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Lord Williams of Mostyn: My Lords, that is a fair question. My answer is that not all discrimination is wrong, providing that it is discreet and justifiable--and approved by the Conservative Party.

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We have yet to finalise the details of the scheme to compensate local authorities for additional electoral expenditure. What we are doing is meeting additional legitimate expenditure consequential--I stress this point--to the postponement, and not expenditure which may derive from other consequences of the foot and mouth outbreak. I hope that we shall be able to publicise the details before 7th June.

The noble Lord, Lord Hanningfield, asked about annual meetings. They will take place. I recognise the logistical and practical difficulties specified by the noble Lord; they cannot be argued against. The meetings will take place with reference to the election date. So if the election date is postponed, the period in which the annual meeting is to be held will similarly be postponed. We shall use the order-making power in Clause 7 to delay the timing of annual meetings of police and fire authorities.

My noble friend Lord Fitt asked a number of questions about Northern Ireland. As always, my noble friend speaks with authority about issues that have engaged him for so long. We believe that there is no reason for Northern Ireland to remain separate in its arrangements. Northern Ireland is presently unable to hold local elections coincident with a general election. The Bill contains a provision allowing it to hold local elections and a general election on the same day.

Your Lordships have assured me, on the basis of the ex cathedra pronouncements in the Sun, that the general election will take place on 7th June. Obviously, I always take on board what is told to me by your Lordships, particularly when it comes from the Sun. I do not know when the general election will be held. I hope that it will be early, so that we shall lay aside any questions of the identity of the next government. But I simply do not know. It is ultimately a matter for the Prime Minister's good judgment. Speaking of which--the noble Lord, Lord Rees-Mogg, is not in his place but he was present earlier--it is worth re-reading a stable companion of the Sun, which is bigger in format and has fewer pictures and longer words; namely, The Times. I can safely paraphrase an extract from the noble Lord's article because, unlike the noble Baroness, Lady Hamwee, he is not here to correct me. He said that if matters were postponed from the anticipated day of 3rd May, that would confirm to him that the Prime Minister was the decent man he had hoped he was four years ago. I leave your Lordships with that thought.

The noble Baroness, Lady Carnegy, asked about the combined poll. Statistically, the number of spoilt ballot papers in Scotland in 1999 was comparable to the number in an ordinary election in the United

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Kingdom. The noble Baroness spoke about colours. None of the ballot papers ought to be bright or cheerful in colour, because that would inevitably induce all those voting to vote for the Labour Party. If they were gloomy and funereal, I suppose that would attract the Conservative element such as it presently remains.

Baroness Carnegy of Lour: My Lords--

Lord Williams of Mostyn: My Lords, perhaps I may just finish. This is too good to miss--or, as the noble Baroness, Lady Thatcher, said on one occasion, "I am really enjoying this". I should not have said that because it was immediately on her resignation; so I hope that history is not about to repeat itself.

Ballot papers can be colour-coded--white and possibly lilac. They should not cause the same confusion as I accept may have occurred on the previous occasion. If--I am told magisterially--someone puts the wrong paper in the wrong box, it will be reconciled to the correct box before the count.

Baroness Carnegy of Lour: My Lords, the statement was in the Bill. It is quite correct, and that was done. The question of spoilt ballot papers is not completely relevant. The question is whether people voted for someone for whom they did not mean to vote--that is, they voted for one of the bodies because they believed they had to vote in the same way for both. That was my question. That needs to be made plain somewhere, not necessarily in the Bill.

Lord Williams of Mostyn: My Lords, I shall certainly take on board that suggestion. If it can be done without legislative means, plainly it needs to be looked at carefully.

I have only a few seconds more because I am in the 20th minute of my response. I simply want to repeat the fact that this has been a high-quality debate. The briefing note always tells one to say that, and your Lordships will know that I never do. It was a very good debate. It would be helpful to those who sometimes scoff at the nature of the parliamentary process and do not recognise the virtue and continuing value of this House if they were to read it. What was lacking--or almost lacking--was a partisan approach to what we all know is a national problem. It is not of our choosing or of our making. I commend the Bill to the House.

On Question, Bill read a second time, and committed to a Committee of the Whole House.


6.9 p.m.

Lord Beaumont of Whitley rose to ask Her Majesty's Government what plans they have, in the light of recent events and of public opinion, to nationalise Railtrack.

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The noble Lord said: My Lords, the Railways Act 1993 broke British Rail into 100 companies and sold them off. Originally, Railtrack was to be kept in state ownership, but that, too, was sold in 1996 for about 2 billion. The privatised rail companies paid about 5 billion for the whole of BR at privatisation--that is, all the real estate, rolling stock, and so on. They have now received more than that in subsidy, so the railways were effectively given away.

However, a number of people were opposed to such developments at the time: the Green Party objected to rail privatisation and the fragmentation of the industry; the Labour Party also objected to it. Consensus for Change--the Labour Party's transport strategy for the 21st century--published in 1996, said:

    "The Labour Party is deeply opposed to rail privatisation, as is the British public. It is clear to all serious analysts that (Conservative) government policy is driven by an ideological commitment to privatisation at any price, rather than a proper consideration of the national interest and the country's long-term transport needs. Labour is committed to a publicly owned and publicly accountable railway.

    "The most outrageous sale is that of Railtrack. When the (Conservative) government brought the railways Bill to the House of Commons it promised that Railtrack would remain a publicly owned company 'for the foreseeable future'.

    "On coming to office Labour will set in place a structured programme to return the railways to an integrated whole.

    "As well as the powers of regulation and of subsidy, a Labour government will use its powers to acquire ownership of Railtrack".

That was the Labour Party view just five years ago. It is still the view of the Green Party, which confirmed its policy of taking the railways back into public ownership at its spring conference last month.

Rail privatisation has been a dismal failure. Railtrack has failed to maintain the network or to improve it. Safety and performance have both declined. The terrible accidents at Ladbroke Grove and Hatfield were caused by faults with the track and signalling, which are the responsibility of Railtrack. There was chaos after Hatfield, when Railtrack realised that it did not know the state of its network because it subcontracts inspection and maintenance work. It then imposed 1,000 speed restrictions. Timetables were abandoned, fewer trains ran; and those that did run were severely delayed. Even now, six months later, some services are still not back to normal. Sir Alastair Morton, the chair of the Strategic Rail Authority, described it as "a nervous breakdown" for the railways.

Performance was falling before the Hatfield accident. The latest edition of On Track, Rail Performance Trends published by the SRA compares the first half of 2000-01 with the first half of 1999-2000. The performance of 22 train operating companies declined, two stayed the same and only one improved. The latest figures for October to December 2000 show a 20 per cent fall in performance post Hatfield, and a record number of complaints. Today we heard the announcement regarding the Virgin rail price rises.

The number of broken rails has increased in the past two years, and Railtrack has failed to expand the network or increase its capacity to meet increased

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demand. Rail services, both passenger and freight, have collapsed. People and goods are transferring to other less safe and more environmentally damaging modes of transport, such as road and air.

The sixth report of the Commons Select Committee on Environment, Transport and Regional Affairs, which was published on 29th March of this year, concluded that,

    "the system of managing contractors who carry out maintenance and renewal work on the railway through the system of 'cascaded safety cases' has been shown to have utterly failed. It is not just the system that has failed: Railtrack's management of its contractors has been woeful ... Railtrack told us that the objective of privatisation was 'to maximise proceeds to the Treasury and minimise future subsidy requirements ... There was no vision of the size and type of railway the country needed'.

The committee continued:

    "The Rail Regulator agreed with Railtrack's assessment. He told us that the 'ill-thought through' financial framework put in place at the time of privatisation was deficient, did little to promote investment, and that there was 'no specification of what Railtrack had to do for the access charges which it receives and very little was done ... to encourage the making of investment".

I think we can conclude that members of that committee thought that the present system was unsatisfactory.

Railtrack is not a conventional plc; it is a monopoly. It supplies an essential service so it cannot be allowed to cease operating. The Government will bail it out and the Stock Exchange knows this. Until last week the share price was artificially buoyed up by this knowledge. Privatisation was meant to transfer the financial risk, as well as the profit, to the private sector. However, it has not worked out that way. The private sector has been quite happy to take the profits in the form of dividends, share options and high salaries. But whenever there are financial losses it comes to the Government with it begging bowl and asks to be bailed out, as happened with the West Coast route modernisation and, again, this week for network maintenance.

The Transport Act 2000 set up the Strategic Rail Authority, which came into formal existence on 1st February of this year. However, it had been operating as a shadow authority since 1999. It has not yet produced a strategy; it has just produced a strategic agenda. The actual strategic plan is to follow in the autumn. The Government published the 10-year transport plan last year. This included 60 billion of investment in rail of which 26 billion is to come from the Government. Most of that will end up with Railtrack, either directly or indirectly via the train operating companies.

At the Institute for Public Policy Research's Rail Renaissance conference in February, the Minister who is to respond to this debate, Sir Alastair Morton, the chair of the SRA, and Tom Winsor, the Rail Regulator, all spoke of a consensus that the railways should not be re-structured, and said that we should work within the present system. It took the Green Party's transport speaker, Mr Alan Francis, to point out that that consensus did not extend to rail passengers--the vast majority of whom wanted the

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railways to be renationalised. While many in the audience agreed with Mr Francis, he was then rounded on by Mr Winsor who claimed that the services that the public wants can be more effectively operated in the public interest by the private sector. If that is so, why has it not happened over the past five years?

A privatised Railtrack achieves the worst of both worlds: it is neither accountable to the public as a public rail service should be, nor is it delivering better standards in the way that privatised services are supposed to do in theory. Rail privatisation was Thatcherite dogma take to extremes. New Labour has lacked the courage to renationalise, yet has also failed to ensure the proper standards of service. General public opinion is now very much in favour of renationalisation, as evidenced by public polls and by the tabling of an Early Day Motion in another place.

Moreover, the sixth report of the Commons Select Committee on the Environment, Transport and Regional Affairs, which was published last week, also said:

    "Given that the previous means of managing maintenance and renewal contractors has failed, we strongly recommend that Railtrack take over direct responsibility for inspecting the network".

The committee also recommended that the public should have a stake in Railtrack in exchange for its investment. The City's reaction to Monday's imposition of a director to represent the public interest on the Railtrack board shows that partial renationalisation is not a realistic option. Railtrack has either to be in the private sector or in the public sector; it cannot be in both.

The cost of renationalisation would be in the region of 2.5 billion, which could be phased in over a number of years by the issue of bonds. Railtrack is being given 3.5 billion just to upgrade the West Coast Main Line, why not pay the extra and get the whole lot?

There are a number of models that could be used to bring back Railtrack into public ownership. In the longer term as passenger franchises expire they could be brought back into the public sector at no cost. Ultimately the rolling stock could also be brought back. That would cost in the region of 2 billion to 3 billion. Meanwhile the situation would be a bit like that with London buses. The infrastructure would be publicly owned with operation under the control of a public authority.

The Green Party has drafted a short Bill to allow the Government to take Railtrack back into public ownership. Because it involves expenditure on compensation for shareholders I was advised by the Clerks that only a government Minister can put it forward in another place. Perhaps the noble Lord, Lord Macdonald, who will reply to the debate will volunteer one of his colleagues to do so and he will take charge of it when it comes to this House.

6.20 p.m.

Lord Berkeley: My Lords, I declare an interest as chairman of the Rail Freight Group and as adviser to Adtranz.

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The noble Lord, Lord Beaumont of Whitley, is certainly right to say that the industry is still in a bad way after the Hatfield crash. Rail freight is taking longer to reach its destination and costs are up. Many passenger services are still not running to time. The problem is that the growth in the 10-year plan of 80 and 50 per cent respectively is predicated on a reliable infrastructure. We do not have that and, sadly, the time that is being taken to get back to what might be called reliability seems to become ever longer. I believe that the industry has lost confidence in Railtrack. That in turn puts at risk the private finance in the trains, stations and terminals on which the 10-year plan is largely based.

There has been good news recently. The Department of Transport and the Strategic Rail Authority made some excellent announcements this week which included more money for Railtrack and a new budget. In that connection I refer to the periodic review of freight and the regulator's conclusions which came out today. They have also persuaded Railtrack to stick to running the network and leave all new enhancements to other organisations. One might say that they have asked Railtrack to stick to its knitting and get the knitting right. The rail regulator has reduced the freight access charges by 50 per cent. That is very welcome. He is also tightening up various new licence conditions which I think will make Railtrack perform much more effectively. That is in addition to the provisions in the Transport Act and the Competition Act.

However, it is clear that Railtrack has failed in its primary duty to operate and maintain the network. In fact, it does not even know what it owns and operates in the network. I am concerned that it has taken the Hatfield crash and seven years of operation to persuade successive Ministers, OPRAF (as it then was), the SRA and regulators of the problems that have arisen from the privatisation of Railtrack.

I do not believe that renationalisation is the answer. It might be good to put the assets that we all once owned as taxpayers back into the public sector, but I believe that the problem is one of management. I do not think that one can necessarily argue that a nationalised industry is any more efficient, or even less efficient, than one in the private sector. We can all mention examples--we have done so on many occasions in the Chamber--of different organisations which should or should not be in the private or public sectors. As I say, I believe that the problem is one of management.

When Gerald Corbett was chief executive of Railtrack he used to say that he had much too much to do and was much too busy. I refer to a failure on the part of the shareholders. Apparently they have not until recently been concerned about the low share price. I believe that the share price is well below 5 today. However, they may be concerned about the tougher regulatory regime of the rail regulator and the SRA.

One has to ask whether it would be so awful if Railtrack "went bust". The shareholders would suffer, but would the network? That is a question we must

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ask. There is the possibility in the Transport Act for the SRA to take over Railtrack, or, alternatively, one or more companies could buy it as a going concern. Several noble Lords have said in the past that they thought that the rail regulator had a duty to keep Railtrack solvent. The Railways Act 1993 states that the regulator has a duty,

    "to act in a manner which he considers will not render it unduly difficult for persons who are holders of network licences to finance any activities".

Railtrack is a holder of a network licence. In my judgment that does not state that the regulator has to keep those activities alive; he just has to take them into account. I believe that Railtrack cannot finance those few activities which the Government are not funding due to poor management and a lack of responsibility towards its shareholders.

Perhaps it would be better to split Railtrack into several zonal plcs--as I have suggested before--as that would constitute smaller companies that were easier to manage. I am told that that would not require legislation. The "frontier" effects between the zones or the companies would certainly not be any worse than they are at the moment. They are not very good at the moment. In not providing a network fit to fulfil its purpose I believe that Railtrack's board and management are at fault. They are accountable to their shareholders. They are also adversely affecting the private sector finance of the other parts of the network.

I am pleased that the Transport Act, the Competition Act and the rail regulator are tightening the regime but I hope that the SRA will also appreciate the strategic need to ensure that Railtrack delivers. If that causes Railtrack's shareholders to take action before the share price falls to 50p, or whatever it is likely to be, so be it. If not, the SRA and the rail regulator will have to tighten the screw still further. I believe that it is possible to manage rail infrastructure reliably, effectively and at reasonable cost, as many railway administrations have shown, and are showing, around the world.

I conclude by emphasising that in my view the transport plan, which I think is a fantastic plan that must be delivered, is at risk unless and until we have in place a network that operates reliably seven days a week and 24 hours a day. I believe that the present structure can deliver that but that Railtrack shareholders will probably have to suffer a great deal more before that happens. I only hope that that occurs rather more quickly than it has done in the past seven years.

6.27 p.m.

Lord Bradshaw: My Lords, I must declare an interest as I am still a member of the Strategic Rail Authority. However, I speak tonight on my own behalf and I say categorically that I do not speak with the support of the Strategic Rail Authority.

As a professional railway manager, I believe that the idea that one can run a railway with someone running the trains and someone else managing the track is quite foreign to the proper operation of a railway. The origin

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of the idea was first formed in European Directive 91/440 which stated that railway undertakings should have a separate accounting mechanism for their infrastructure, not a separate management. But somehow in Britain that got translated into the idea that we should divide the two. Most of our European colleagues are incredulous at the system we try to operate in this country.

I am pleased to note that there are now two Peers on the Conservative Benches. I refer to the book, The Right Lines, by Kenneth Irvine, whom I can only describe as a failed railwayman. He proposes a separate infrastructure business. He has all kinds of strange ideas. He believes, for example, that there can be much competition on the railways and that one can turn up at Waterloo Station and there will be a red train, a blue train and a green train going to Woking and one can choose which train to catch according to which is most comfortable. That is quite foreign to the idea of organising a railway. One cannot run a railway on the basis of many different operators with equipment of different specifications operating a competitive service.

The original aim was not to privatise Railtrack but to keep it in the public sector. However, that idea was swept away because at that stage many other network industries had been privatised, such as electricity, gas and water. People asked why the railways could not be privatised also. However, if one is selling water, gas or electricity, one sells a homogenous product. Several people can put the same stuff into the pipeline and the same stuff emerges from the other end of the pipeline and can be metered. The problem with railways is that it is the poor passenger who gets stuffed into the pipeline--and often a very poor quality pipeline. They also all have different needs, which are not easily discriminated by the pipeline system through which they tend to get pushed.

Let me deal with a few myths about the present railway system. The first is that the maintenance problems experienced by the railways somehow had their genesis under British Rail. BR was kept very short of money, but I assure that House that BR's professional engineering standards could not possibly have permitted the deterioration in the network that we have seen. The problems would have been stopped much sooner. In any event, speed restrictions would have been put in place. The professional integrity of all those involved, from the supervisors on the track through to the divisional engineers, was such that the situation could not have arisen.

The second myth is that the recent growth in passengers has been conjured up by the private companies. The last time that the economy turned up as it has done under the present Government--for which they are entitled to a great deal of credit--carryings on the railway rose steeply. Carryings on the railway are very susceptible to the working of the trade cycle.

The third myth was that 20 per cent of the costs could be taken out of the industry, which would be a bonus for shareholders, and that at the time of the

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regulatory review it would be possible for the regulator to pass those benefits on to passengers. In fact, BR had been screwed down so tightly by successive governments that there was not 20 per cent to be got out of the costs, whereas there were opportunities for economy in gas, water and electricity, which were monopoly industries that had not been pushed so hard by government.

The fourth myth was about open access, which has all but disappeared from the lexicon of people addressing the industry.

The rolling stock arrangements have been successful. On this point I disagree with the noble Lord, Lord Beaumont of Whitley. It is perfectly feasible for rolling stock to be leased. That is the common way of buying aircraft and buses. I am not sure that people lease ships, but they are mobile assets that generally have many substitute uses. The previous government's stubbornness in not allowing leasing in 1993, when begged to do so by the then British Railways Board, led to the closing down of most of the British railway construction industry.

Railtrack has been sliding backwards, as other noble Lords have said. It has had advice from American consultants on how to make quick economies to keep the share price up. John Kay wrote a good article in yesterday's Financial Times warning against that practice and the very short-term gains that it brings. He compared Railtrack with Marks and Spencer. The article is well worth reading.

We have had a generous regulatory review. We have moved forward 1.5 billion of funding to assist Railtrack. The post-Hatfield review will cost a lot, because, while the shareholders will take their hit for some of the compensation, a huge programme of remedial works is necessary. Railtrack has withdrawn from its programme of enhancements and it has the Cullen report to deal with.

The cost of such work schemes is escalating rapidly. Railtrack does not take risks or provide a robust system. It is a monopoly, which is extraordinarily difficult to regulate when there are no comparators, and it is distant from the end customers. The Government should consider whether we need two regulators--the SRA and the Office of the Rail Regulator, which are both effectively dispensing government funds.

I come back to where I started. I honestly believe that very soon--perhaps in the refranchising process--we shall put the management of the operation and maintenance of the track back together with the train companies to form proper companies that can answer to their customers for the services that they deliver.

6.34 p.m.

Lord Wallace of Saltaire: My Lords, professionally, I teach public policy, among other things. One of the things that we try to get students to understand is that there are different appropriate frameworks for different areas of public policy. One of the principles

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of those who teach public policy now is that whatever works best is the framework that is needed--a very new Labour principle.

We also teach that there is a range of possibilities for the funding, ownership and regulation of natural monopolies. Over the past 15 years we have seen the relatively successful privatisation of electricity, gas and water, each of which was done in a different way. In the water industry we have discovered that, when there are very long-term investments, such as reservoirs, there is often a case for non-profit trusts rather than straightforward shareholder-based companies as the basis of operation. A number of water companies have argued for that. Each method builds in different patterns of incentives, which affect the behaviour of the managers and their customers.

Railtrack is in a different category from electricity, gas and water. The pattern of incentives built in to the structure has proved perverse because of the unavoidable antagonism between Railtrack and the train operating companies and because of the relationship between Railtrack and its far too many contractors, in which the incentive is to save on costs rather than to promote safety. In a Civil Service magazine that I received today, I came across a quote from evidence given to the Cullen inquiry, which said that in a "fragmented and organisationally incoherent" industry, creating a safety culture across the whole industry workforce was "simply not obtainable". That expressed better than I could the perverse incentives that are built in.

Secondly, unlike electricity and gas, the rail industry will clearly be dependent for many years on public subsidy for investment. That makes it harder and more expensive to raise additional funds on private markets. Being dependent on public subsidy raises some large questions about accountability. I work in the higher education sector. As ever more detailed inspections by public agencies are imposed on us, we are told that they are justified by the need to provide detailed accountability for public expenditure. I am amazed that similar principles are not imposed on Railtrack. For example, much of the track inspection is left to private contractors. I find the Treasury's ideology on the issue extraordinary. It has not moved on very far in the past 20 years. The problem of accountability is fundamental. Public money is being given as a subsidy to a private company without clear oversight.

Lastly, the system was designed in a hurry by the Conservatives to cope with decline. Happily, we have found that, rather than decline, we are dealing with the problems of expansion. I live in Yorkshire at the end of the Leeds-Carlisle railway line, much of which was due to be closed 15 years ago but which is now being rapidly expanded to carry additional traffic. As the noble Lord, Lord Faulkner of Worcester, knows, I am an active member and now a shareholder--I must declare that interest--of the Wensleydale railway company, which we hope will enable us to reopen another railway line. I also use the East Coast Main Line--even Leeds railway station on occasions--so I

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have an active interest in the further expansion and upgrading of the British railways system to cope with the expansion of traffic.

It is clear that the current structures do not allow for or promote the investment or expansion that we need. For those reasons, they need to be fundamentally changed. The current structure is wrong. Nationalisation may not be the answer, but there is a range of other toolkits--to use the academic expression--such as non-profit trusts and public/private partnerships, which the Government have accepted in other areas. It is time they tried them.

6.39 p.m.

Lord Woolmer of Leeds: My Lords, I am sure that I speak for many in this House in welcoming the Government's announcement on Monday that they will bring forward some 1.5 billion in payments to Railtrack. That should help the company's ability to meet the needs of the existing rail network. I, for one, take it as a sign that the Government are committed to getting the railway industry back into proper shape and to providing passengers with an improved service.

I agree with other noble Lords that Railtrack has a vital part to play in modernising the railway system. However, it is clear that it needs to concentrate more than it has done in the past on its basic job--that is, making the existing railway network better and safer. I was struck by one quotation that I read earlier this week:

    "Railtrack has in the past been guilty of over-promising and under-delivering, particularly to its customers".

Those are the words of Steve Marshall, Railtrack's Chief Executive. I suspect that few in this House would disagree with him.

However, words on their own are not enough, and action is required if passenger confidence is to be repaired. That is why I welcome not only the monetary elements of Monday's announcements, important though they are; the non-monetary elements of the package are as, if not more, important.

First, Railtrack must focus on its core responsibility for the existing network and on meeting the needs of the train operators. At times in the early days, I formed the impression that Railtrack was a property company rather than a rail track company. It had poor project management skills and at one time appeared to be placing profits before investment.

Now, it will no longer have a monopoly on the major projects required to enhance the network as part of the 10-Year Plan. I welcome the fact that other companies can now join in with new public/private partnerships to take forward those projects, starting with the upgrade of the East Coast Main Line, to which--here, I declare an interest as a regular user--I look forward very warmly. Greater concentration on the stewardship of its existing assets will assist Railtrack to achieve more effective operation, maintenance and renewal of the network.

As I understand it, the Statement of Principles agreed between the Government and Railtrack sets out and formalises the relationship between the two

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parties. The statement recognises Railtrack's unique role as a public company which provides an important public service and attracts public funding. Given that background, Railtrack has agreed to appoint a non-executive director to its main board with a specific remit to provide a powerful public and consumer voice on the board.

I hope that the first part of Railtrack's 2001 network management statement--due, I believe, in May and covering the existing railway--will address its asset stewardship obligations. I should be grateful if the Minister would confirm that the statement will make clear how the company will deliver effective management of contracted-out work, how it will deliver consistency and customer focus across its activities, and how it will reinforce its engineering skills base.

It is important that all moneys brought forward are spent on the railway industry. Noble Lords will have noted that Railtrack capitalisation is now down to 2.5 billion. That puts into context the bringing forward of a further 1.5 billion in public funds. Clearly it is important that Railtrack uses that money by investing it in the railway system and that it does not use it for the immediate or shorter-term benefit of shareholders.

I am in no doubt that many of the problems that we have seen in recent years can be laid at three doors. First, chronic under-investment in the railway industry took place under successive Conservative governments in the 1980s and 1990s. Under nationalisation, there was also a lack of incentives for better performance.

Secondly, the railway industry was restructured in the mid-1990s in a rushed and disastrous manner and then privatised. It was restructured into 25 train operating companies, five freight operators, three rolling-stock leasing companies, 19 maintenance suppliers and Railtrack.

Thirdly, as I said earlier, since privatisation, Railtrack has appeared at times to be driven by its property interests and, at other times, to be driven first and foremost by the desire to make profits rather than to invest. It has shown lamentable project management and management skills. Operationally, it has been poor at its job.

However, I do not conclude that the answer is to return to nationalisation. I believe that that type of gut reaction takes us nowhere. Perhaps I may suggest to my noble friend the Minister that the railway industry now needs a period of stability. I believe that the Government are addressing the right issues: they are increasing investment in the rail industry with some 30 billion over the next 10 years; they are addressing the question of strong project management and construction skills; and they are bringing new companies into public/private partnerships to deal with future major projects. Railtrack can now concentrate on its core business of looking after its existing network and doing that properly and efficiently.

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The industry now needs a period of certainty and stability in order to get things right. If it does not do so, I shall be among the first to say that further change must take place. However, let us now get investment into the railway industry; let it have a period of stability; and let it show collectively that it can meet the challenge of providing a good public transport service.

6.46 p.m.

Lord Greaves: My Lords, I thank the noble Lord, Lord Beaumont of Whitley, for introducing this debate. I profess to feeling a certain degree of intimidation--or perhaps not intimidation, but something similar--at the professional and academic expertise which certainly my noble friends who sit in front of me have brought to this debate.

I started my life-long interest in railways approximately 50 years ago when, one Christmas, I received a first edition of Thomas the Tank Engine in a parcel from Santa Claus. As a book dealer, I very much regret that I do not still own that first edition. My mother gave it away to the local hospital with a load of Eagle annuals and other things, which I also regret I no longer own.

From a childhood enlivened by the Reverend W Awdry's books, I remember the wonderful character of the Fat Controller. He was a bureaucrat; he was a man with a hat; and he was derided by the people who really ran the railway--who, in those stories, were the engines--for not knowing much about rail engineering. It sounds a little like Railtrack.

Nowadays, we have the Rail Regulator; we have the Strategic Rail Authority and its chairman; we have Her Majesty's Railway Inspectorate, which I believe is now part of the Health and Safety Executive; we have the Secretary of State; we have Railtrack and its own Fat Controller; we have the train operating companies with all their Fat Controllers, including the rail freight companies; and, of course--a matter about which we should be very pleased in your Lordships' House--we have the Minister. I do not by any means suggest that the Minister is a Fat Controller; he is far too lean and hungry.

However, a question that people ask time and time again in relation to the railway industry in this country is: who is the Fat Controller? Who is in charge? Where does the buck stop? The truth is that no one knows. Until that matter is sorted out, or, at least, until our incredibly fragmented railway system is de-fragmented to some degree, I do not believe that we shall make a great deal of progress.

At the time of rail nationalisation--I am sorry, I mean rail privatisation; I do not remember making speeches at the time of rail nationalisation as I was reading Thomas the Tank Engine then--I can remember making a speech in another place altogether: Lancashire County Council. During that speech I asked how long it would be before one heard announcements by the train operating companies saying, "Hello, this is Sharon, your assistant passenger supervisor. We are very sorry that this train is delayed by half an hour (or two hours). Unfortunately, this is

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due to the incompetence of Railtrack, which is responsible for looking after the track and signals and can't do it very well".

At that time, people said that I was going over the top. However, since then, over several years Railtrack has engaged in squeezing the assets and the staff of the railway industry in the short-term interests of its shareholders, including its directors. That is a fair description of what has happened. Lo and behold, I now find that the train operating companies and Railtrack are indeed in open warfare. My prediction those many years ago has come true.

Today's Independent quotes Mr Chris Green, who is one of the more respected railway managers in this country and who is now chief executive of Virgin Trains. I regard that as a hopeful feature of today's railway system. He is also a senior official with the Association of Train Operating Companies. In his attempt to defend the indefensible--Virgin's announcement of a 10 per cent increase in rail fares--he is quoted as saying:

    "Before the Hatfield disaster last October the industry was on target for another year of growth and investment. By November the rail network had been decimated by its own foot-and-mouth disease in the shape of 500 emergency speed restrictions, which wiped out four years of growth in four weeks".

Virgin and some other train operating companies are reported to be about to take Railtrack to court over an argument about compensation for the losses that they have suffered since Hatfield. We have a rail system that is fragmented and in which the fragmented elements are taking each other to court. That is a recipe for disaster.

The public are aware that Railtrack's share value has gone down by 30 per cent or 35 per cent during the past three days--I do not know what happened today--and that its value is rapidly approaching 2 billion or less. It is said to have physical assets worth about 5 billion, although I am not sure how anyone knows that. Railtrack clearly does not know exactly what its assets are--its asset database is inadequate, to put it mildly.

The Government are bailing out Railtrack in the short term with 1.5 billion. People ask, quite reasonably, why the Government are giving that money to a private sector firm that will simply return the money to its shareholders when it starts to make a profit again.

I accept, as noble Lords have already said, that the problem may not be one of ownership per se. However, the need for profit is at the heart of the problem. My noble friend Lord Wallace of Saltaire discussed the fact that a series of options is available, ranging from the use of trusts to the establishment of a non-profit making company; other options are also involved. I do not consider myself to be an expert in that regard.

Simply putting a public interest director on Railtrack's board is not an answer to the problem. I do not know who will be appointed but I notice that the noble Lord, Lord Faulkner of Worcester, is poised to jump up. I read in the newspaper that he might be

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appointed. I notice that he is shaking his head--he is very wise. If he has been offered the post and has already turned it down, he is an even wiser person. The position will be a poisoned chalice. All the Fat Controllers in the fragmented railway industry, Government Ministers and Railtrack's directors will pass the buck to that person and ensure that next time the railways fall to bits, he will have to answer on television, in newspapers and elsewhere.

Whatever the answer in this context, we have to consider re-nationalising Railtrack or making it a non-profit making organisation with clear duties that is accountable to the public, through Parliament and the government, and to its customers--that is, the train operating companies, including the freight companies. Such solutions will have to be considered because the Government's present approach is simply to pour more and more taxpayers' money into a company that is responsible to its shareholders.

6.54 p.m.

Lord Faulkner of Worcester: My Lords, I had intended to start by congratulating the noble Lord, Lord Beaumont of Whitley, on his immaculate sense of timing. He initiated this debate on the day that the media are full of reports about plans by Virgin to increase fares, apparently by 9.8 per cent from next month. As the noble Lord, Lord Greaves, reminded us, that announcement was accompanied by a comment from Chris Green, who said that the increase was a direct consequence of Railtrack's refusal to compensate the train operating companies adequately for the delays caused by the speed restrictions that have been imposed since the Hatfield crash.

Then it occurred to me that scarcely a day has passed since the Hatfield crash in which there has not been critical press comment of Railtrack's performance. Consider the leader in today's Guardian, which states:

    "Rail privatisation, predictably, has turned out to be an operational disaster. But it is also turning into a serious financial disaster, since neither Railtrack nor the operating companies can reconcile the requirement to invest heavily to build a modern railway (such as continental countries have enjoyed for years) with the need to make profits and dividends for shareholders".

None of that comes as a surprise to those of us who worked in the industry before privatisation. The noble Lord, Lord Bradshaw, and I share the distinction of having that on our CVs. It was apparent at the time of privatisation that a political agenda was driving the timetable. The desperation of getting the whole industry irreversibly into the private sector before the 1997 election overrode every other consideration, including considerations about what made sense in strategic transport terms, about whether the taxpayer would get value for money and about whether passengers had any hope of getting a better deal.

The Public Accounts Committee in another place concluded in August last year that:

    "Railtrack's licence at privatisation contained serious shortcomings because of haste in privatising Railtrack and, as a result, passengers have seen poorer track quality, weak contracts between Railtrack and train operators, and possibly unjustified

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    performance bonuses to Railtrack. We are concerned that this haste contributed to serious deficiencies in the subsequent regulatory regime".

That report came out just two months before the Hatfield crash. It also pointed out that when in 1994 the then Department of Transport licensed Railtrack to operate the network, the intention was that the company would remain in the public sector for at least some time. The noble Lord, Lord Bradshaw, made that point. The question that the noble Lord, Lord Beaumont of Whitley, raises is both pertinent and timely.

Had things remained as they were during the first years after privatisation, when Railtrack was left to behave as it wished--it was largely unaccountable, insensitive to the needs of passengers and train operators alike, careless in its observance of its licence obligations and able to abuse its monopoly position--and when the regulator was forced to be little more than a frustrated bystander, one could understand how re-nationalisation could be seen as the only way out of the mess, despite the further upheaval that that would create. Thus far I have sympathy with the points made by the noble Lord, Lord Beaumont.

However, things have changed. My noble friend Lord Macdonald of Tradeston and the Deputy Prime Minister deserve great credit for at last getting a grip on those incredibly difficult issues, particularly in relation to the way in which Railtrack is regulated. The new Rail Regulator, Mr Tom Winsor, also deserves such credit.

The new agenda for Railtrack that was announced by the Deputy Prime Minister on Monday was discussed by my noble friend Lord Woolmer. It attached strict conditions, including more accountability and tougher regulation in the public interest in return for the accelerated payment to the company of 1.5 billion, which was due to Railtrack under the rail regulator's review of its access charges. That establishes the crucial elements of the financial structure that was needed by the rail industry to maintain the momentum of the Government's 10-year plan for transport.

Central to the success of that policy is the role of the regulator. He has to monitor Railtrack's performance regime, network stewardship and investment plans. He knows that Railtrack must meet the needs and expectations of the public and the industry by treating their public interest obligations as seriously as it treats its commercial responsibilities. He and the Government will be able to put pressure on the company to ensure that the network is maintained, renewed and enhanced in a manner that meets the requirements of all its customers.

The Rail Regulator's role is that of an enforcer and of an architect--he has to build a regulatory structure that will give each player in the industry the right incentives to contribute to the growth of investment, which underpins the Government's integrated transport strategy. Indeed, he did that today with his announcement of the 50 per cent cut in freight charges.

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That will play a large part in helping the Government to meet their target of increasing freight carried by rail by 80 per cent.

The regulator is there to rectify the shortcomings that were built into the regulatory system during privatisation. He inherited a toolbox which was pretty well stocked, but many of the items in that box were covered in dust and cobwebs. He has got those items into working order and added to them as well.

His reform programme is nearing completion. He delivered an extended and rigorous periodic review and the problems, the potential solutions and improved incentives are now better defined for Railtrack than at any since privatisation. What matters is not who owns the assets but whether and to what extent those assets are operated in a way which promotes and protects the public interest.

It is therefore regrettable that Mr Winsor continues to be the target of unpleasant and ill-informed sniping by the Conservative transport spokesman in another place--I absolve absolutely those who have spoken on transport for the Conservatives in this House and indeed am looking forward to the speech of the noble Baroness, Lady Hanham, who is making her debut on transport in this debate.

The new Transport Act has strengthened the powers available to the regulator, and he must keep up the pressure on Railtrack to specify clearly what it will deliver in terms of performance, stewardship of the network and investment. Surely it is more sensible to see how this new approach works out before we plunge into the turmoil of yet another reorganisation of our railways. It must be right to give the Government's attempt to create a partnership between the public and private sectors, backed by firm, independent regulation, a chance to see whether it can deliver a railway of which again we can be proud.

7.2 p.m.

Baroness Thomas of Walliswood: My Lords, we are all grateful for the opportunity given to us by the noble Lord, Lord Beaumont of Whitley, with whom I remember campaigning many years ago and have known as a cherished colleague over those years. We have been lucky to hear some excellent speeches in the debate he provided for us tonight.

I am grateful also to those who have spoken from my Back Benches who have each, in their own way, added a particular apercou to our discussions. I am sorry, in welcoming the noble Baroness, Lady Hanham, to her new temporary responsibilities, that she is not supported by any Back-Bench speakers from the Tory Benches. That is a very strange omission.

The noble Lord, Lord Beaumont, gave us a vivid account of the things that have gone wrong with the railway. I am sure most of us agree with many of his criticisms. One of the basic flaws in the system is contained in the contradictory role of the Rail Regulator. In that regard I take issue with the noble Lord, Lord Faulkner of Worcester. The Rail Regulator is required, under the rail privatisation Act, to maintain Railtrack's abilities to finance its

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functions. But the regulator also has the power and duty to punish breaches of Railtrack's licence conditions with fines. As a result, in effect, the taxpayer is continually being asked to pay the company's fines because more and more money is drawn into Railtrack by various means. Otherwise Railtrack could be rendered unable to carry out the work which the Strategic Rail Authority requires it to undertake.

Again, the reduced freight access charges are to be welcomed from the point of view of public policy. But what will be the effect on Railtrack's finances? Will it be tempted not to increase the availability of track because it is not going to obtain enough money for it? There are a whole lot of arguments built into these matters of finance.

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