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Lord Bradshaw: My Lords, I rise to lend support to what the noble Viscount, Lord Astor, has just said and to his amendment. This is an extremely complicated issue and I imagine that even the Minister may need time to study what is said. However, as far as I can tell, it also covers the content of Amendments Nos. 5 and 6. Obviously, in such a complex situation it has been necessary for those people who are here to scrutinise legislation to consult widely with people who are well advised. That is not something which we find easy to do. We do not have the official advice that the Minister has at his disposal.
 
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I am interested to hear what the Minister has to say, but as far as I can tell at the moment, this amendment which has been moved by the noble Viscount, Lord Astor, touches on the salient factor that, although the network code protects people, there are certain areas it probably does not reach. We must always bear in mind what happened to Railtrack, for example. I am not saying that Network Rail will go the same way, but changes can occur and the network code could disappear. The operators, especially the open access operators, who are very badly protected without the code, could find themselves disadvantaged substantially. They have extremely expensive long-term sunk assets, which cannot easily be moved somewhere else.

I can envisage circumstances where these people might have a very good case for compensation. I believe that the terms that have been set out by the noble Viscount sketch out a way forward. I am not saying that it is the best way forward, but I am interested to hear what the Minister has to say when he responds.

5.15 p.m.

Lord Berkeley: My Lords, this amendment has been put down by the noble Viscount quite late in the day, but it is a neat way of achieving the intent behind Amendments Nos. 5 and 6, which, as the noble Viscount and the noble Lord, Lord Bradshaw, said, are designed to provide compensation to those organisations or companies that are affected by subsequent changes to the capability of the network.

The important thing in both this amendment and in Amendments Nos. 5 and 6 is to encourage all the parties to the discussions to come up with ways of mitigating the problem caused by a lack of investment—whether diversionary routes or different types of maintenance regimes—before one goes down the compensation route. I think that these amendments could achieve that. I agree that the network code can be changed and we are returning to the discussion that we have had many times this afternoon about government interference on the railways, which is probably not surprising given the amount of money that has been put into the railways.

However, there is also the question of changes of mind. Some very nice new trains were ordered for Midland Mainline to run a service to Leeds. The SRA asked the passenger train operator to approve these trains and then, after they had been delivered, the SRA changed its mind. The trains are now sitting in a siding, and I read recently that they may have to have their bogies changed and be sent to Ireland to run a service there. It is nice that they are being used because otherwise some company, be it the train operator or the leasing company, will lose a lot of money. That is just one example. It is not directly related to this matter, but it could have been related. We have to accept that governments will change their mind, especially when so much money is involved.
 
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This amendment is a very reasonable means of ensuring that, if the Government do change their mind and cut the money, with adverse consequences to the companies involved, those companies should be able to get compensation if there are no mitigating circumstances. That should be included in the Bill rather than having to pursue various different codes or other routes through the regulator. Including the measure in the Bill means that it is there and people can go directly to it. There is a good structure to this amendment. It needs a bit more reading on my part, but, on the whole, it is a good idea and I support it.

Lord Davies of Oldham: My Lords, I am grateful to noble Lords who have spoken in this debate on a complex area. I hope that I am able to establish the wisdom of the noble Viscount, Lord Astor, withdrawing his amendment at the conclusion of the short debate because I fear that it leads us into very difficult areas in terms of political controversy. Certainly, if there should prove to be a general election this year he might find that this amendment places him in a somewhat invidious and difficult position. Let me establish why that is so.

First, I share with all noble Lords who have contributed to this debate the obvious concern that operators must have in regarding the potential impact of a future access charges review on their businesses. That is a proper concern that has been articulated in all three contributions to the debates. We are keen to provide operators with certainty that they will receive mitigation or compensation should their businesses be affected by these processes. We have made public an exchange of letters between the Secretary of State and the Office of Rail Regulation to that effect. We are continuing to work with the industry to ensure that access contracts and the Network Code deal as effectively as possible with this issue. But as I have said before, the fact remains that these are issues best dealt with through clear contractual processes and not through legislation.

The amendment attempts to deal with issues of compensation and mitigation which are currently, and more properly, dealt with in access agreements—for example those between Network Rail and train operators. Those contracts have been in place for more than ten years and are well understood by the parties; they have been developed, and continue to develop where weaknesses in the arrangements are discovered. The ORR approves all access agreements and when conducting an access charges review does so in the full knowledge of their contents. Therefore, where a possible consequence of a review is a change to the network which could affect access rights—the main concern of this amendment—and thus lead to the need for mitigation or compensation, the ORR would take that into account in its considerations.

The Secretary of State has recognised the concerns of some operators, and confirmed in his letter to the chairman of the ORR of 28 February that he would be asking in his general guidance to the ORR that it make explicit any consideration of compensation during an access charges review. I would like to remind the
 
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House that, as we discussed on a previous amendment, access charges reviews are carried out in a wholly transparent, public and consultative way, and that this consideration would be available to anyone who was interested in the issue.

We accept that franchise agreements would need to be varied in the event that, as a consequence of inadequate funding being available for all outputs from the network, franchise obligations in respect of service level and quality would be made undeliverable.

There are some real problems with the amendment tabled by the noble Viscount and I counsel caution. The amendment would effectively provide that the cost of compensation would be met out of public funds. In conducting an access charges review, the ORR determines Network Rail's overall funding requirement, which is met through track access charges and network grant. Part of this funding requirement will be funding for compensation, which will feed through to some proportion of access charges. The train operators' ability to pay access charges comes both from subsidy and their other income sources. I assume that by "adequate compensation" the noble Viscount means the compensation which is due under the access contracts.

Subsection (2D) of Amendment No. 3A would oblige the Secretary of State to increase public financial resources to secure what he and the Scottish Ministers want to be achieved as opposed to the situation envisaged by the Bill, that the ORR will determine how much of what is wanted can be afforded for the purposes of the access charges review. Subsection (2D) would also have the, presumably unintended, impact of making the Secretary of State pick up the funding shortfall between what the Scottish Ministers want to be achieved and the budget specified by them. Under the amendment the gap could be filled only by the British taxpayer picking up the bill.

It should be for Parliament, not an independent regulator, to determine how much taxpayers' money is spent on the railways. That is not the role of the independent regulator. Every week the Government spend £73 million on the railways. Is the noble Viscount, Lord Astor, really suggesting that the Government should not be able to set the budget for the railways? Would a future government really be prepared to write a blank cheque for the railways, because that would be the effect of the amendment?

Viscount Astor: My Lords, I am grateful to the Minister for giving way. I am always prepared to accept drafting lessons as this is a complicated area. However, I believe that the noble Lord may have misinterpreted my amendment, or perhaps my amendment is not sufficiently clear. Under the terms of the amendment public funds would be used only where mismatches occurred; that is, if franchisees were unable to deliver their existing contracts due to changes in the Secretary of State's spending on the network; in other words, where it was impossible for them to fulfil their contracts. However, if the ORR
 
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allowed those contracts to be changed so that there was no such mismatch, there would be no burden on the public purse.

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