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Lord Macdonald of Tradeston: My Lords, I listen with great respect to the noble Lord, Lord Marsh, given his long experience in industry, government and in particular the transport field. I accept the cautions that he states. Indeed, there were these recurring crises during the period when the railways were nationalised.
However, I do not accept that that is an inevitable cycle. I believe that with the structures we have put in place we probably have the enlightened self-interests around the board table of a kind which may not have been in place previously. I believe, too, based on the profound experience of decades of running a nationalised industry, but now, too, from the rather sad experience of the past six years of a privatised Railtrack, that there are lessons to be learned. If there is a criticism that I will readily accept, it is that we continued to be supportive of Railtrack perhaps beyond the point that it was cautious so to do. But we felt that we had to do everything in our power to make the system work and to give the management our support. Clearly, we came to this conclusion with some reluctance and sadness. However, having done so we decided to try to analyse and invest in full measure.
In terms of analysis, the noble Lord may concede that there is probably more of that now than in the past. The quality of it may be debated but we have analysed the problems very thoroughly. We have tried to create the framework for investment. We have now put in place short-term funding of around £10 billion. There will be about £7 billion for the so-called legacy problems inherited from Railtrack. As I said earlier, there will be the long-term support of the quasi-equity £4 billion which will persist over perhaps 50 years. Much of that is contingent liability. I would not expect much of it to be called. There will be a cap on the borrowings. But I believe that we now have a better sense of the scope of the problem and the moneys and policies in place to deal with it.
Lord Faulkner of Worcester: My Lords, does my noble friend agree that the principal reason that this is
such an important and welcome Statement is because it is a very valuable step towards undoing the damage of the fragmentation of the railway caused since privatisation? Like the noble Lord, I wish that the step had been taken earlier, but the fact that it has been taken is extremely welcome today.I endorse the point made by the noble Baroness about the way in which the industry is at last getting its act together. It demonstrated that after the Potters Bar accident. The welcome for the Statement from the rail regulator, the Strategic Rail Authority, the Railway Forum, passenger interest and others shows that there is broad support for the way in which the Government are now tackling this matter.
I ask specifically about the future of Mr John Armitt who addressed the all-party railways group earlier this week and impressed all the members of that group. Under his stewardship the number of delays attributed to Railtrack has now fallen from 50 per cent to 25 per cent and the record of signals passed at danger is now at its lowest level ever. I very much hope that Mr Armitt will be part of the future of the railway. I hope that my noble friend can give me some comfort on that.
Lord Macdonald of Tradeston: My Lords, I think that we would all agree, including noble Lords on the other side of the House, that there were defects in the way in which the railway industry was privatised. The conspicuous fragmentation of the industry would be one of the areas that we would hope the new structures would address. That would be true in the area of contracting and subcontracting to which Lord Cullen has drawn particular attention and on which I am sure the new management will begin to take action to remedy.
Like the noble Lord, Lord Faulkner, I was heartened by the way the industry pulled together after the tragic events at Potters Bar. I think, too, that the leadership shown by John Armitt in the short time he has been there will surely commend him to the new company if he is minded to stay with it. John Armitt comes with an engineering background of the kind I emphasised is so desirable and in need of strengthening inside Network Rail.
Like the noble Lord, I look at all the problems and sigh for all the difficulties and tragedies we have had in recent years. However, although bearing in mind the noble Lord's cautions, we now go ahead with cautious optimism.
Lord Renton: My Lords, will the Minister amplify his reference to the European Union? In particular, will he give an assurance that no European taxpayer outside this country will be required to help to contribute towards the losses incurred entirely in this country?
Lord Macdonald of Tradeston: My Lords, we have money in Railtrack at present from the European Investment Bank. But we have notified the European Commission on 31st May of the proposed package of financial support for Network Rail. We are simply
now seeking confirmation that that package is compatible with the Treaty of Rome. We have every confidence that it is.
Lord Maclennan of Rogart: My Lords, since this is not a company answerable to its shareholders, can the Minister be a little more explicit about the role and composition of the members to whom, presumably, the board is accountable? Can he say how the interests between the rail users and the operating rail companies are to be reflected in the membership? What guidelines are being given to this independent group which is to choose the members so that we can judge the extent to which normal corporate governance requirements are being satisfied? Will it be decided that there will be independent auditing within the new company? Will there be, for example, remuneration committees which will have the job of reporting on those kinds of issues as well? It seems a somewhat circuitous process with the board nominating the members nominating the governing board. We need to know a good deal more about the rules which will be applied.
Lord Macdonald of Tradeston: My Lords, to restate, I understand that there will be between 100 and 120 members. There will be a board of the company which will transfer from Network Rail as presently constituted but will in time be populated by people who are nominated by the members. The Strategic Rail Authority will be guaranteed membership on that board and may well have special powers inside the articles of association. No doubt the details of the relationship still have to be worked out.
The sale and purchase agreement has only just been signed so it is still early days. The thinking is that train operating companies, freight operating companies or contracting companies—a range of private sector interests in the railway industry—will be represented. We would also look to other outside bodies: in particular to the Scottish Parliament, to the Welsh Assembly, the regional interests in England and the passenger interests. I am not able to give the noble Lord a quick run through of what the articles of association might say, but I believe that the structure will be more accountable, more representative and more transparent.
Lord Lea of Crondall: My Lords, does the Minister accept that many noble Lords strongly support this method of drawing a line under the present position for two reasons? First, the solution is robust; and, secondly, it is important that we return to a credible medium-term investment strategy for the industry.
Perhaps I may pick up the point made by the noble Lord, Lord Renton. Does my noble friend agree that essentially the European Investment Bank is a facilitator, a financial intermediary, for private sector investment in the international bond market, and that Britain, far from receiving a subsidy, does not receive its normal proportionate share of such international money? I believe that it is right to say that we receive less as a proportion of the EIB's investments, and have done over many years, than France, Germany, Italy or
even Spain. A big challenge is spelt out in paragraph 20 of the Statement on the 10-year plan: £4.6 billion a year, which is £46 billion. Does my noble friend confirm that that is a challenge that has been taken up by the Government. The Statement says:
- "the Government will, through the 10 Year Plan, increase the average annual investment".
Lord Macdonald of Tradeston: My Lords, I defer to my noble friend Lord Lea in his knowledge of matters European. I have listened with great interest to the points that he makes about the European Investment Bank. On the general finances, I believe that the most encouraging aspect of this development is the positive response that we have received from the financial markets. I also believe that the 10-year plan remains a positive framework inside which investors can make their judgments. The willingness of the financial community to come forward to support Network Rail in the first tranche of money that has been raised, must give us encouragement for the future. We still have quite a way to go. We await the extraordinary general meeting at which, I trust, the shareholders will want to approve the sale and purchase agreement and the deals that have been put before them.
As the noble Viscount suggested earlier, there is still some way to go before we can see how to take forward the special purpose vehicle. That discussion will have to take place between the SRA and Network Rail management. When I previously had responsibility for transport, there appeared to be a great enthusiasm in the City of London to work alongside us on the large levels of investment that we have assumed under the 10-year plan. I hope that, once the markets have had an opportunity to digest what is on offer and in prospect today, they will continue to take a positive approach.
4.15 p.m.
Viscount Goschen: My Lords, all noble Lords wish Network Rail well in undertaking the refurbishment of the infrastructure of the UK's railways. A number of issues have yet to be answered. The Minister drew attention to the fact that the fragmentation of the railways would be reduced by the introduction of the Network Rail structure. How is that so? One network operator, Railtrack, is being replaced by another network operator, Network Rail. Surely, by itself that announcement will not produce any reduction in fragmentation of the railways. Network Rail may well pursue different policies in the future in conjunction with the SRA. The fact that there is a new network operator makes no difference to the number of
companies. Indeed, we have heard that major projects will be undertaken by the use of special purpose vehicles, which means more corporate entities and not fewer—so more fragmentation not less.On corporate governance, I thought that the Minister said that the board would have a role in appointing a committee that, in turn, would appoint the members who, in turn, would exercise corporate governance over the board. That appears to be a rather circular structure. At a time when corporate governance is increasingly under the spotlight, particularly in the United States, surely great emphasis should be placed on reassuring investors, or those bodies that are to provide finance to Network Rail through debt, that proper corporate governance procedures are in place.
Thirdly, on whether or not Network Rail is a public company, I did not understand the Minister's argument about BUPA. Unlike BUPA, this body is the Government's own creation. It will undertake the Government's transport policy through the SRA and indeed it is underwritten by the Government. Why does that not make it a public company? The noble Lord drew comfort from the fact that the £4 billion underwritten by the SRA is quasi equity. Equity means ownership, so that implies that the SRA owns this company or at least a proportion of it. The SRA is a vehicle of the Government, so it must be a government company.
Perhaps the Minister will say why the Government are being so coy about public ownership of this body. If it were a public company, the Government would have fully nationalised Railtrack, and I understand that that word holds some powerful connotations for the Government. Had they nationalised it, they would have been able to borrow on the gilt market, the cheapest possible form of borrowing, to refurbish our rail infrastructure. I should be grateful if the Minister could give the cost difference between the Government borrowing the money straight on the gilt market in the conventional way and the new body borrowing money commercially. If he cannot answer that now, perhaps he could provide me with that information at a later date.
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