Clause
2
Access
contracts
Stephen
Hammond:
I beg to move amendment No. 2, in
clause 2, page 1, line 7, leave
out lines 7 to 9 and
insert—
‘Section 17 of the
1996 Act (access agreements) is
repealed’.
The
Chairman:
With this it will be convenient to discuss
amendment No. 3, in
clause 3, page 1, line 11, leave
out lines 11 to 16 and
insert—
‘Section 21 of the
1996 Act (duties of the Office of Rail Regulation as to the exercise of
regulatory functions) is
repealed’.
Stephen
Hammond:
We have already had the benefit of a number of
written submissions from the Minister and his officials, together with
public evidence today. The 1996 Act gave certain powers and priorities
to the Secretary of State and London and Continental Railways to
facilitate the construction of High Speed 1. Obviously, the
construction is finished, so some of those rights and obligations are
no longer required. Clauses 2 and 3 seek to clarify what is still
required and what should be repealed. My concern is about not what is
being repealed, but what is not being repealed.
Clause 2 relates to access
contracts. Previously, all the CTRL access contracts, with the
exception of those intersecting with other parts of the network, were
immune from the normal procedure set out in the Railways Act 1993. In
other words, they were immune from direction by and approval from the
ORR. Clause 2 removes the specific provisions relating to access
contracts in places where the new line interconnects with the national
rail network and will therefore ensure that in future no access
contract relating to High Speed 1 will be subject to direction by the
ORR. I understand that despite there being no need for ORR approval, it
is
intended that all High Speed 1 access contracts will be subject to some
form of regulation. That regulation would appear to be under the direct
oversight of the Secretary of State, who will supervise the access
negotiations. The
amendment probes why there should be different regulation for High
Speed 1 and why that needs to be different from that for other parts of
the rail network now that the construction phase is finished. I was
interested to read the written response that the Minister provided to a
question asked on Second Reading, in which he said that the key
difference is that the domestic network is subject to economic
regulation, whereas high speed rail is not. I understand that, but I
seek further
clarification.
The
role of the regulator in relation to access contracts is not merely to
set the economic regulation of the access charge—it goes well
beyond that. The ORR decides where access needs to be granted to
improve train operations and infrastructure. I believe that the access
arrangements for High Speed 1 would benefit from such independent
oversight by ORR, so amendment No. 2 would make the High Speed 1 access
arrangements consistent with those for the rest of the
network.
If,
as I propose, the whole of section 17 of the 1996 Act were repealed,
the rules governing High Speed 1 access contracts would be in line with
those for all other such contracts. I believe that that is the
Government’s stated intention—the Minister has confirmed
that in writing. It seems to me that, by switching power and scrutiny,
the amendment would achieve that ambition. If the Bill were to remain
in its current form, I am unconvinced that it would be unambiguous as
to whether two sets of approval were required. If that were the case,
far from being subject to the consistent regime to which the Minister
has referred, High Speed 1 would be subject to a different
regime.
The form of
amendment No. 3 is similar to that of amendment No. 2, in that it would
repeal a provision in existing legislation. Section 21 of the 1996 Act
deals with the overriding duties of the Office of the Rail Regulator.
This is a similar point to one that we have discussed in relation to
the Crossrail Bill, as much of what is in that existing legislation is
taken as a direct precedent for the
Bill.
11.45
am
Clause 3 would
repeal the bulk of section 21, but crucially it would leave subsection
(1), which
reads:
“The
Rail Regulator shall have an overriding duty to exercise his regulatory
functions in such a manner as not to impede the performance of any
development
agreement.”
Clause 5
redefines the development agreement to include the operation and not
just the construction of the rail rink. Taken together, it seems that
those clauses mean that in future the ORR will have to carry out its
duties in such a way as to give absolute priority to High Speed 1
services over any other services or any other part of the network. The
implication, therefore, is that a much higher test is being applied
when the ORR is combined with the term
“overriding”.
I understand why the ORR should
have that overriding duty during the construction phase, but not once
the operational phase is reached. I want to draw
the analogy and test the Minister because in our parallel discussions
about Crossrail we were talking about interim phases that would be
extended only until services are fully operational. The Bill appears,
however, to extend those powers well beyond that moment of being fully
operational. In other words, if we apply the same rationale, the
effects of clauses 3 and 5 would represent a serious
inconsistency. The
purpose of section 21 of the 1996 Act, like clause 23 of the Crossrail
Bill, was to give the ORR power to give CTRL priority treatment during
its construction phase in order to facilitate the project. Clause 3,
when taken together with clause 5, extends that obligation well beyond
the construction phase. I seek the Minister’s assurance that
that is absolutely necessary, because it seems incongruous with the
original motivation for granting such powers. The amendment would
repeal the whole of section 21 of the 1996 Act, as it contains
provisions that should apply only to the construction phase of CTRL, a
phase that we all know is complete. I am looking for the Minister to
reassure me as to why such wide-ranging powers are now needed during
the operational phase.
Mr.
Harris:
The amendments would make all HS1 access contracts
subject to prior ORR approval under the 1993 Act. Since the Secretary
of State already has oversight of such access contracts under the
development agreement, that creates potential for dual regulation,
which is what clause 2 was intended to remove. However, that is more of
a drafting complaint; there are deeper and more principled reasons for
objecting to the hon. Gentleman’s
amendment.
Amendment
No. 3 would remove the ORR’s duty from the 1996 Act not to
impede the development agreement when carrying out its functions under
the 1993 Act. That duty has been in place since 1996 and it remains as
relevant today, during the operational phase of HS1, as it did during
the construction phase. If it were removed, it could have an adverse
effect on the value to be secured for the taxpayer on a sale of HS1.
Potential investors might well be concerned that the ORR’s
regulation of the national network could have unintended consequences
for HS1’s revenues if the duty were
removed.
The
Government’s view in 1996 was that operation of the new railway
would not have to be subjected to economic regulation under the 1993
Act. That is also the view of the current Government. It is not our
policy to subject this or any other business to regulation beyond what
is necessary to protect the wider public interest. Safety, for example,
on HS1, as I said in an earlier sitting, will be regulated in a similar
way to safety on the national network. However, access charges will
not. I hope that, with the benefit of those clarifications, the hon.
Member for Wimbledon will be persuaded not to pursue the
amendments.
Susan
Kramer:
In providing his explanation, the Minister used
the phrase “public interest”. Can he explain why
oversight by the ORR would not be in the public interest in terms of
maximally benefiting the taxpayer by providing a more optimal service
regime?
Mr.
Harris:
It is surely in the taxpayer’s interest to
obtain the highest value for the sale of HS1. The
amendments proposed by the hon. Member for Wimbledon could prejudice or
undermine that case if potential investors were worried that the ORR
might give precedence to other domestic services rather than services
running on
HS1.
Susan
Kramer:
I thank the Minister for being extremely generous
about interventions, but in saying that what the taxpayer wants is the
maximum from the sale of HS1, how is he balancing that with the fact
that the original motivation of the taxpayer to invest in this huge
asset from the beginning was to improve overall transport and rail
services for people living in the UK? Those two elements can of course
come into conflict. Perhaps he can explain how he has balanced them in
deciding to give priority to a one-time cash return over, as it were,
an almost infinite maximal service
operation.
Mr.
Harris:
The hon. Lady makes my point for me. She raised
two issues. One is the interest of the taxpayer, which I have already
covered. The second is the wider interest of the taxpayer in the
viability of HS1 as a going concern. My concern is to ensure that the
ORR continues to treat HS1 as a priority when making any decisions, or
that access contracts are made on that basis—that nothing should
be done to impede the working of HS1. As a side issue, that will
generate more money for the Exchequer when it comes to selling, but the
main issue is that services on HS1, which of course we are all in
favour of seeing as a success, will be protected by the clause in its
unamended form.
Surely
the whole point of building HS1 was to provide fast and reliable
services from London to the continent. The addition of domestic
services was introduced by the present Government, but the initial
intention of HS1 was to link Britain to the continent with a high-speed
line. Surely that is in the interest of the taxpayer and of the fare
payer. I am not sure how agreeing to the amendment and making ambiguous
the role of the ORR or the effect on HS1 of decisions that the ORR
might make could benefit either taxpayer or fare payer. I hope that,
with those points in mind, the hon. Member for Wimbledon will see fit
to withdraw the
amendment.
Stephen
Hammond:
I have listened carefully to the
Minister’s explanation and his response to the interventions,
but I still fail to grasp why the ORR should not be required to look at
HS1 in the same way as it looks at the rest of the network. There seems
to be no definition regarding the length of special measures. My
understanding was that the Government wanted to put the relationships
on the same footing, but the clauses do not do that at the
moment.
Mr.
Harris:
I am attempting to be helpful to the hon.
Gentleman; it was the intention of a previous, Conservative, Secretary
of State for Transport that this clause would be maintained during the
operational phase of HS1. It was always part of the original vision for
HS1 that priority would be given to services on HS1. If the hon.
Gentleman wishes to make any criticism of that, I shall be interested
to hear it.
Stephen
Hammond:
As usual, the Minister is being helpful. With the
passing of years, we sometimes have the benefit of wisdom, which
clearly means that our original intentions are not always
correct.
None the
less, I hear what the Minister says, and I understand that High Speed 1
needs to be a success. I still remain cautious. If it will be an
operational success, why do special arrangements need to exist in
perpetuity, which is what he seems to be implying? With the permission
of the Committee, I beg to ask leave to withdraw the
amendment.
Amendment,
by leave,
withdrawn.
Clause
2 ordered to stand part of the
Bill.
Clause 3
ordered to stand part of the
Bill.
Clause
4
Power
of Office of Rail Regulation to charge
fees
Stephen
Hammond:
I beg to move amendment No. 4, in
clause 4, page 2, line 7, after
‘be’, insert
‘, consistent with the relevant
terms of any license fee payable by other operators of railway assets
under section 8 of the Railways Act 1993,
and.’.
We
obviously had some discussion about this point during the oral evidence
session. The clause gives the regulator the right to charge the
operator of High Speed 1 a fee for carrying out its functions. If we
look at the intention of the clause as set out in the explanatory
notes, we see that it is not carried through fully into the Bill. It
allows the ORR to charge those operating CTRL a fee by reference to the
cost that it reasonably
incurs.
Mr.
Knight:
Does not the clause state that it gives the ORR a
power to charge the costs that it says it reasonably incurs, not the
costs that it does reasonably incur, which is a slightly different
matter?
Stephen
Hammond:
That is the problem. We may incur a load of
costs, but what costs are reasonable to the ORR, what costs are
reasonable to the people on whom it is seeking to impose them, and what
costs are reasonable to outside observation? My amendment would go to
the heart of the matter and clear up the
problem.
We have
discussed many times the meaning of “reasonable” and
“reasonably” and “relevant” and
“relevantly”. We are now in the same territory. Under the
explanatory notes, the proposal
is
“similar to the
position on the national rail network, where the ORR’s
regulatory functions are funded by the licence fee paid by the
operator, Network
Rail.”
That is not made
clear in the Bill. The amendment would bring the CTRL arrangements in
line with those for the rest of the network. The basis used by the ORR
to set the fee for CTRL should be the same that it uses to calculate
the licence fee paid by the operator on other parts of the
network.
My amendment
would not do anything about timing, about which the Minister spoke in
our evidence session. It looks at the costs that are payable. I
accept
that the regulator’s functions for CTRL are slightly different
from other operators in respect of the access contracts that we have
discussed, but only slightly. That does not mean that the basis of
calculation that is being used for the setting of the level of the fee
should be different from that of the rest of the network. I look to the
Minister to make clear why the amendment is not
acceptable.
Mr.
Harris:
I rise with some scepticism as to whether I can
persuade the hon. Gentleman of my argument, as I do not have much to
add to what I said in our evidence session. However, I shall give it a
try. I am grateful to him for outlining the intention behind the
amendment. It is not our policy to subject this or any other business
to regulation beyond what is necessary. With that in mind, we are clear
that the regulatory costs borne by the owner of HS1 should be limited
to what is absolutely necessary. That is why subsection (2) makes it
clear that the costs should be reasonably incurred when passed on to
the owner of HS1.
I
understand the point made by the right hon. Member for East Yorkshire.
The fees that ORR charges the owners of the infrastructure of HS1 could
be challenged legally if they were seen to be unreasonable and not
according to the spirit of the Bill as it stands at the
moment.
12
noon
I said
earlier that regulation of HS1 would be lighter in some respects than
regulation of Network Rail’s network. The ORR has a different
set of duties for HS1 than it has for the rest of the network. As the
regulators’ costs will reflect a different set of activities, it
may not be possible for the fees to be calculated in the same way as
Network Rail’s licence
fee.
Stephen
Hammond:
We absolutely accept the point that the
regulatory functions of the ORR are, to some extent, different.
However, a part of those functions in regard to CTRL is similar to the
rest of the network. Costs could be apportioned between the varying
regulatory functions because if it is acceptable to use that basis for
part of the regulatory function of the network, why cannot it be
reasonable to use the same basis for
CTRL?
Mr.
Harris:
The hon. Gentleman expresses one particular point
of view. My understanding is that it would be very difficult to make
that calculation and that by inserting this amendment, it would make
the legislation unnecessarily complicated and over-regulated. I do not
accept his view that it is a straightforward, arithmetical position. I
fully respect his position, but if he does not withdraw his amendment I
will have to ask my hon. Friends to vote against
it.
Mr.
Knight:
I thank the Minister for what he has had to say.
We all expected him to agree with the main witness whom we heard from
earlier. Nevertheless, I have concerns about the drafting of this
clause, which he has not satisfied. Even at this late hour, it should
be
possible to tighten up the wording of this clause. If, as appears to be
the case, the Minister is not willing to accept my hon. Friend’s
amendment, I hope that he will reflect on the matter to see whether he
can improve the clause in the later stages of this Bill. The Minister
is right to say that the word “reasonably” is in the
clause, but it is a subjective test, as I mentioned in a question
earlier. It is not what a reasonable man would consider to be
reasonable. It is what the Office of Rail Regulation considers to be
reasonable. I can foresee circumstances in which someone who is
managing a sloppy administration and running up unnecessary expense
incurs charges which are, in their view, not unreasonable. The test
should be objective. I have real concerns about the wording of
subsection
(6).
Mr.
Harris:
May I speak now to avoid having to make a
contribution at the end of the right hon. Gentleman’s comments?
I cannot accept the amendment tabled by the hon. Member for Wimbledon
because, as the right hon. Gentleman has already said, it is not
perfect, and in that respect it would be very difficult for a
Government to accept it. However, if the right hon. Gentleman wishes to
draft a new amendment to present on Report, I shall be happy to
consider it, but I make no promises at this stage on whether it will be
acceptable to the
Government.
Mr.
Knight:
How can one argue with such generosity? I
will reflect on
that.
Stephen
Hammond:
The Minister is being characteristically
generous, but he has not overcome the problem. I am sure that my right
hon. Friend will table several amendments—as he is well known
for doing—which we will examine on Report. While the Minister
has pointed out that my amendment is unsatisfactory to him in certain
elements of its drafting, he has already pointed out that if the Bill
is left as it is at the moment, it will leave him open to
challenge.
Mr.
Harris:
That is absolutely not what I said. My point was
that if the ORR was to charge a fee that the owners of HS1 considered
to be unreasonable, it would be open to challenge. That challenge would
be not on the basis of the Bill but on the basis of an unreasonable fee
charged by the ORR.
Stephen
Hammond:
I thank the Minister for that clarification, but
it proves my point. My amendment would do away with the possibility of
that challenge. I am not persuaded by the Minister’s
reassurances and notwithstanding his, and my, ability to count, I would
like to press this to a Division.
Question put, That the
amendment be
made:—
The
Committee divided: Ayes 5, Noes
10.
Division
No.
1
]
Question
accordingly negatived.
Clause 4 ordered to stand
part of the
Bill.
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