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Lord Faulkner of Worcester: My Lords, I thank the noble Baroness for giving way. I can answer that question. The press release from the regulator says,

Baroness Thomas of Walliswood: My Lords, the noble Lord has just made my point. My point was that the deficits in Railtrack are being made up from the public purse.

Moreover, Railtrack's proposals for major improvements, such as the West Coast Main Line and Thameslink, are progressing at a snail's pace, whereas the costs are rising dramatically--in the case of the West Coast Main Line by nearly three times from 2.5 billion to 6 billion. That must put into doubt its ability, without even more increases in funding, to implement what are likely to be the Cullen recommendations.

It is also a question of whether we are going to get value from the money that the public puts in for the work that needs to be done in the public interest. At the time of privatisation Liberal Democrats wanted to retain Railtrack within the public sector, which would have prevented some of the current problems. In particular, it might have avoided the loss of robust management and maintenance systems for the track and signals--something to which my noble friend Lord Bradshaw referred, and the lack of which has been so evident in the recent past.

Most of the railwaymen I have met would have preferred--if we were going to go ahead at all with privatisation--not to cut the cake in tiers, but to cut it in slices, retaining management of the track and of the services in the same hands. That would have avoided some of the difficulties in obtaining access to the track in order to carry out essential repairs at Hatfield--a matter dealt with extremely interestingly in a series of articles by Ian Jacks recently in the Guardian.

But re-nationalisation carries enormous problems with it. I shall speak about costs in a moment. There is of course a financial cost involved. But even more difficult is the disruption that it would cause. We

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already have a demoralised industry. We already have a public who have completely lost confidence in that industry. To go through a whole legislative process of re-nationalisation would merely exacerbate those two dangerous aspects. We must remind ourselves that, for public policy reasons, we desperately need the railways to be successful.

What are the other alternatives? In February of this year the Liberal Democrats published a paper on its policies for safe, reliable and affordable rail travel. We proposed establishing a sustainable transport authority to take over the functions of both the Strategic Rail Authority and the rail regulator. We hoped that that would simplify the current bureaucratic system of incentives and penalties which tend to work against each other.

A second major proposal was to create a not-for-profit public interest Railtrack company to run the railway infrastructure. That has been referred to in various ways by several speakers. Such a company would not be restricted in the way that publicly-owned companies are--in my view, quite irrationally--from making appeals to the private sector. It would be likely to finance its work through bonds attracting a lower rate of interest. The sustainable transport authority would use its powers to reduce the number of franchises and to encourage Railtrack to pass its responsibilities for infrastructure renewal and repair to the major train operating companies.

The fourth proposal was to implement the expected recommendations of the Cullen inquiry and to create a new independent body to regulate rail safety together with a separate accident investigation body, modelled on the Air Accident Investigation Branch. Those two things would give passengers greater confidence that the whole safety issue is in independent hands.

The situation is moving extremely rapidly. There has been a new intervention by the Strategic Rail Authority. The question arises as to whether Railtrack would have the financial circumstances to make even our proposals viable. I believe that the noble Lord, Lord Berkeley, suggested that it may be an advantage to allow Railtrack to go bankrupt. I look forward, with some interest, to hearing the Minister's response to that suggestion, which has some tempting aspects.

The Government have also set their mind against taking Railtrack back into public ownership, while at the same time having to deal with the current situation. If the rail system cannot be publicly owned, somehow it must be made to work in its present form. Therefore, I have some questions for the Minister. How do they propose to re-establish a successful public sector influence over such an important public service and to make it work, not under an airy-fairy scheme, but in practice for freight and passenger customers? Given that no new franchises have yet been signed, will the Minister consider the option of some of the larger franchises, such as South West Trains or ScotRail, taking on responsibility for the maintenance, renewal and enhancement of the track and signalling as part of their new franchises. That would re-establish the link

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between the wheel and the rail that so many people in the industry believe is an essential pre-requisite for a well-managed railway.

Today we have considered the catastrophic aftermath of a disastrous Conservative policy. It is clear that if this Labour Government prove unable to take charge of, to protect and to promote the public interest in the railways, the clamour for renationalisation, however mistaken, will become politically irresistible.

7.12 p.m.

Baroness Hanham: My Lords, I join other noble Lords in thanking the noble Lord, Lord Beaumont, for introducing this debate. I appear on the Front Bench in a temporary role, but I am here and I thank noble Lords for noticing that I am here, even if more or less alone.

A number of serious contributions to this debate have been made by people who have considerable experience in the area of transport. I speak with some trepidation after the noble Lords, Lord Berkeley, Lord Bradshaw and Lord Faulkner, all of whom have been at the coal-face of the industry and have knowledge of it.

Having listened most carefully to the debate, I do not believe that any of the speakers have demonstrated, or wanted to demonstrate, as the Question promulgates, any reason for or realistic prospect of the railways returning to their pre-privatisation days. Indeed, how could they, as even the most prejudiced views would have to accept that privatisation has brought, and has the prospect of bringing, singular advantages to the rail industry.

Although an interest in historic matters is not necessarily part of this Government's thinking, no sensible person who remembers the days prior to privatisation would in reality want to return to them. We must admit that trains were over-crowded, late and dirty. That was part of the daily routine. Casting my mind back, I remember frequent journeys to the North of England where to be 25 minutes late was to be on time and to be an hour late was par for the course.

Investment was not sufficient to bring about the modernisation and increased capacity which has become part and parcel of the present service; nor could it be because the only source was the Treasury. It is perhaps worth remembering that it was against the background of the previous 40 years--I am looking back to the 1950s--of disastrous reductions in passenger journeys (between 1952 and 1992 they fell from 17 per cent to just 5 per cent) and of a reduction in goods moved by rail (from 42 per cent to 7 per cent) that the Conservative government took the decision to undertake the privatisation programme.

Privatisation, or some of it, has been criticised, such as the creation of a number of separate companies to run different aspects of the service and, specifically, the creation of Railtrack. After decades of decline, privatisation has brought the opportunity of investment, modernisation and innovation,

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particularly to the train operators. Passenger numbers have increased and, until the most recent problems with broken rails, disastrous rail crashes, the massive programme of repair instigated by the Government and carried out at break-neck speed, which is not yet completed, and which has brought endless disruption to rail journeys, performance was generally well above pre-privatisation days.

The fact that that work had to be carried out is no reason for suggesting that the railways should be renationalised. Even these days, when the Government appear to be able to conjure capital from the Treasury like a rabbit from a hat, the cost of doing so, as well as taking the whole burden of investment on to the tax revenues, which will surely cease to be inexhaustible, would relegate the railways to their previous capital-starved state.

The danger of all the mechanisms that the Government have now put in place, in particular in the recent Transport Act, by giving Ministers substantial new powers and creating the overarching Strategic Rail Authority, is that even without renationalisation, the initiative and ideas of the industry will be stifled, and private investment, which is so badly needed, will be jeopardised by over-centralisation.

The new chairman of the Strategic Rail Authority has, if I may put it so, a good track record. However, it is in the travelling public's interest that he and that authority foster the companies that are bearing the burden of the cost of modernisation and providing the services.

The problems, if that does not happen, are amply demonstrated by the slump, referred to many times during the debate, in Railtrack's stock market position. To some extent, that will have been brought about by loss of investor confidence partly as a result of the opprobrium that has been heaped on its head from a variety of areas. Rather than undermining it further, the Government's priority should be to begin the process of restoring the self-confidence of the railway operators' management. The fact that Railtrack is sliding down the FTSE is of no benefit to anyone. The Government's urgent task should be to encourage it to focus on its role as an efficient network operator.

Apart from hard words, the Government have done little to date to dismantle or to reverse the privatised rail service. Even their oft announced rail modernisation fund of 7 million is designed to lever in greater amounts of private capital to enable the Strategic Rail Authority to engage in a long-term investment programme and to maximise the industry's ability to raise private capital.

In general, life moves on. Britain has progressed a long way from the disastrous days of a nationalised rail service, but progress and development is a continuous process. The absolute certainty is that even this Government are now unlikely to go backwards, although too much centralisation and external control could undermine the ability of privatisation to do its job.

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However, the main attention of the debate has been concentrated on Railtrack. If managers do not manage and companies do not perform, that must be dealt with either by the board or by the more senior managers. The future of Railtrack and its ability to deal with what it has set out to do is truly in their hands. No organisation stands still. Ideas change as time moves on. Circumstances bring about change, and organisations need to adapt to those different situations.

I do not believe that anyone in this Chamber would say that the services are perfect or, at the moment, satisfactory. But apart from the noble Lord, Lord Beaumont of Whitley, I have heard no one suggest that renationalisation will improve the situation. What is required is to ensure that the operation and services are increasingly attractive to the private sector and decreasingly of day-by-day interest to Ministers.

7.20 p.m.

The Minister of State, Department of the Environment, Transport and the Regions (Lord Macdonald of Tradeston): My Lords, this has been an interesting and informative debate. I am grateful to the noble Lord, Lord Beaumont, who spoke with obvious conviction. I thank other noble Lords for their equally well informed contributions. I also welcome the noble Baroness, Lady Hanham, to her short intrusion into transport.

I recognise the concerns so clearly articulated in the debate. It is unlikely that I shall be able to cover them all but any I fail to address I shall deal with in writing. We have achieved some progress since 1997 in some areas of the rail industry, but I agree that there is a great deal more to do. I shall set out how the Government will deliver that further growth and improved performance.

As the noble Lord, Lord Wallace of Saltaire, mentioned, there is a problem of growth. In some sense, it is a more positive challenge than the management of decline, which was the fate of many previous governments. One million more people go to work now than in 1997, which accounts for part of the pressure on our transport system.

Since Hatfield, several options for restructuring the management and operation of the national rail network have been put forward, particularly in relation to the future ownership of Railtrack. Indeed, last week the Transport Select Committee asked the Government to consider options which included taking Railtrack wholly back into public ownership.

I join the noble Baroness, Lady Thomas of Walliswood, in seeing difficulties with renationalisation. To do so would probably take a couple of years and involve potentially complex and controversial primary legislation, during which time the industry would be effectively paralysed. The initial cost to taxpayers would comprise not only Railtrack's market capitalisation of around 2.5 billion--in

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passing, I noticed that today its stock has risen by 5 per cent--but in recent times the market has sent its own harsh message to the board and the management of Railtrack. The taxpayers would also be expected to pick up the 4 billion of debt liabilities. None of that would buy additional rail investment; it would all go towards compensating shareholders and funding the company's debt.

Renationalisation would also involve the public sector in directly funding Railtrack investment into the future. The additional debt which the company currently plans to raise to finance its activities would become public sector borrowing.

I share the conviction of noble Lords that mistakes were made in the privatisation process. However, I accept that there have been some advantages of innovation and investment since privatisation. Since Hatfield, the Conservative architects of that process have admitted that they got it wrong. But after years of fragmentation and instability, surely the answer is not more upheaval. What we need now is evolution rather than revolution. In saying that, I echo the views of Sir Alistair Morton, chairman of the Strategic Rail Authority. His views are apparently at odds with those of the noble Lord, Lord Bradshaw, whose contribution to the Strategic Rail Authority is much appreciated by government, despite his occasionally different approach.

The Government believe that the major change advocated today to Railtrack's ownership, operation and accountability is not necessary to ensure that the company meets its public service obligations. We have, as was stressed by the noble Lord, Lord Faulkner, a rigorous and vigilant Rail Regulator to ensure that Railtrack delivers on its licence requirements and does not abuse its monopoly position.

The noble Lord, Lord Bradshaw, said that the regulator might be merged with the SRA, but their roles are different and their jurisdictions do not overlap. The regulator is independent of government while the Strategic Rail Authority is not. That independence was recently underscored by your Lordships in passing the Transport Act 2000. That independence exists in other regulated industries.

The noble Baroness, Lady Thomas of Walliswood, outlined some of the Liberal Democrat alternatives; for instance, a sustainable transport authority. I hope that she will forgive me if I do not go into a retrospective analysis of that. In February this year, the Prime Minister made it clear that in order to cure the problems on our railways we look to some of the alternatives supported by the Transport Act 2000. We need proper strategic control; we urgently need more investment; we have created the Strategic Rail Authority to tackle fragmentation and provide strategic leadership; and we are working hard to correct decades of under-investment through our 10-year plan for transport, published last July.

As the noble Lord, Lord Greaves, said, like him, the Government want stability. Where there has been so much upheaval we look for coherence and we look for growth where there has been decline. When the noble

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Lord was reading Thomas the Tank Engine I was probably trainspotting at Glasgow Central. I am delighted to say that this year as many people are travelling on the railways as were travelling in 1947 when I first put on my 1940s equivalent of an anorak.

The Government's interest is to ensure that Railtrack implements the national track recovery plan it promised following the disruption from gauge corner cracking and invests in a safer, more punctual and efficient railway. That is backed by our massive 60 billion programme in our 10-year plan. Therefore, the Government are creating the framework to deliver the bigger and better railway. We are doing that, first, by establishing the correct incentive structure and funding arrangements for the industry and, secondly, by providing the right tools and powers to enable its key players to work together effectively to rebuild public confidence in its ability to deliver a safe quality service.

The Government's priorities, like those of many noble Lords here today, are more investment and better management and firm but fair regulation allied to a clear, consistent strategy for that rail renaissance which we all want. In return for our enhanced public subsidies, we demand value for money for the travelling public.

Passengers are at the heart of our policies and they have not been getting the quality of journeys they deserve. The noble Lord, Lord Greaves, mentioned today's regrettable announcement by Virgin Trains that it will increase some unregulated fares by almost 10 per cent. Although train operators are free to increase unregulated fares, coming on top of the network problems following Hatfield it is a bitter pill for passengers to swallow. Surely it is not the way to attract passengers back to the railways.

The Government look to the SRA to take the lead on these matters. Today I discussed the situation with its chief executive, Mike Grant. As a result, I hope that as a matter of urgency he will be talking to Virgin Trains and asking it to explain itself.

That apart, we expect that the overall situation will continue to improve. That is the point of the 10-year plan, which is primed to start this month, and our role in driving forward the rail recovery programme. Through new legislation, new forms and enhanced levels of investment, and new franchise agreements, the Government are establishing a true public and private partnership working to shared national objectives.

Earlier this week, the Deputy Prime Minister announced a new relationship between the Government and Railtrack. That will enable Railtrack to concentrate on sustaining the existing network and improving its asset stewardship while allowing others to participate in the financing and management of new schemes to expand capacity. The Channel Tunnel rail link, which is on budget and on schedule, is a good

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example of how such projects could work with external finance, strong management and operational involvement by Railtrack at no extra cost to the taxpayers.

The new pact paves the way for bringing in third-party finance and project delivery skills to supplement Railtrack, starting with the priority major enhancement projects. It will enable the Strategic Rail Authority to create a new project finance and delivery vehicle for the East Coast Main Line and valuable new passenger and freight capacity on that key route. I assure the noble Baroness, Lady Thomas of Walliswood, that we value as highly as she does the need to demonstrate value for money. Through the public/private partnerships we believe that we can set targets and transfer risks on to private sector partners.

This week also witnessed the agreement between the Government and Railtrack on the rephasing of 1.5 billion of grants due to the company under the Rail Regulator's periodic review of its access charges. That will ease Railtrack's current financial problems. There is no new money here since the company has already accepted that the immediate costs arising from Hatfield and the subsequent network disruption must be borne by shareholders. In those deals there will be some comfort for my noble friend Lord Woolmer of Leeds who asked about the contractual arrangements in relation to maintenance. Those will be longer term and certainly better integrated into the supply chain management, which the industry appears to have dismantled in recent times. There will be a strengthening of the engineering presence not only on the board but at senior management level, and there will also be a public interest director appointed in consultation with government.

The SRA's refranchising programme has also taken a major step forward this week with the announcement of the preferred bidder for the new South West Trains franchise and the agreement with Chiltern--ahead of finalising the replacement franchise--of new trains and services, with tougher incentives for performance and customer satisfaction. As part of that agreement, the Government have undertaken to make up the difference between the level of access income from freight assumed in the regulator's October determination of passenger access charges and the final outcome of his review of freight charges, which my noble friend Lord Berkeley welcomed earlier. Today, Tom Winsor has published his provisional conclusions on freight charges. He proposes a halving of what Railfreight paid to Railtrack last year. The figure will be reduced to 82 million compared with 162 million at present.

The document offers the industry a framework for long-term stability of freight access charges which will promote strong and sustainable growth in rail freight. Together with the SRA, we shall study those proposals very carefully. I also join my noble friend Lord Berkeley in welcoming the fact that we have put in place a framework for the industry to enable all its key

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players to work together to deliver the 10-year plan which promises 50 per cent passenger growth and 80 per cent freight growth.

We are investing in the Government's vision of a national railway in which today's highest standards become the norm. The Government believe that their focus on safety, incentives, performance and delivery will ensure that the industry is run in the public interest as part of an integrated transport system. Obviously, the Government will try to enable the partnership,

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strategy and, above all, the investment to complete the job that they have begun. This week's general statement of principles between government and Railtrack marks a further stage in taking that forward.

Prior to Hatfield the railways had their best opportunity in over 50 years to change and grow. Our announcements this week show that that opportunity has not gone away. Our long-term goal remains to make the most of it through the 10-year plan.

        House adjourned at twenty-six minutes before eight o'clock.

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