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"(2A) Where a Passenger Transport Executive for an area in England submits a statement under subsection (1A) the Executive shall be a party to any franchise agreement in respect of any services specified in the statement providing that the Executive becomes a party to the agreement within 60 days of the agreement being finalised."
Page 12, line 41, leave out from "unless" to end of line and insert "one of the conditions in subsection (5A) is met"
Page 12, line 41, at end insert—
"(5A) The conditions referred to in subsection (5) are—
(a) that the agreement is not for purposes relating to or connected with the provisions of—
(i) services for the carriage of passengers by railway; or
(ii) station services provided for purposes connected with any such services;
(b) that the agreement relates exclusively to the grant of permission for a person to use a railway facility where a Passenger Transport Executive is the facility owner or the person granted permission; and
(c) the agreement is approved by the Secretary of State."
Page 12, line 43, leave out "(5)" and insert "(5A)"
Page 13, line 12, at end insert—
"(8A) If the Secretary of State considers it desirable to do so in relation to any franchise agreement in respect of services for the carriage of passengers by railway he may give a direction to the Passenger Transport Executive or Executives for the area or areas concerned providing that any one or more of subsections (1A), (1B) or (2A), or any part of any one of those subsections, shall not have effect with respect to that franchise agreement."
Page 13, line 17, at end insert "except that in the case of subsection (1A) it is a reference only to a service for the carriage of passengers by railway between places in that area"

On Question, amendments agreed to.
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Schedule 4 [Reviews by ORR of access charges and licence conditions]:

Viscount Astor moved Amendment No. 8:

"(2A) The Office of Rail Regulation shall not be entitled to make a determination under paragraph 1G(2) which is likely to lead to the services provided with the use or in respect of any railway facility being curtailed or discontinued (whether as to quality, time or in any other respect) unless the requirements of paragraph 1(G)(2B) have been complied with and the conditions in paragraph 1G(2C) have been satisfied.
(2B) The requirements are that the Office of Rail Regulation has consulted—
(a) the facility owner and the beneficiaries of all access contracts in respect of the railway facility in question; and
(b) the franchisee under every franchise agreement which contemplates the franchisee, or any person on its behalf, using the railway facility in question,
and has taken into consideration all representations and objections made to it by those persons in respect of the proposed determination.
(2C) The Office of Rail Regulation may not make a determination under paragraph 1G(2) unless it is satisfied that—
(a) the value of the rights of such facility owner and the beneficiaries under or in respect of that railway facility or those access contracts shall not be adversely affected by the proposed determination, or that adequate financial compensation shall be payable to them out of public financial resources in respect of any such adverse effect; and
(b) in the case of a franchise agreement, the agreement shall be amended so as to relieve the franchisee from the obligation to comply with its terms to the extent that, if the agreement were not amended, compliance would be impossible or more onerous by reason of the proposed determination.
(2D) If the Office of Rail Regulation fails to make a determination under paragraph 1G(2) by reason of one or both of the considerations specified in paragraph 1G(2C), the Secretary of State or Scottish ministers as appropriate shall ensure that public financial resources shall be increased accordingly."

The noble Viscount said: My Lords, it is disappointing at this late stage of a Bill, and this Parliament, that we have been unable to come to an agreement on this issue. The noble Lord, Lord Davies, has been as helpful as he can, but I am afraid that his colleagues down the other end have not been so obliging.

My amendment protects the rights of private-sector investors, passenger and freight operators, in the railway industry who could be aversely affected by cuts in spending imposed by the Secretary of State, if those cuts diminish the value of their existing rights under access contracts or cause them to face impossible or more onerous conditions in fulfilling their franchise agreements.

Under the Bill, the Secretary of State has the power to set network outputs—the things that the network must be and the things that it must be able to do in terms of capacity or its condition. The Bill removes that power from the independent Office of Rail Regulation (ORR) and gives it to the Secretary of State. It does so because the Government wish to reassert complete control over spending on the
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railway. The problem is that in setting the network outputs in that way the Secretary of State may, due to a cash squeeze from the Treasury, have to put the network into decline. We all know what happened during the days of nationalisation.

If the Secretary of State exercises that power and the network gets worse—for example, to the extent that it can accommodate fewer trains or they must go slower because of speed restrictions related to the condition of the track, or something like that—it could cause serious difficulties for existing private-sector operators. The value of their rights under existing contracts—I stress that we are talking about existing contracts, not future ones—could be diminished, perhaps materially.

Freight operators could find that the maintenance burden on their rolling stock goes up, or that they must use more trains to provide the service levels to which they are committed under their contracts with commercial customers. Passenger operators may find themselves in a bind, with an obligation under their franchise agreements to produce certain outputs in terms of frequency, reliability, punctuality and overcrowding levels on trains, but unable to do so because the network is being cut back. Alternatively, it could be more expensive because to do so their resources need to be increased just to stand still and to provide the agreed level of service under their contract.

None of those things would be the fault of either the freight or passenger operators concerned. The network getting worse because the Treasury has decided that it should be so can hardly be blamed on private-sector operators just trying to do their jobs, so they should not be penalised.

On 9 February 2004, at the start of the rail review, the Secretary of State promised that those adverse consequences would not be visited upon private-sector operators, but I am afraid that that is exactly what the Bill does. For those reasons, my amendment provides essential protection in these limited but potentially very serious circumstances for private-sector operators.

I stress again that the amendment protects only existing contractual rights. What contracts operators may enter into in the future, once they have seen how the regulatory and operating environment has been changed by the Bill, is another matter that is not affected by my amendment. We are concerned about the rights of existing operators, and that they should not be assaulted or trampled on by the Bill.

The Minister said at an earlier stage that his department was working to develop access contracts and the network code to provide protections of the kind that the amendment seeks to establish. But there is a problem: the ORR can change the network code, which is part of every access contract, in a way that could diminish the protections and rights to compensation to operators when cutbacks are made. It has that right. If it exercises that right, it has no obligation to provide any redress or compensation for those who lose out as a result. If that happens—and I know that the ORR is coming under considerable pressure to make changes of that kind—the Minister's assurance that he kindly gave us in Committee
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will have no effect because operators' rights will already have been diminished. They need more than assurances which have, I am afraid, no bite.

4 p.m.

The Minister has helpfully said that the Government accept that franchise agreements would need to be varied in the event of inadequate funding being available for outputs for the network, should the level of services operated by the franchisees be made undeliverable. That is helpful, but it does not go as far as it needs to.

It does not cover the case, which is much more likely than the service being impossible to deliver, of it being more expensive or more difficult to deliver the contracted service. The Government have so far shown no inclination to allow such amendments into the template franchise agreements, which are now being put to the private sector. The Minister will not accept that that protection should be wider than he has proposed or that it should be in the Bill. We believe that it should be both of those things.

The alternative offered by the Minister's department is the inevitable judicial review. What a prospect: what a deterrent—judicially reviewing the Minister; the same Minister you rely on for your contract and for its eventual renewal when the result will not be known until long after the contract has expired. There is the uncertainty and the huge expense. The other alternative offered by the Minister's department was litigation in the courts. That, too, is expensive and uncertain, and the process takes a long time. It can easily take three or four years, which is probably well beyond the unexpired life of a contract.

In offering those alternatives, the department appears plainly to accept that the operators need redress or relief in the circumstances contemplated by the amendment. But rather than dealing with the acknowledged problem here with clarity, certainty and finality, it favours long, drawn-out litigation.

I believe that we should all be looking at the Bill to prevent people having to go to court, not encouraging them into litigation by passing bad legislation. My amendment will help to ensure that the Secretary of State behaves in a reasonable manner and respects the private rights of investors in the industry. Of course, if no cuts are made to the funding of the rail network, which could cause these serious adverse effects to the operators, there will be no need for this process. It is there as a protection if the Treasury gets its way and forces budget cuts.

Without this change, private sector contractors will find their rights and protections diminished. There would be a very costly knock-on effect in the future as anyone contemplating taking on a franchise or an access contract to run any kind of service—whether passenger or freight—will have to build in a huge margin, just in case. So it will eventually cost the taxpayer.

The Minister accused me on Monday, at Report, of asking the Secretary of State to sign a blank cheque. That is simply not true. My amendment relates only to the
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unexpired part of rail franchise and access contracts. I say again: it does not in any way affect future contracts. I think that the Minister now accepts that. In future contracts, if so inclined, the Secretary of State—in the case of franchises—and the ORR—in the case of access contracts and the network code—can ensure that they contain output adjustment mechanisms which avoid the need to compensate the operator in the future.

My amendment ensures that if the Secretary of State changes the circumstances in which the contract has been set, and does not allow those affected relief under their contracts, he must allow changes to their contracts. He must compensate them or he must not do it. The choice will be his. The Secretary of State can avoid that happening by treating the operators fairly. He does not have to cut the network, but if he does he must recognise that existing private sector rights must be honoured and protected. There is no blank cheque, but just a simple, straightforward protection.

My amendment is about fairness. It protects and gives confidence to those who invest in rail. Most importantly, it will benefit the poor, long-suffering passengers who are often overlooked in this debate. I beg to move.

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