Channel Tunnel Rail Link (Supplementary Provisions) Bill

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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‘Section 17 of the 1996 Act (access agreements) is repealed’.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‘Section 21 of the 1996 Act (duties of the Office of Rail Regulation as to the exercise of regulatory functions) is repealed’.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 Clauses 2 and 3 seek to clarify what is still required and what should be repealed. My concern is about not what is being repealed, but what is not being repealed.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.
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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”.
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?
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.
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.
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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. 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 ]
Hammond, Stephen
Holloway, Mr. Adam
Horam, Mr. John
Knight, rh Mr. Greg
Wright, Jeremy
Gardiner, Barry
Gwynne, Andrew
Harris, Mr. Tom
Kramer, Susan
Lucas, Ian
Mole, Chris
Ruane, Chris
Snelgrove, Anne
Soulsby, Sir Peter
Tami, Mark
Question accordingly negatived.
Clause 4 ordered to stand part of the Bill.
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