Select Committee on European Communities Twelfth Report


Letter from Lord Tordoff, Chairman of the Committee, to John Watts, MP, Minister for Railways, Roads and Local Transport, Department of Transport

  Sub-Committee B, which has kept the above proposal under scrutiny during the course of its present enquiry on the Commission's White Paper on railways (9654/96), considered it again at its meeting on Thursday.

  The Sub-Committee was surprised by the distinct lack of enthusiasm for the PACT scheme expressed in your Explanatory Memorandum of 7 November. The Sub-Committee believes that there are compelling social and environmental reasons for encouraging the transfer of freight from the congested road network onto rail, and that measures to promote combined transport can play an important part in this process. Given the very modest budget proposed, and given that PACT is intended to fund research and development on the practical obstacles faced by combined transport operations rather than subsidising those operations directly, the Sub-Committee is not convinced that PACT poses any substantial threat to the principles of sound railway finances advocated in the White Paper.

  You question the proposal on grounds of subsidiarity, saying that "it should be for Member States to fund and administer schemes of this sort", but the Sub-Committee is unaware of any domestic equivalent to the PACT scheme. In any case, since combined transport is most economic over longer distances which will usually involve transit through more than one Member State, the Sub-Committee believes that there is a strong case for action at Community as well as at national level.

  The Sub-Committee would therefore urge you to support the proposal and to address your concerns about effectiveness and transparency by means of appropriate amendments to the text, rather than by opposition to the programme as a whole.

  A scrutiny reserve will be maintained pending your reply.

10 February 1997

Letter from John Watts, MP, Minister for Railways Roads and Local Transport, Department of Transport to Lord Tordoff, Chairman of the Committee

  Thank you for your letter of 10 February about the Commission's proposal for Community grant-aid towards combined transport projects (10600/96). You queried the Government's line.

  We share your Sub-Committee's views about the environmental and wider social benefits of attracting freight from road to rail. In recognition of that, there are two types of grant available in Great Britain to assist rail freight. One is a capital grant scheme for rail freight facilities (this scheme also applies to inland waterway transport) and the other is a subsidy to help defray the costs imposed by Railtrack for access to the rail network. Neither grant is limited to combined transport, however, conventional freight operations also qualify, as they can deliver equal, or greater, benefits. Nevertheless Freightliner, BR's former domestic and deepsea intermodal business, which was sold to a management buy-out team last May, is a notable example of a grant-aided combined transport operation, as it is receiving a track access grant of up to £75 million over five years. I think that amply demonstrates the Government's commitment to shifting freight from road to rail.

  While PACT funding has hitherto been devoted in part to assist in meeting R&D costs, the Commission envisage that Community grant-aid will progressively shift in favour of subsidising start-up costs for pilot projects. This is at variance with Community rules on state aids for combined transport which debar aid for such purposes.

  We are not alone in expressing concerns about the proposal. Germany, like us, has budgetary concerns. Other Member States have worries about the scope and intended purpose of the new scheme, too. In that context, there seems to me to be a fundamental mismatch between the White Paper and PACT. In particular, it makes no sense to argue for a more commercial approach to the provision of rail freight services and greater transparency of state aids and at the same time bring forward an expanded Community scheme whose effect would merely be to pour (EC) subsidy on top of (national) subsidy, whether directly or indirectly. I regard it as unfair that those countries which have taken action to get their rail freight operations onto a proper commercial footing and have thereby generated public expenditure savings should be required as a consequence of the PACT proposal to give up some of those savings to subsidise operations in Member States that haven't.

  That is why the Government is reluctant to support the PACT proposal.

27 February 1997

Letter from Lord Geddes, Chairman of Sub-Committee B, to John Watts, MP, Minister for Railways, Roads and Local Transport, Department of Transport

  Thank you for your letter of 27 February to Lord Tordoff in reply to his letter of 10 February. Your letter was considered by Sub-Committee B this morning.

  The Sub-Committee was struck by the suggestion in your letter that, to the extent that PACT funding is used to subsidise start-up costs for combined transport projects, it contravenes Community state aid rules. In view of the restrictions imposed by Article 4(3) of the draft Regulation, we would welcome clarification of your concerns on this point.

  You draw attention to existing rail freight grants in the United Kingdom and we recognise the important role these play in encouraging the transfer of freight traffic from road to rail. Nevertheless, if these grants can only provide funds for the specific purposes outlined in your letter, we cannot see how they constitute a domestic equivalent to the PACT scheme which is intended to assist the development of new combined transport operations.

  We do not therefore accept your view that PACT would simply "pour EC subsidy on top of national subsidy". We believe it complements national grants and could be of direct benefit to operators in the UK as well as in other Member States.

  Mr Ian Mackay of your Department's Rail Industry Sponsorship and Privatisation Division has helpfully provided a short note on changes to the proposal which have recently been secured at Working Group level, and we would hope that on the basis of those changes, you will be able to support the proposal at next week's Council meeting. We would urge you to do so, and we lift our scrutiny reserve on that basis. I would be grateful if you could let me know the outcome of next week's meeting.

6 March 1997

Letter from John Watts, MP, Minister for Railways, Roads and Local Transport, Department of Transport, to Lord Geddes, Chairman of Sub-Committee B

  Thank you for your letter of 6 March in response to mine of 27 February about PACT (10600/96).

  The March Council reached political agreement on the proposal by qualified majority. We indicated that we would vote against the text when formally adopted because, as you know, we do not feel that EC Community funding is necessary when Member States have it within their power to make road/rail combined transport more competitive by liberalising access to the rail network and, where appropriate, introducing targeted grant schemes of their own at national level to assist at the margin in attracting freight from road to rail, as we have done.

7 April 1997

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