Select Committee on Constitution Minutes of Evidence

Annex 2

Secretary of State's Statement to Parliament Re: Future of Independent Economic Regulation

  As the Government announced in October 2001, it has been considering whether the railways regulatory framework continues to be fit for purpose given the changing circumstances faced by the UK rail industry. The Government's considerations have been guided by a number of key overarching principles:

    —  providing sufficient comfort and protection to operators and lenders through independent economic regulation and in order to regulate monopoly/monopsony elements and to secure private investment in the railways at an efficient cost;

    —  ensuring that public expenditure on the railways delivers the Government's objectives and achieves value for money;

    —  ensuring that the level of public expenditure on the railways respects and reflects the Government's overall spending priorities, including the 10 Year Plan;

    —  keeping the burden of regulation to the minimum level necessary; and

    —  ensuring a stable, well led industry with clarity of roles.

  Having reviewed the current regulatory regime, the Government proposes to build on the existing board structure of the ORR by establishing a statutory Regulatory Board. This is in line with Government policy on independent regulatory authorities, is consistent with the recommendations of the Better Regulation Task Force, and has been done in the case of the regulation of the gas and electricity industries (Utilities Act 2000) and postal services (Postal Services Act 2000) and is in the course of being done for the Office of Fair Trading (Enterprise Bill) and the telecommunications and broadcasting sectors.

  The Regulator's duties include requirements to have regard to the SRA's strategies and budget. In view of the importance the Government attaches to continued close working between the SRA and the Regulator on these matters, I intend to issue directions to the SRA and guidance to the Regulator on how I expect these requirements to be reflected in any future review of the network operator's revenue requirements.

  The Government will need to continue to keep the effectiveness of the regime under review as the rail sector develops. The implementation of EU Directives already requires the Government to review the regulatory framework and adjust it in accordance with the Directives as necessary (the implementation of the First Railway Package of Directives is due by March 2003).

  In making any further changes to the regulatory regime, the Government will continue to have regard to all of the principles set out above, treating the first one on independent economic regulation as an essential continuing requirement. Should the Government conclude that any change is required, it would consult key stakeholders on proposals in the normal way before bringing forward appropriate legislation.

12 June 2003

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