Select Committee on Constitution Minutes of Evidence

Annex A


  My experience of the rail privatisation process started on 18 January 1993 when Roger Salmon, Franchising Director designate, and I moved into the ninth floor of Number 2 Marsham Street, acting as special advisor to John McGregor MP, Secretary of State for Transport.

  The Railways Bill was highly controversial and took the best part of the year to go through both Houses before gaining Royal Assent; there were many amendments, some technical but others involving serious points of substance, including guarantees of control over fares and of protection for special groups.

  I saw my role as advising on the "public interest" aspects of the future regulatory matrix, that combination of licence obligations and access agreements which would form the legal basis on which the track authority and the train operating companies engaged in the business of running a national railway network. But control over the management of the Bill and the establishment of the "matrix" rested with Government.

  The rail regulator's statutory powers came into effect in April 1994 by which time the "matrix" had been established for shadow running of the railway, still under the ownership of British Railways but with responsibility for privatisation resting with the Government.

  The process of privatising the passenger train operators was not completed until April 1997, a month before the general Election, but Railtrack had been privatised in 1996 and the ROSCO's well before that. Thus by the time the Labour government was returned to power no railway assets remained in the public sector and very few powers of control remained for the Government—the franchises then running on seven years or more contracts settled by the Franchising Director.

  Our aim from the period 1994-98 was to seek to ensure that the matrix contained sufficient incentives and obligations on the industry to take forward improvements in the management of the assets transferred and to keep up pressure for improvements. Privatisation was simply a means to an end: the employment of access to the capital markets and to "new thinking" to make substantial improvements to the railway network for the benefit of passengers and freight users.

  During that period we set charge controls for Railtrack, for the first time allowing the company to look ahead and plan for a six year period without annual recourse to the Treasury for funds: once Railtrack had been privatised it was no longer subject to the External Financing Limit and could access the capital markets to fund the necessary programme for modernisation of its assets. When Railtrack appeared unresponsive to demands from its users for funding we changed their licence so as to make them more obviously accountable than under the terms of their existing license. We also introduced and applied Key Performance Indicators and obtained legally binding agreements from Railtrack in lieu of penalties. We were also actively engaged in seeking to improve the performance of the train operating companies over and above their minimum franchise obligations.

  Our activities were recorded in the five Annual Reports made to the Secretary of State. In 1997 and 1998 it was clear that the Secretary of State was seeking new legislation to change the basis of the institutional control over the railways and to introduce a Strategic Rail Authority, which would acquire many of the functions of the Rail Regulator including those of passenger protection. That was not introduced until the Transport Act 2000 but provision had been made for shadow running under the Chairmanship of Sir Alastair Morton in 1999.

  My term of office closed at the end of my five year contract at 30 November 1998.

John Swift QC

18 February 2003

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