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Lord Falconer of Thoroton: My Lords, that was a very intemperate account of what happened. Yes, of course Railtrack, by comparison with a number of things that British Rail did, has shown improvements. But on 25th July 2001 Railtrack ended up in a position where it said that it required an unspecified amount of money and a guarantee from the Government in order to remain solvent. Of course people who invest in shares recognise that they are taking some risk. It was for the Government to decide whether in the circumstances which presented themselves on 25th July it was right to commit the British taxpayer to an unlimited guarantee over a number of years, or to face up to what had happened; namely, that Railtrack was then insolvent. In those circumstances, the consequences for the shareholders were bad. However, I have no doubt that it was correct for the Government to face up to those consequences. That was not remotely cheating; it was facing up to what had happened.

Lord Faulkner of Worcester: My Lords, does my noble and learned friend agree that the problem at the heart of the Railtrack privatisation was the incompatibility between serving the public interest and enhancing shareholder value, despite the fact that the Railtrack licence says quite clearly that the public interest must come ahead of the shareholder value? Is it not that which led to the huge escalation in the cost of investment projects now calculated at anything between 2.4 and three times what similar projects used to cost pre-privatisation? Furthermore, as a result is there not a much overdue need for a new company along the lines which my noble and learned friend described in the Statement, and will not that be widely welcomed not only on these Benches and on the Liberal Democrat Benches but by the millions of people who use the railway system as well as by the thousands who work on it?

Lord Falconer of Thoroton: My Lords, it is possible to debate for some considerable time the precise causes of the problems. The structure, to which my noble friend referred, plainly has a part to play. But, whatever the precise causes, on 25th July and in the few weeks that followed we ended up with a company that

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could not identify the amount of money it required to remain solvent. That is not a basis upon which it would be possible to provide the travelling public with the service that they are entitled to expect.

The Earl of Mar and Kellie: My Lords--

Lord Peyton of Yeovil: My Lords--

Lord Williams of Mostyn: My Lords, shall we try the noble Earl, Lord Mar and Kellie, first and then definitely the noble Lord, Lord Peyton?

The Earl of Mar and Kellie: My Lords, can the Minister confirm newspaper reports that the Government want to experiment with the vertical integration of the industry in Scotland? Can he also confirm that there will now be more chance of an expansion in the network, particularly, for example, the reopening of the Stirling Alloa Dunfermline Railway?

Lord Falconer of Thoroton: My Lords, the intention is to have a company limited by guarantee. That company will deal with the operations, maintenance and repair functions of Railtrack. That company will be able better to deal with the interface between wheel and track. Larger projects will be dealt with by special purpose vehicles. I do not think that it is right to go further than that at this stage because one needs detailed discussions with the industry on how to take the matter forward.

Lord Peyton of Yeovil: My Lords, I hope that I take the Minister with me to the extent of saying that perhaps the last way of dealing sensibly with a matter of this complexity is the one that we are using now. It will not work. Perhaps I may remind the Minister that I never thought that Railtrack was anything but a pretty dud idea. When the government who introduced that company departed from office, I was fairly confident that the then opposition party would rush to put things right. But it did not do that, and I suspect that the reason why it did not do so was that it knew well that an industry that was pretty much bankrupt would simply resort to relying on the Treasury to act as a banker. That is a death warrant for any venture.

I hope that the Minister will accept that I think the Secretary of State is to be envied in one matter alone; he has had at his disposal the noble and learned Lord's skill in defending the indefensible this afternoon. I hope very much that we shall have a proper debate on this matter, opened with a much fuller explanation from the Minister. It is easy to pretend that all was well, but I simply cannot credit it that the Minister concerned is not putting his own skin above every other consideration. I do not refer to the noble and learned Lord; I refer to the Secretary of State, whom the noble and learned Lord at the Dispatch Box has had the heavy burden of representing today.

Lord Falconer of Thoroton: My Lords, I should correct what I said from a sedentary position. I am sure

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that it is right that the noble Lord, Lord Peyton, opposed rail privatisation throughout the time that the proposals went through Parliament. He has been completely consistent in saying that it was a bad idea since it was first adumbrated. I think that few people would now disagree with the views that the noble Lord expressed at the time.

We thought that the right thing to do would be to try to make the system work in order to deliver good services to the travelling public. The noble Lord has stated that we are now going about it in the wrong way. Our hands were considerably tied by the simple proposition that, once it became apparent that Railtrack was insolvent, there was no option but to make that fact public and then make arrangements to protect the creditors. As the Statement made absolutely clear, if the choice was between a blank cheque from the Government to be issued for years to come or to face up to the insolvency of Railtrack, we think that the right course was to face up to that insolvency. I have not yet heard one dissenting voice in the Chamber in regard to that decision.

Lord Palmer: My Lords, I am concerned and mystified as regards how the new company will be able to raise any capital. Perhaps the noble and learned Lord would be kind enough to give the House some clarification as to how he envisages such a vast amount of capital will be raised.

Lord Falconer of Thoroton: My Lords, the new company will be able to raise capital on the basis that it will be a company limited by guarantee, with certain assets guaranteed by certain people. In that way, the company will be able to raise money.

Lord Berkeley: My Lords, I congratulate the Government on their move to put Railtrack into administration. I believe that it is an event which has been coming for a long time. To that end, I cannot understand the complaints being made by shareholders who say that they did not know anything about the problems. Can my noble and learned friend confirm that if any shareholders had read the technical press or had listened to comments about Railtrack's performance over the past year they would have been able to form their own judgment? Personally, I do not believe that they deserve much compensation.

I am pleased that my noble and learned friend has confirmed that extensive consultation will be carried out with the industry. This is a complex situation and I am glad that my noble and learned friend is keen to see that the trains continue to run.

I declare an interest as chairman of the Rail Freight Group. Perhaps I may put a question to my noble and learned friend. Rail Freight is in the final stages of a regulatory review of freight access charges which, it is said, will reduce those charges by around 50 per cent. I believe that the regulator is due to announce that any day now. Can my noble and learned friend confirm

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that this arrangement will stand and that the Government will guarantee that finance? It is extremely important for the rail freight industry.

Lord Falconer of Thoroton: My Lords, as regards the position of Railtrack shareholders, I think that it would be wrong to make any specific comment save to say that my noble friend is right. The difficulties in which Railtrack found itself had been widely reported in the press. While it is true to say that the precise extent of those difficulties might not have been known, it was clear that a question mark and a risk overshadowed Railtrack.

Perhaps I may write to my noble friend on the issue of freight charges.

Baroness Scott of Needham Market: My Lords, the Statement contains a wonderful phrase that I should like to repeat:

"The company will be able to promote collaboration and co-operation around the wheel and track interface, the absence of which has been one of Railtrack's weaknesses".

From that it would appear that the Government agree with those of us who believe that the separation of rail infrastructure from rail operation was a major flaw in the way that the rail industry was privatised. In the light of that, does the Minister believe that the ability merely to promote collaboration and co-operation will be enough to deliver the kind of changes which everyone knows are needed in the rail industry? It would be a grave mistake to think that simply removing shareholders from the equation and creating a "Son of Railtrack" will make a significant difference.

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