a much more
cautious approach in my communications with the Secretary of State.
The meeting
18. For the reasons I have given above, for me the
meeting was a significant and memorable one.
19. As to the issues discussed, I believe the manuscript
note which I have seen contains a good record of the issues which
we covered. I do not recall raising any other significant matter.
But the note is necessarily an abbreviated account of what was
quite a long discussion, taken as it was in longhand.
20. I notice that, when compared with the manuscript
note, the official note is a very much more compressed account
of the meeting and omits a number of the issues discussed at the
meeting, including the most important—Railtrack's possible
takeover or insolvency, and the need for Ministers not to allow
the company to think that it would always be bailed out. Given
the significance of that point, I find the difference between
the two notes quite striking.
21. As I have explained, the main issue which I was
anxious to get across to Mr Byers and his officials and on
which I wished to gauge Mr Byers' stance was the future of
Railtrack and, connected to that, the speculation about major
restructuring in the industry. And so I explained to Mr Byers
in some detail what my accountability reform programme entailed—how
it would empower Railtrack's customers and create effective incentives
to get the company to deliver on its commercial and public interest
obligations—and I gave him a copy of The Accountability
of Railtrack publication. I told him that the beneficial
effects of these reforms would come in earlier than any major
structural changes to the industry which the Government might
have in mind.
22. I was probing to see what Mr Byers
would say about this issue of restructuring, and his line was
one of making the existing system work better, not seismic changes.
He appeared to me to be focussed on short-term improvements in
service delivery—both from Railtrack and the train operators—although
it is now apparent from the papers in the shareholders case that
in fact he and his officials were thinking in far more radical
terms. Naturally, he did not tell me that.
23. I told Mr Byers that Railtrack's problems were
managerial, cultural and chronic. I said I hoped the new
chairman of the company would make a positive difference and I was
keen to get off on the right foot with him. But the company faced
immense difficulties and, as my chief economist had told the FT
on 30 April 2001, I stressed to the meeting that under the Railways
Act 1993 I had no obligation to stop the company going bust if
its inefficiency and incompetence drove it down. The seriousness
of its plight might cause the company to fail, or the weakness
of its share price might lead to its being taken over. If Railtrack
did fail, I explained that the Railways Act 1993 contains a special
insolvency regime—railway administration—which is
designed to ensure continuity of operation of the essential service,
so the trains would keep running. So whilst financial failure
would of course be disastrous for the shareholders, it would not
have a direct material adverse effect on the travelling public
or rail freight customers.
24. Having heard what Railtrack had been reported
as doing in relation to a financial bail-out by the Government,
I emphasised to Mr Byers and his officials that it was very important
that the company did not get the message from Ministers or officials
that it would always be rescued; it could go bust. The public
interest would be secured through the railway administration regime
if that happened and Railtrack's management should not be allowed
to think that they had some sort of armlock over either the Rail
Regulator or the Government in this respect. In response to this,
Mr Byers said that he would soon be seeing the new chairman
of Railtrack and would ensure he got that message.
25. Throughout the discussion, Mr Byers and his officials
were attentive and engaged, though hardly forthcoming. The possible
collapse of the national railway infrastructure provider was a weighty
matter. Using my powers as Rail Regulator and his powers as Secretary
of State (including his powers over the SRA) to try to create
and intensify the conditions in which the company could turn away
from its past failures, avoid bankruptcy and become competent
and successful was the central issue of the meeting; I had understood
it is what Mr Byers had asked me in to discuss.
5 December 2005
132 Not printed (see list of unpublished memoranda). Back
133
Not printed (see list of unpublished memoranda). Back
134
See for example Mr Kohli's e-mail of that date, referring to a meeting
on such options that morning. The matter had been under consideration
within Treasury since 11 January 2001 (see Mr Kemsley's minute
to Mr Wheatley of that date). Mr Kemsley's minute of 14
March 2001 to the Chancellor refers to the Treasury's project
to review the structure of the industry, including the role of
Railtrack. In relation to DETR, see Mr Carey's e-mail to Mr Evans
(both DETR) on 22 February 2001 on the possible renationalisation
or restructuring of Railtrack. Back
135
Not printed (see list of unpublished memoranda). Back
136
Not printed (see list of unpublished memoranda). Back
137
Not printed (see list of unpublished memoranda). Back
138
Not printed (see list of unpublished memoranda). Back
139
See p. 42-3. Back
| 
