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Session 2005 - 06
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Standing Committee Debates

Draft Railway Safety Levy Regulations 2006




 
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Sixth Standing Committee
on Delegated Legislation

The Committee consisted of the following Members:

Chairman:

Mrs. Janet Dean

†Anderson, Mr. David (Blaydon) (Lab)
Bellingham, Mr. Henry (North-West Norfolk) (Con)
†Betts, Mr. Clive (Sheffield, Attercliffe) (Lab)
†Brazier, Mr. Julian (Canterbury) (Con)
†Crabb, Mr. Stephen (Preseli Pembrokeshire) (Con)
Goodwill, Mr. Robert (Scarborough and Whitby) (Con)
†Kilfoyle, Mr. Peter (Liverpool, Walton) (Lab)
MacShane, Mr. Denis (Rotherham) (Lab)
Mulholland, Greg (Leeds, North-West) (LD)
†Rowen, Paul (Rochdale) (LD)
Slaughter, Mr. Andrew (Ealing, Acton and Shepherd’s Bush) (Lab)
†Smith, Mr. Andrew (Oxford, East) (Lab)
†Stuart, Ms Gisela (Birmingham, Edgbaston) (Lab)
†Twigg, Derek (Parliamentary Under-Secretary of State for Transport)
†Ussher, Kitty (Burnley) (Lab)
†Ward, Claire (Watford) (Lab)
Wilshire, Mr. David (Spelthorne) (Con)
Mark Oxborough, Committee Clerk
† attended the Committee


 
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Tuesday 21 March 2006

[Mrs. Janet Dean in the Chair]

Draft Railway Safety Levy Regulations 2006

4.30 pm

The Parliamentary Under-Secretary of State for Transport (Derek Twigg): I beg to move,

    That the Committee has considered the draft Railway Safety Levy Regulations 2006.

It is a pleasure to serve under your chairmanship, Mrs. Dean. The Office of Rail Regulation will take over from the Health and Safety Commission and Health and Safety Executive as the health and safety regulator and enforcement body in relation to railways on 1 April. These regulations will permit the ORR to cover the costs for these activities by means of a levy on the rail industry. The ORR’s health and safety responsibility will cover all forms of rail transport, so the regulations apply to London underground, heritage railways and tramways as well as the national rail network.

The origins of the levy go back to the Railways and Transport Safety Act 2003. Section 105 of that Act amended the Health and Safety at Work, etc. Act 1974 to enable regulations to be made whereby the HSC and the HSE could raise a levy to cover all or part of their railway-related work. It included a provision that the first regulations

    “shall not be made unless a draft has been laid before and approved by resolution of each House of Parliament.”

Today’s regulations are the first to be made since the passage of the 2003 Act and, hence, both Houses will need to approve them before they can come into force.

The principle that the costs of regulation are met by the industry being regulated is well established. The mechanisms for apportioning those costs, however, present more of a challenge. The objective is to develop something that is fair and transparent and broadly reflects where costs fall. The regulations place an obligation on providers of railway services to pay a levy to the ORR for the purpose of meeting the cost of the ORR’s policy-making and enforcement activities in relation to railway health and safety.

The regulations enable the ORR to determine certain matters in relation to the levy, such as the total amount to be imposed and the criteria for assessing the proportion of the levy to be paid by a particular railway service provider. The ORR can request information on turnover from railway service providers. The ORR is allowed under the regulations to make assumptions where a railway service provider fails to supply the requested information. The regulations need to be considered together with the ORR’s policy on how it will exercise its powers to make determinations about the levy.


 
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The ORR’s policy is that the levy will be payable by each railway service provider by reference to their relevant turnover. Relevant turnover is the turnover derived from the activities of the railway service providers that are regulated by the ORR for health and safety purposes. Originally, the proposal was that providers with a relevant turnover of less than £1 million would be exempt from the levy and that all providers would be required to notify the ORR of their relevant turnover, and that these figures would have to be verified by an auditor’s certificate.

The regulations have been subject to extensive consultation. The ORR undertook its own consultation on the principles of a levy and how that might determine who pays what. The Department then consulted on the draft regulations itself. Nearly everyone in the industry was keen to see the end of the HSE’s hourly charging regime, which was widely seen as bureaucratic and time consuming for both the HSE and the industry. This was certainly the view of the larger players in the industry, although I should add that the smaller players who had fewer visits from Her Majesty’s railway inspectorate to keep track of, such as light rail and heritage, were happy with the hourly charging regime.

There was widespread support from across the industry for moving to a levy system, but consultees were concerned that the proposed scheme would place a disproportionate burden on small-scale operators, such as heritage railways. The Government have listened to these concerns. In the light of the consultation responses, the threshold mechanism was amended so that railway service providers with a relevant turnover of between £1 million and £5 million pounds would pay a flat fee of only £1,000. Those small companies with a relevant turnover of less than £1 million would continue to be exempt, and that includes the bulk of the heritage sector.

Those companies with a relevant turnover of over £5 million will pay a percentage of that turnover. The requirement in the drafts for an auditor’s certificate on turnover was also amended so that it will apply only in the case of a turnover of over £10 million. This will greatly assist smaller operators who might have had added expense in providing the auditor’s certificate.

The heritage sector argued that commitments were given in another place during the passage of the Railways and Transport Safety Act 2003 that a levy would not be applied to the heritage and tramways sector. It was the HSE’s intention at that time not to levy low-speed systems. We are now in a different situation. The Railways Act 2005 has created a new structure for the industry, with the ORR becoming a single economic and safety regulator. In practical terms, the decision to exclude from the levy those companies whose annual relevant turnover is less than £1 million has the effect of removing most heritage operators from the levy.

The objections came, understandably, from those whose payments would increase compared to the existing system and from the heritage and light rail sectors. Subsequent meetings with the heritage and light rail sectors have given them a better
 
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understanding of how the process would work and removed some of their fears. A key point is that the “relevant turnover” of a “railway service provider” relates only to the turnover of operating a railway and not, for example, to income from refreshments in the case of the heritage sector, nor to the construction of new lines in the case of the light rail sector.

During the passage of the 2003 Act, it was said that the intention was that the HSE would raise no more from the levy than it did from hourly charging, with Treasury grant making up the balance. We are now, however, in a situation of creating a single independent economic and safety regulator for the industry and it is only right that such a regulator needs its own funding source if it is to show it is not dependent on Government grant.

That position was accepted during the consultations, and the Treasury grant that was going to support the HSE will now be fed into the Department for Transport’s own budget to support the industry. Some respondents to the consultation, while not objecting to the principle of a levy, would have preferred to see a system whereby those who caused the most work for the regulator would pay the most. That is relevant to how the ORR makes its determination, rather than to the regulations themselves that merely say that the ORR should make a determination.

The argument that those who generate most of the risk should pay the most is obviously appealing, as is the converse that making operations even safer would lead to lower charges from the safety regulator. That issue was looked at during the ORR’s own consultation on the principle of a levy. A key problem is that there is no system currently in place that could be used to monitor accurately where risk is being generated and where responsibility for that risk should fall. It could also mean that companies would have no way of predicting from one year to the next the likely size of their ORR payment.

For these reasons in particular, the ORR board decided that turnover was the most accessible proxy for risk. The Government accept and agree with that position. It may not be perfect, but turnover figures are already produced by companies and represent a reasonable proxy for risk. The ORR has committed to a full review of the system in the light of the post-implementation experience and expects to begin working on this at the end of 2007. I would conclude for the moment by saying that these regulations provide a fair and effective way of funding the rail safety regulator for the coming years.

Mr. Peter Kilfoyle (Liverpool, Walton) (Lab): I am not sure whether this also refers to the leasing companies. What does the Minister think would be the position of something such as the Snowdonia scenic railway? I took on board what he said about the heritage sector, but would it have the £1 million turnover to come within the remit of this statutory instrument?


 
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Derek Twigg: I cannot give my hon. Friend the exact answer on the Snowdonia railway, but, as I made clear, heritage railways with a turnover of under £1 million would be exempt. Those with a turnover of £1 million to £5 million would pay a flat rate of £1,000. I am sure that, during the debate, I might get further information about whether that railway is caught by the £1 million threshold.

4.38 pm

Mr. Julian Brazier (Canterbury) (Con): I, too, welcome the opportunity to serve under your chairmanship, Mrs. Dean. The Opposition support the moving of Her Majesty’s railway inspectorate from the Health and Safety Executive to the ORR. We hope that the move will remove some of the resentment about the current system of charging hourly for each inspection, which the Minister referred to implicitly.

There is no doubt that the HMRI performs one of the most important roles in the railway industry. One need think only of railway disasters that have undermined faith in the security of the system: Clapham junction, Ladbroke Grove and Hatfield, for example, are names that are inscribed in the national consciousness. However, we must always remember that statistically rail travel is much safer than road travel.

Will the HSE have any continuing role at all? As the Minister is probably aware, we have had a number of meetings in the House about train horn noise, each of which the HSE has attended. Given that the ORR will become the combined safety and economic regulator for rail on 1 April, will the HSE or the ORR make major decisions? For example, which will decide how to balance the safety at level crossings—events of recent days have highlighted that issue again—with the very serious side effects of the new horns on neighbours, who in some cases are kept awake all night? I am referring to the effects on mental health such as depression and so on.

The Chairman: Order. May I draw the hon. Gentleman’s attention to the fact that this debate is about the levy? We need to keep to that.

Mr. Brazier: You are quite right, Mrs. Dean. Will the new arrangements for the levy in any way alter the relationship between the HMRI and the British Transport police? If so, how?

The quantum of the levy set out in the regulations seems, at first sight anyway, reasonable, but given that the ORR—in practice, the Secretary of State—does not, as far as I can see, have to return to Parliament to change the level, what guarantees can the Minister give that any increase will be made in consultation with the industry and will not be extortionate, such as the 19 per cent. increase imposed by the HSE in 2003-04?

One of the main objections to the initial introduction of charging was that that meant an unfair
 
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penalty for rail operators in contrast with the position of their principal competitors in the freight haulage industry. As the CBI said:

    “It is inequitable that charges, especially by Government agencies, should be made for work on one mode but not on the competing mode.”

That seems especially inequitable when one realises that rail is the safer of the two modes. The fact that a very high proportion of the wear and tear on our roads is caused by foreign lorries highlights the absence of any charge for them.

In principle, we welcome the sliding scale that the Minister mentioned and, in particular, the fact that it will exempt nearly the entire heritage sector. Did I understand correctly what he said towards the end of his speech? I understand that Network Rail will fund a substantial proportion of the levy. Will that be through the Treasury grant that he mentioned, or how will it be done? Where will Network Rail obtain its portion of the levy?

I shall end with the point on which the Minister ended. One downside of the proposal, which he implicitly acknowledged, is that there is no specific economic incentive in the charging regime for a company to improve its safety standards. He said that that had been considered, but that there was no easy way to measure safety lapses and who was responsible for them. If I understood him correctly, I find that strange. We have a highly professional inspectorate. Surely it is not beyond the wit of man to work out a method of calculating safety lapses.

Throughout the private sector and in much of the public sector, there are excellent accident data, near-miss data and so on. It must be possible to calculate who are the safest and the least safe operators and to find a way in the long run of shifting the burden towards those who, bluntly, need the most inspection. It must be possible to have the best of both worlds. Rather than returning to a straightforward hourly regime with the problems that that created, we need to move towards placing the burden on the backs that most deserve to carry it. Overall, however, as I said at the beginning, the Opposition support the regulations.

4.44 pm

Paul Rowen (Rochdale) (LD): It is a pleasure to serve under your chairmanship, Mrs. Dean. I, too, welcome the Minister’s remarks and the move that we are agreeing today to transfer responsibility for safety to the ORR. I thank the Minister for his comments on the consultation, particularly with regard to the heritage sector. Many people have concerns about the effect of the charging regime on them, and I would like just to clarify his remarks about what is included. Will he confirm that only passenger income—money through the ticket to go on the train—and not any other subsidies and so on that many of those heritage railways rely on for their existence has been excluded from the regulations?


 
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I have a second question for the Minister. Today, we are giving the power for the ORR to set the levy. Presumably, that will be reviewed periodically. It has been stated that it is a fair system that takes account of turnover. Is there an appeal mechanism? There might well be circumstances that affect the viability of a company during the year when such a levy is disproportionate. Obviously if we approve the regulations today, I assume that that will be it. Is there a method of appeal for a railway company that is not satisfied with the levy that is being charged?

The hon. Member for Canterbury (Mr. Brazier) alluded to the policy of the “polluter pays” when we talk about pollution. Many of the previous rail disasters have been the result of clear negligence by certain operators. Therefore, is there not an argument in specific cases where, for example, a public inquiry and a full-scale investigation has to be launched—that is not the normal bread-and-butter work of the ORR—for charging the costs of that to the people who are responsible for those particular incidents? There must be a base level of charges to provide the ORR with an income stream, and there is recognition across the railway industry that everyone must pay their part. However, there should be a mechanism that means that careless companies that do not look after things properly should pay. Surely the cost of the extra work that is involved for the ORR in such cases should be met by those companies. If that were to happen, it would be a powerful incentive on them to get their act together.

4.47 pm

Mr. Kilfoyle: First, am I to take it from the Minister that the leasing companies do not have any part to play in this levy? Secondly, is it the case that whatever money is raised by the Office of Rail Regulation from this levy can be spent only on health and safety related issues?

4.48 pm

Mr. David Anderson (Blaydon) (Lab): I would like some clarification. Can we be clear that the inspection regime will be needs led and not finance led, and that the inspection standards will be in line with the best in the world? Can we also be clear that the regulations will not undermine the present situation and that the job of the inspector and the ORR is to stop incidents before they happen?

Can we also be clear about the financial situation? What is to stop a company that faces problems from going bankrupt and therefore not then having financial responsibility under the regulations? How can we be sure that, in the event of a major incident, there will be enough money for the job to be carried out properly?

4.49 pm

Derek Twigg: May I say to my hon. Friend the Member for Liverpool, Walton (Mr. Kilfoyle) that the answer is no in terms of the leasing companies? The issue of the light railway in Snowdonia was mentioned. Most of the operators in the heritage sector will not
 
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pay anything because they fall under the limit. I think that about eight or nine of the around 130 heritage rail operators might be above it, so I cannot yet give him the definitive answer about whether that particular company will be affected, but I can write to let him know about the issue he raised.

The key thing to remember is that the ORR will have responsibility for safety and economic regulation. It will have lots of experienced staff who have many years experience of safety work. They will be responsible and there will be no drop in standards. They will strive to continue to improve safety standards. As the hon. Member for Canterbury said, rail has a good safety record, particularly compared with other modes of transport. That will continue.

The Health and Safety at Work, etc. Act 1974 provides that the levy can be used only to meet the organisation’s expenses and to carry out its policy and enforcement activities. The ORR is regulated by the public accounting rules, the Public Accounts Committee and the National Audit Office, and it must make reasonable decisions as the safety authority. Clearly, as it is the regulator, if there were any disagreement about something that it did, there would be the option of judicial review to deal with that. It is important to bear in mind that the ORR is an independent regulator.

I recently met the heritage sector and we had a good discussion about its position on other issues. We have consulted widely, and it is important to bear in mind that the ORR was set up as part of a new remit in terms of safety. It has to be given the scope to decide how it should take matters forward in relation to how they are set down in the Act. The ORR wants to ensure higher standards, and will carry out important work.


 
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The hon. Member for Canterbury also mentioned Network Rail’s funding. He might have misunderstood what I said—I hope that he will correct me if he did not—about the money that was given by the Treasury to the HSE to carry out its role. We want the ORR to be an independent regulator, which is why it must get all its money from the levy and not have part of it paid as the HSE was paid under the previous regime. That money will come into the Department for Transport’s budget, and will not go to the ORR. Network Rail will pay for its part of the levy out of the income that it receives annually.

Mr. Brazier: If I have understood the Minister correctly, there is, in effect, an element of a stealth tax here. What he is saying is that money that was paid from the Treasury to the HSE will have to be paid for again by the rail operators—Railtrack and the rest—so there is an extra charge that was not being made before.

Derek Twigg: The point is that we are setting up an independent regulator, which must therefore get its income from the industry and not the Government. It is therefore independent in that it does not rely on the Government for its income. The money that the hon. Gentleman is talking about went into the railways anyway for health and safety work. I am not sure whether he suggests that the Treasury should keep it—if he is, I am happy for him to say so—but it will come into the Department for Transport’s budget and can be used for other rail expenditure.

Question put and agreed to.

Resolved,

    That the Committee has considered the draft Railway Safety Levy Regulations 2006.

The Committee rose at eight minutes to Five o’clock.

                                                                                           
 
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