Select Committee on Constitution Minutes of Evidence

Annex 1

Statutory Guidance to the Rail Regulator from The Secretary of State for Transport


  Section 4(5)(a) of the Railways Act 1993 ("the 1993 Act"), as amended by section 224 of the Transport Act 2000 ("the 2000 Act"), imposes on the Rail Regulator a duty to have regard to any general guidance given to him by the Secretary of State about railways services or other matters relating to railways. This document sets out such guidance in relation to working with the other railways regulatory bodies—the Strategic Rail Authority (SRA) and the Health and Safety Executive (HSE)—to a common agenda.


  The Rail Regulator, the SRA and the HSE are the three pillars of railway regulation in Great Britain. The Secretary of State looks to these three regulators to work together to ensure that the railways are run safely in the public interest, through effective and accountable regulation.

  The Rail Regulator provides economic regulation of the monopoly and dominant elements of the rail industry, including determining the level of charges levied by the infrastructure manager (currently Railtrack) and regulating its stewardship of the national rail network. He is independent of Government.

  The SRA is the strategic, planning, and co-ordinating body for the rail industry and the guardian of the interests of rail passengers. It acts as purchaser of train services and railway infrastructure. It also has various legal agreements with Network Rail, including the provision of standby credit facilities and the funding of certain additional costs, which will become effective if that company successfully completes the acquisition of Railtrack. The SRA's task is to provide a clear strategic direction for rail transport in Britain; promote rail passenger and freight transport; and encourage private investment in the rail industry.

  The Health and Safety Commission (HSC) is the single, independent safety regulator for railways in Great Britain and the HSE is its operational arm. In carrying out his functions the Rail Regulator should ensure that the HSE is fully consulted whenever railway safety may be an issue, and he should be guided by the advice of HSC/HSE on all health and safety issues.


Working to a common agenda

  It is particularly important that the Rail Regulator works closely with the SRA and HSE to strengthen and support the railway. He and they will need to maintain close working relationships, while recognising the boundaries among their respective responsibilities. He should freely share information with them except where statutory protections or commercial confidentiality require otherwise. In particular he should share information at an early stage on anything that may be material to forward financial planning by the SRA. The Rail Regulator should be mindful that Directions and Guidance issued to the SRA on 11 April 2002 and subsequently updated on 26 September 2002 by the Secretary of State require it, among other things, to publish an overall strategy in January of each year. The purpose of this strategy is to address the objectives set for the SRA in those Directions and Guidance, which relate to the operation of the railway and are intended to contribute to the achievement of the targets set out in the 10 year plan. The SRA may also publish separate strategies which relate to individual issues and which contribute to the overall strategy. The Rail Regulator should seek to ensure that, so far as possible, in exercising his functions he does not prejudice the achievement of these strategies, and particularly the overall strategy, published by the SRA.

  If in facilitating the furtherance of the SRA's strategies the Regulator considers that clarification or a further strategic statement is desirable to properly discharge his functions, he should make a request to the SRA. Where the Authority agrees to such a request, the Rail Regulator should allow the Authority a reasonable opportunity to produce the guidance in time for him to take it into account in reaching his final decision.

  The Rail Regulator should also be mindful that the Secretary of State's Directions and Guidance require the SRA to summarise, as part of its overall strategy, the resources which are available to it and the basis on which priorities for the use of these resources are determined. In addition, they suggest that the Authority should describe in the overall strategy how it intends to maximise net benefits from the funds available to the Authority. The SRA is also required by virtue of its financial framework to obtain the consent of the Secretary of State before entering into any commitment or publishing any strategy that requires additional resources beyond those which have been allocated to it.

  The Regulator should also be mindful that by virtue of its financial framework and of section 207(4) of the Transport Act 2000, the SRA is required to secure value for money from its expenditure. The financial framework also includes detailed provisions relating to the SRA's finances which the Regulator should have regard to in his exercising of his functions. The SRA is required to adhere to the terms on which standby credit facilities may be called upon by Network Rail and to undertake detailed monitoring to ensure continued compliance.

  The Rail Regulator should take care to ensure that he does not cause the SRA as a result of the costs passed through from operators or otherwise to:

    (i)  incur additional expenditure beyond its allocated budget;

    (ii)  incur expenditure which does not secure value for money; or

    (iii)  incur expenditure which impairs its ability to maximise net benefits from the funds available to it.

  If, in recognition of his statutory duties, the Rail Regulator considers that it is necessary to exercise his functions in a particular way which he believes might result in any of those eventualities, he should first discuss this with the SRA and allow it to make representations on the matter. In doing so, he should also allow the SRA the opportunity to consider whether it would wish to amend its strategies or seek consent from the Secretary of State for additional expenditure.

  It is particularly important that the Rail Regulator should be mindful of SRA strategies and financial position in the context of any review of access charges under Schedule 4A of the 1993 Act. The Directions and Guidance require the SRA to consider at the start of any access charge review whether the elements of its overall strategy that address the resources available and the basis for the prioritisation of the use of those resources are fully up to date and, if not, inform the Regulator of any changes that it considers are necessary. The Rail Regulator should have particular regard to the relevant section of the overall strategy or, if relevant, to the changes notified to him by the SRA in carrying out his review.

  Furthermore, if, in recognition of his statutory duties (eg his duty under section 4(5)(b) of the 1993 Act 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 or proposed activities of theirs in relation to which he has functions by virtue of Part I of the Act), the Rail Regulator is aware that the conclusions of the review might cause the SRA to incur (regardless of any potential savings elsewhere in the Authority's budget) expenditure which is not provided for in its strategy, expenditure beyond the resources allocated to it, or expenditure which either does not secure value for money or risks impairing its ability to maximise net benefits from available resources, he should inform the SRA of this and allow it to make representations on the matter in advance of the publication of those conclusions. The Rail Regulator should then consider in the light of those representations whether changes are needed to his conclusions prior to their publication. In doing so, he should also allow the SRA the opportunity to consider whether it would wish to amend its strategies or seek consent from the Secretary of State for additional expenditure.

  In order to facilitate discussions with the SRA in relation to all of the financial matters set out above (and access charge review related matters generally) the Rail Regulator should seek to agree with the SRA a framework for assessing the impact of his decisions on the value for money and net benefits generated from SRA funds.

  The Rail Regulator should also bear in mind that railway assets, especially rolling stock and infrastructure, typically take time to deliver and have a life span measured in decades. Equally, the strategic development of the railway will be affected by demographic, social and other changes taking place over the longer term. The Rail Regulator should always have regard to these long-term factors.

26 September 2002

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