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Fifthly, we have argued that, as is the case in the United Kingdom, there should be multi-annual funding contracts from Government to the track managers. In this country, as your Lordships will know, we have a five-year periodic review of those charges, which is a long enough period for the manager of a track not only to calculate the access charges over the longer period but, frankly, to give the freight operators from

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other countries some degree of confidence when they plan their prices and offer their services. Sixthly, we think that legal pressure should continue through the infraction proceedings. The Commission has a duty to take before the courts the failure of Governments to implement the package.

Finally, at the same time we think that we have to proceed with a recast-that is, a reformulation-possibly by way of regulation as opposed to directives. We want the Commissioner and his staff to have the courage to say that, in Europe, we have failed over the past eight years-and it will shortly be nine-to have a free and competitive market. It is important for the vitality of the economy of the European Union, and they should get on with the job. I beg to move.

12.06 pm

Lord Berkeley: My Lords, it gives me great pleasure to speak in this debate. First, I thank the noble Lord, Lord Freeman, for his very kind words about my activities in rail freight over the past few years. I also want to thank him and his committee for a really major contribution to the debate about rail freight-on the need to restructure, transparency, independent regulation and everything that leads to growth. I declare an interest as chairman of the Rail Freight Group in the UK; I am also this year's president of the European Rail Freight Association, where I had the honour to be asked to give evidence to the committee.

From my discussions and trips around Europe, I believe that this report has had a great and significant effect. It has been very much welcomed by the industry, not just by the railway undertakings, and particularly the private ones, but by the customers. Of course, it is usually the customers who decide how freight is going to get moved. It is worth recalling that with the structure that we have in the UK to which the noble Lord, Lord Freeman, referred, rail freight has grown by about 60 per cent in this country since privatisation, whereas in France, which the noble Lord also mentioned, it has gone down by 40 per cent, because there is no competition. The recession is affecting us all, and I shall come on to that later, but the key to this report, as noble Lords will not need reminding, is that it was based on evidence.

I thought that the witnesses' evidence, both written and oral, was extremely strong. I was therefore quite surprised to hear that an incumbent operator in a major continental country had approached their Government, asking, "Would you please tell the British Government that the House of Lords committee report was totally out of order? It said all the wrong things-could you get it cancelled?". I do not think they quite understood the difference between Government and Parliament, or a few other things. Anyway, while I do not know what our Ministers here said, the report is still very much with us. I hope that it stays with us; I know that it will. I also welcome the response from the Secretary of State, in that it was generally supportive of the recommendations, as of course I am.

I should like to bring out one thing from the infraction proceedings to which the noble Lord, Lord Freeman, referred. There is a useful list of which

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countries have failed in which regard, and that list is very long. Thirteen member states failed on regulatory independence and scope. I will not go through all the others because it is a five-page document, which is indicative of the extent of failure.

Sadly, from my discussions around the states, the list of the issues on which the Commission intends to take member states, eventually, to court-which is excellent-is only the tip of a very large iceberg. The problem is that it is not one iceberg but 21, all of different shapes and sizes. Leaving the sea and icebergs aside for a moment, I think noble Lords can understand the difficulty for a train operator of trying to start up in a new member state, with all its particular problems, and then trying to get to the next one where the problems are all different. It is a real nightmare.

The UK Government have got off pretty lightly on some of these things, I think. We are not one of the 21. However, I am not really convinced that here, good though the structure and everything else are, the infrastructure manager-that is, Network Rail-has anything like enough incentive to reduce costs. The regulator is doing what it believes to be its best, but there is a great deal to be done and Network Rail failed by 4 per cent to reduce its costs. It was supposed to reduce costs by 31 per cent over five years in the period that ended in April, and it was 4 per cent short, which is quite serious, although big bonuses were still given for achieving that.

Also, we do not do anything like enough to encourage the managers of infrastructure to minimise disruption. Passengers do not like going on buses and freight cannot go on buses. Yes, sometimes you can have diversionary routes. Network Rail scored a real own goal during the Labour Party conference in Brighton. Somebody came up to me at one of the fringe meetings and said, "Do you know that Network Rail has closed both lines to Hastings over the weekend?". There are two completely separate lines to Hastings; surely one could have been kept open and the public told, but no-Network Rail closed both at a time when all our Ministers were in Brighton and heard about it. I cannot say more than that, but there is quite a long way to go.

Since the report was written and the evidence taken, sadly, the economic situation has got worse in the recession. The market share of rail is holding against road-if not getting better in some cases-but, of course, the volumes are down. This means that there is stronger pressure on all operators. There are financial pressures as well as everything else. There has been an increase in complaints from the European association to the Commission about failures in member states. There are serious failures in even the first railway package issues. For example, in Poland the incumbent has not paid access charges for a year. How can the independent operators compete with somebody who has not paid access charges? The incumbent said that it did not have any money. When I was there I was asked what I would do. I said that I would stop the incumbent operating trains and let the independents do it.

In Romania-which is, I know, another eastern European country-the incumbent is losing market share to the private sector, which is good for the

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private sector, but the infrastructure is in an appalling state because, for a reason that is not yet clear, Romania was given €3 billion to invest in the infrastructure when it joined the European Union and has not spent it. We heard recently that in France the Government have announced a very welcome €7 billion package to help rail freight. However, much of it appears to be going to SNCF. Some will be going to RFF, the infrastructure manager. If it goes to one operator, surely, in these days of open access, other operators should be given the chance to compete.

One of the biggest problems is that of the incumbents buying up small private operators, as the noble Lord, Lord Freeman, referred to. As he said, there will be less choice, but I question how the incumbents find the money to buy up private operators when half of them have their hands out for state aid. It may be for passengers, it may be for infrastructure, but with a lack of transparency, again, it is a serious problem. That is why I very much welcome, in paragraph 84 of the report, the committee's encouragement of the Commission to use more competition law. We have to consider how to define the market when there is a dominant position. Is it a market for rail freight within a member state? Is it on a corridor, such as that between Rotterdam and Italy? Is it for coal or containers?

The one question that I would ask my noble friend to answer when he responds is whether the Government can press the Commission to produce guidelines or something similar on how it would assess the markets in these different sectors, so that when there is a proposed buy-up of a private company, it could be assessed against whether it was going to cause a dominant position in a particular market. When it comes to the private sectors the Commission tells me that a private operator must make a complaint. I say that, first, it is very difficult to do that and, secondly, it is very expensive and they do not have the money. It would be very good if there were some guidelines from the Commission on doing that.

Similarly, on state aid, I went to the European Council of Ministers of Transport conference in Leipzig in May. There were three Transport Ministers on the platform, from Italy, France and Poland. I could not resist the opportunity to ask them a question. They had all complained that the railways are broke. I said, "Why don't you sell off your rail freight companies to the private sector? First, they will be able to compete more fairly with the private operators and, secondly, you will get some money to help your infrastructure". I got looks of incomprehension from all three. Finally, the French Minister said, "Yes, but we have a problem getting into Hamburg". I could not go back but I was going to ask him who he meant by "we". Was it la France, was it SNCF, or what? Was it a problem with access to Hamburg port? Anyway, he did not answer. It just shows that there is an awful lot more to do.

I have talked about independent regulation. Mr Khan's letter seemed to suggest that things will be better when directive 2007/58 comes into force. There is absolutely no evidence of any change at all across Europe since the committee took evidence. Member states are taking no notice. Half of them do not even know what regulation is. I know our Office of Rail Regulation is

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trying to help those who ask for help. There is a long, long way to go, so we should not take much comfort from that. I believe that the report is absolutely right in pushing for the recast and for taking member states to court if they do not comply. The recast needs strong and independent regulation, and fair and open access to terminals, as the noble Lord, Lord Freeman, said. At the moment, independent operators in Poland sometimes get charged 50 times what the incumbent is not charging itself. Multi-annual contracts are absolutely right. The noble Lord, Lord Freeman, is right about better structure of charging. Twenty years after the fall of communism, the reason for rates being higher in eastern Europe is that in the communist days rail freight subsidised passengers. There was no competition with road.

It really has to change. The Commission and the whole EU have to support the change. Again, there should be total separation of infrastructure managers from passengers and freight. There may be an argument for requiring separation of passenger freight operators in the absence of proper transparency between them. I have mentioned competition issues and state aids.

Finally, the committee and the noble Lord, Lord Freeman, mentioned the question of a regulation or a directive. The noble Lord is right to raise it. I believe that the committee is right. On the basis of the failure of member states even to implement the laws of the last 18 years, since 1991, a regulation would be a very good idea. However, it will mean a big battle in Brussels that I hope-indeed, I know-the Government will support.

At the end of the day, as the noble Lord, Lord Freeman, said, we are trying to create a single market for rail freight-that is the objective; that is what the law says-and we have to finish it somehow. I know that our Government are being very supportive. We have a keen Commission and a slightly reluctant commissioner, although we do not know who will be commissioner next year. We have to ask other member states: do you really want open access and competition for freight or does the single market that we have all dreamt of somehow not apply to the rail freight business?

I am very grateful to the committee for its report. I congratulate all its members on an excellent publication.

12.20 pm

Lord James of Blackheath: My Lords, I always feel that anybody speaking in the gap should start with an apology for interfering with the orderly flow of debate, but as a member of Sub-Committee B of the European Union Committee there is one point to which I should like to draw attention, which walks through the report without actually disclosing itself fully. I wholly agree with what the noble Lord, Lord Berkeley, said about regulation, but we need to recognise the comment made by Brian Simpson, quoted at paragraph 45 of the report, and that of Network Rail, that the present European Union regulators, in the absence of an EU, pan-European regulator, represent an,

One might have said the same about the England cricket team at the outset of the summer but they still won the Ashes. One hopes very much that these regulators

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will similarly rise to the occasion. They do, however, have a very big task before them, because the whole of this issue was encapsulated beautifully by a member of Sub-Committee B, who said that rail freight in Europe is drinking in the last chance saloon. That is very much the way that it is at the moment, as we see it.

If we are to have a successful European rail freight system, it has to start by becoming thoroughly competitive, which means having the right access, and the right costs of access, on a pan-European basis to make it work. But you have to acquire that access at a national level and it will involve participating and interfering in the national access of other states as well. That will not only be a price issue but will also become a safety issue because the access may impact adversely on the maintenance and service requirements of other states. Very careful and insightful regulation will be needed to make it work. At present, in the absence of a pan-European regulator, it is very hard to see how there is going to be an umpire capable of taking the difficult decisions to resolve those problems. Just as we won the Ashes with an unbalanced group, I hope very much that the word "premature", which appears in the final conclusions about pan-European regulation, is not read as "permanent".

12.22 pm

Lord Bradshaw: My Lords, I thank the noble Lord, Lord Freeman, for his constructive and encouraging chairmanship of the sub-committee. I also thank the staff who greatly helped us.

My first concern involves the independence of a regulator in this regard. It is all based on the fact that the statement of funds available for the railway (SoFA) is safeguarded so that when the regulator makes his settlement for Network Rail we know that those funds will be available for five years. Otherwise, we shall get back on the old treadmill of annual funding or inadequate funding, from which the railways have suffered for so long. I hope that the noble Baroness, Lady Hanham, who will speak after me, will say whether a Conservative Government would retain the statement of funds available, should we have a change of government.

Further to what the noble Lord, Lord Freeman, said about the report, I refer to the importance of access to terminals, services and other ancillaries, because you can grant free access to the railway but you can effectively block it by making it impossible to get locomotives or fuel, or to get to the ports and to the people.

The noble Lord, Lord Berkeley, referred to infractions. I have a list of them which I do not intend to read out. However, I shall refer to the government response, signed by the Minister, Sadiq Khan. On page 2 of the response the Government rather rejoice at the fact that infraction proceedings are not to be taken against the UK. We do not have insufficient incentives for infrastructure managers to reduce infrastructure costs and access charges-or do we?-and perhaps we do not suffer from the absence of a performance regime to encourage infrastructure managers to minimise disruption. This is an absolute nonsense. The cost of maintaining the railway in this country is wickedly

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high. I have listened to the management of Network Rail repeat year after year that we are going to have a 24/7 railway, alternative routes will not be blocked, train operators will find it very much easier to operate their trains and passengers will find the railways much improved. What action, if any, do the Government propose to take to curb the monopolistic and arrogant attitude of Network Rail, or is this publicly funded body out of control? I should be interested to hear from the noble Baroness, Lady Hanham, what ideas the Conservatives have for bringing this monster under control.

Competition is a very interesting subject. I am not a lawyer and certainly not a competition lawyer but I know that competition depends on market definition; namely, the market that you are talking about. This concept is very important as regards the bus industry where you just draw a line around a town or a group of routes, but I submit that it is wrong to talk about the railway in isolation in terms of international traffic as a huge proportion of the traffic, and probably an even greater proportion in the future, is conveyed in competition with sea transport, inland waterways and, more particularly, road transport. I propose to spend some time discussing that subject as other modes must enter into the picture.

What progress is being made in this country in making foreign lorries pay to use our roads? It is not a case of my being against foreigners, but in a fair system everybody should pay to use the facilities. The Minister is probably as aware as I that Germany has a system of lorry charging, which works and discriminates in favour of the most environmentally friendly vehicles. I believe that from a technical point of view it would be possible to introduce it into this country. It does not require a lot of beacons and is very simple to operate. However, we are told repeatedly by the department that it is not appropriate to introduce lorry charging at present. I would like to know why that is the case.

I would also like to know the department's views on the House of Commons Transport Committee report, The Enforcement Activities of the Vehicle and Operator Services Agency, (VOSA), as I have not seen them. International vehicles represent a substantial proportion of vehicles stopped for abusing drivers' hours regulations, overloading and being in a poor mechanical condition.

An article in Freight magazine states:

"Some 11,000 fixed penalty notices have been issued for a range of traffic offences since VOSA started issuing graduated fixed penalties on 28 May. Over 800 vehicles have been immobilised and more than half a million pounds have already been collected",

in fines. That is all very well and good, except that more than 60 per cent of penalty notices were issued to foreign-registered vehicles from the European Community. Therefore, probably most railway operators obey the law while a large number of lorries on our roads operated from abroad are disobeying the law. I ask the Minister: what sort of answer is the House of Commons Select Committee getting?

We have a rising number of non-compliant vehicles, yet we have in place a graduated fixed penalty scheme, a financial penalty deposit scheme-which means that if you have no money you must deposit your credit card, passport or something-and an immobilisation

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scheme whereby the lorry may be stopped. However, the report states that the fines are small and recommends that they be increased. My charge to the Government is that the amount of money that people make out of breaking the law is huge. To fine them £60 is small change and will do nothing to correct the abuse, unless the system is considerably strengthened. The Government should look very hard at the exchange of information between European partners about breaches of the regulations which, as far as I know, is being blocked due to the provisions of data protection legislation. That is a hindrance, particularly to Her Majesty's Revenue and Customs in collecting money and building up intelligence about people who are breaking the law. In previous Parliamentary Answers I have been told that the same drivers and firms are repeatedly being caught-yet the penalties are regarded by such people as a part of the expenses of running a business.

Has the Minister given any thought to the paragraph in the report about access to port premises where road vehicles enter the UK? Many of these abusers could be stopped at the point of entry and should not be allowed on our roads if they are unroadworthy, if the driver has not had sufficient rest or if the vehicles are in bad mechanical condition. Ministers should not shy away from legislative action. I know that the ports do not like it, because it delays unloading ships, but it is not safe to allow such vehicles onto our roads.

On the question of the heavy lorry, I refer to an article in the Sunday Times which I do not usually read. I am sure that my reservations about half-truths, sleaze and sensationalism of the press are shared by other noble Lords. However, that newspaper stated:

"Brussels to override Britain's ban on mega-lorries".

I can assure noble Lords that if 60-ton lorries are introduced throughout Europe, rail freight will take a nosedive in volumes. The article names a person-John Berry, a former civil servant working in Brussels-who is apparently a great advocate on whether we should have these lorries, which are 21 feet longer than any existing lorry on our roads, and which are almost certain to cause more accidents. Is that person being paid by Her Majesty's Government in any way? If he is, is he advocating a policy that we should have these lorries? The noble Baroness, Lady Hanham, may care to comment on whether the Conservative Party supports the introduction of 60-ton lorries. If they do, that will be very bad for the environment and for rail freight.

I witnessed two incidents last week of 44-ton lorries being stopped in the centre of the historic town in which I live in Oxfordshire. They stopped all the traffic, the drivers were obviously lost, and they had passed weight-limit signs of 7.5 tons-which in any case relate only to access. If drivers cannot read our road signs they are either not properly trained or our road signs are not big enough to read. Road signs, whether they are protecting railway level crossings or our small towns, should be observed by anyone who drives on our roads. If they are unable to observe them, they should not drive here.

I am sorry that my remarks have been directed mainly at the road sector, but it is a huge part of the freight market. What costs have been incurred by central and local government in introducing 44-ton

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lorries to this country? It is not a trivial sum; a lot of money has been spent on roads, bridges and the roadworks of which we are all victims.

I should very much like to hear the Minister's answers. Perhaps he may write to the committee if he does not have them to hand.

12.36 pm

Baroness Hanham: My Lords, I thank my noble friend Lord Freeman for initiating this debate and for chairing the European Union sub-committee. This report is on a subject that will keep on going for some time. I am disappointed in the limited number of speakers, because a lot of powerful people sat on that committee and I am sure that they would have had much to add to this debate. The noble Lords who have spoken played a significant part in the committee, including my noble friends Lord Freeman and Lord James, and the noble Lord, Lord Bradshaw. The noble Lord, Lord Berkeley, submitted a great deal of evidence to the committee, and that is demonstrated in the notes on proceedings.

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