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Baroness Hanham: My Lords, who are the guarantors?
Lord Falconer of Thoroton: My Lords, as was made clear at the outset, the guarantors will be a range of people representing the whole industry. In answer to her next question—will the Government be seeking representation on the board?—the SRA will be represented on the board. Her next question was: am I satisfied that there is no conflict of interest? She will recall that when the CLG bid was being put together, responsibility for it was placed in the hands of the SRA. Mr Ian McAllister, former chairman of Ford Great Britain, was put in charge of running that bid. The CLG bid is therefore coming from a non-departmental public body separate from the Department for Transport, Local Government and the Regions.
The noble Baroness next asked: will the money come from the £65 billion? As has been made clear throughout, the sum is self-financing because of the savings made by an early exit from administration. Will the money be available to any other bidder? The principle underlying the £300 million is that it is a sum for an early exit from administration, so if another bidder put forward a proposal that led to an early exit
from administration—obviously, subject to negotiation and agreement—some sum for early exit from administration would be available.I think that that deals with all of the questions asked by the noble Baroness. The noble Lord, Lord Bradshaw, asked whether the cost of administration is being borne by the shareholders. Currently, the cost of administration is being borne by the company itself, not by the shareholders—as is normal. What are we buying for the £300 million? We are buying an early exit from administration. As is made clear in the Statement, if there is no early exit from administration, the £300 million will not be available. Is the money to bring an end to the lawsuit? We seek by the £300 million payment without much further ado—although obviously there will be some further ado and we cannot get out of administration before July—to bring to an end what is plainly a transitional process from where we were before administration to the permanent future for the railways.
I am sure that the noble Lord, Lord Bradshaw, would be the first to agree that what we really want is a permanent and settled future for the railways. The quicker that we get out of administration, the better. I think that the last question with which I am in a position to deal is: who is taking the risk? The risk will obviously be taken by the CLG, in the context of the arrangement set up if it is the successful bidder.
Baroness Hanham: My Lords, may I ask the Minister about the implications of what he said about the single tender bid? Did he say that Network Rail is being accepted as a single tender bidder without considering whether any other company provides a better offer, a better bid or a better outcome, and that at present the only justification for choosing Network Rail is that it may be able to get out of administration by July 2002?
Lord Falconer of Thoroton: No, my Lords, that is not what I said. Network Rail is making a bid. That bid includes £300 million by way of grant provided by the Government, which is a payment for early exit from administration. It is now for the administrator to consider the bid.
7.6 p.m.
Lord Faulkner of Worcester: My Lords, can my noble and learned friend confirm that the Government are not by this announcement creating value that did not exist before, and that the payment of £300 million reflects not compensation to shareholders but an assessment to the value of the travelling public of taking the company out of administration much more quickly than would otherwise be the case? Is he aware that most people concerned with the industry will welcome today's Statement, and that they certainly believe that the decision to put Railtrack into administration in the first place was entirely justified? After Hatfield, it was a company that was clearly insolvent. It had demonstrated that it was incapable of managing its costs; it was incapable of producing a
register of its assets; and it treated its customers in a scandalous and disgraceful manner. Administration was the only alternative way to deal with it.Is my noble and learned friend further aware that there is immense goodwill towards Mr John Armitt and the fresh start that he has already made at Railtrack, and that there are already some signs that the company's performance is improving?
Lord Falconer of Thoroton: Yes, my Lords, I agree that that payment is not creating any new value for the shareholders, it represents the value of an early exit from administration. I agree that most people engaged in the industry regard the appointment of the administrators as the right course. I agree that most people in the industry will welcome today's announcement because it may bring closer the end of administration. I further agree with the proposition that the input of Mr John Armitt, the chief executive of Railtrack, has been beneficial to Railtrack, and that there are already some signs of improvement in Railtrack's performance.
Lord Boardman: My Lords, the noble and learned Lord said that there would be no shareholders in Network Rail. Presumably, the capital is being formed by guaranteed share capital on the one hand and loans and grants on the other. To what extent are the Government providing assurance, cross-guarantees or letters of comfort in respect of the capital required by Network Rail to carry out this operation and to run the railways afterwards? He suggested in his Statement that no government liability will remain. Is that so?
Lord Falconer of Thoroton: My Lords, everyone accepts that government grants will have to be provided to keep the rail network going. No one doubts that. Network Rail's bid, just like any other, must reflect that basic fact.
Lord Berkeley: My Lords, the Government have given—offered, I should say—the Railtrack shareholders a jolly good deal today. I declare an interest as chairman of a rail freight group. As the noble Lord, Lord Bradshaw, said, they do not deserve anything much. However, since, as my noble and learned friend said, there is no asset register, there is not much that we can do.
One significant factor that my noble and learned friend did not mention is the approach that the CLG is taking to the management of Railtrack and how it intends to get away from its arrogant approach to a much more inclusive partnership approach, which will bring great benefits to the railways and stop all the confrontation that has been going on for years.
In the Statement, my noble and learned friend mentioned an early exit and that anyone whose bid was successful and who achieved the early exit would receive the £300 million prize. How early is early?
What is the timetable for the administrator to receive other bids, if necessary, and complete the process? He mentioned July, but is that the final date?
Lord Falconer of Thoroton: My Lords, on the initial part of my noble friend's question, the partnership approach is most important. One benefit of a company limited by guarantee is that the guarantors can represent a wide range of stakeholders engaged in running or being a customer or financier of the rail industry. We think that incredibly important.
I must make clear that the availability of £300 million to anybody who offers the early exit depends on precisely what early exit is offered by any bidder. It would not necessarily be £300 million; it would depend on the terms of the early exit. Network Rail says that its proposal, if accepted, could take Railtrack plc out of administration as early as the end of July 2002. However, it is for the administrators to consider whether that is deliverable.
Lord King of Bridgwater: My Lords, is it not clear that this is a sensible move? It should remove the chance of a court action that would involve the Secretary of State having to give evidence under oath, which would have been highly embarrassing for him but would not have helped the railways one bit. Nobody is in much doubt that the Secretary of State's role in the affair has been less than glorious. It is better to get on with dealing with things that might be of benefit to the railways.
I find the endless harking back to rail privatisation nauseating. Any system can be made to work if we get the right management to run it. The most discouraging feature of the Government's role is that they have sat for five years criticising the system while doing nothing to improve it and make it work. After five years of what amounts to total negligence, the Government cannot say, with hindsight, that everybody knew that it was a disaster. Why did not they do something about it?
The noble Lord, Lord Bradshaw, implied that the City was full of money and was happy to invest in all sorts of schemes. The House knows that the City will not do so, without some real guarantees, letters of comfort or assurances. I understand that Network Rail's proposals would require the borrowing of £9,000 million. How will that be guaranteed? What assurances will be given? People will not lend their money—our pension funds—unless they have a guarantee.
Lord Falconer of Thoroton: My Lords, that was a series of profoundly unfair remarks from the noble Lord. First, we spent five years trying to make the privatisation work. Eventually, in October 2002, in the terms that were set out by Mr Justice Lightman, Railtrack was put into administration. It was made clear, when we took office in 1997, that we thought that the right course was to try to make it work. Ultimately, it could not be made to work. The right course now is to look forward and try to find a proper future for the organisation of the railways.
I think that the noble Lord was saying that it was sensible to get Railtrack out of administration as quickly as possible. He did not say that, but I think that that is what he meant. We agree with that proposition, and we think that the details of the bid that has been announced today bring that outcome closer.
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