Select Committee on Environment, Transport and Regional Affairs Minutes of Evidence


Examination of Witness (Questions 502 - 519)

WEDNESDAY 22 NOVEMBER 2000

LORD BERKELEY

Chairman

  502. Good afternoon, My Lord. Can I welcome you to the Committee. We are always delighted to see your cheerful face.

  (Lord Berkeley) Thank you, Madam Chairman.

  503. Could I ask you to officially identify yourself, for the record?
  (Lord Berkeley) I am Lord Berkeley. I am Chairman of the Rail Freight Group, which is a representative body of the rail freight industry.

  504. Does Your Lordship wish to make any general remarks?
  (Lord Berkeley) Madam Chairman, if I could make just a very short introduction, to set the scene. Rail freight traffic is up 40 per cent in the last five years to about 100 million tonne kilometres a year, which is roughly 10 per cent of the surface transport market. In the ten-year plan, as the Committee knows, the operators see the prospect and the intention of an 80 per cent growth in the next ten years, new markets, new services, bringing environmental benefit and, of course, reducing road congestion. Up till the time of Hatfield the service was getting a lot better, more reliable, and it is worth recording that about a billion pounds (£1,000 million) worth of investment has been made by the rail freight industry itself, the operators, the terminal operators, and things like that. Madam Chairman, after Hatfield, frankly, it is chaos; many trains have been cancelled, with little information, and the freight customers do not come back as easily as do passengers. One of my members has said, "That's 20 years' work down the plughole;" and we need therefore a quick recovery, and this must never happen again. And my comment about it is, it is a complete panic reaction on behalf of Railtrack and it exposed a lack of management, a lack of leadership, and a lack of understanding of what they own, and, frankly, an inability to operate the network safely. Now I do not accept what the former Chief Executive of Railtrack has said on many occasions, that freight causes undue damage; in fact, he apologised for that in The Guardian two days later, but it has done an incredible amount of damage. And every other railway in Europe operates safely and operates a service. So my paper, my supplementary evidence, Madam Chairman, was really designed to stimulate some debate, to try to avoid this chaos happening again, because it makes us look like a third world country, with a railway system like this, at the moment.

  505. In view of that, My Lord, can I ask you, has the Rail Regulator's periodic review of access charges been too generous to Railtrack?
  (Lord Berkeley) Madam Chairman, I find it very surprising, because he has been wielding a big stick, if I can call it that, for the last year, telling us all how he is going to get a grip on Railtrack, and then suddenly he gives a very generous settlement; and I would emphasise that, of course, this is not for freight; he has done everything except for freight. We are saying to him, for freight, "Well, if you can do it for passengers, you must do it for freight." But I have to say that some of the generosity is, in my view, misplaced; for example, on the West Coast Main Line, my calculation is that he has probably given them somewhere between two and four billion pounds more than they deserve, because the transmission-based signalling, which brought the cost overrun about, was entirely their own commercial fault. They chose the wrong system, and we have been through it all before. So I think he has been very generous. And, frankly, they have avoided maintaining the track for five years, and they get an accident, they have been paid for maintaining the track, and then, when the accident happens, they go to Government and say, "Please give us money to do what we should have done ourselves."

  506. Then can I ask you, has the Regulator taken sufficient action to ensure that Railtrack is properly accountable for all that expenditure?
  (Lord Berkeley) Madam Chairman, I do not think he has yet, although he has started to; he is bringing in these reporters. There are two aspects to this. One is that what the reporters do not do, and I am hoping the SRA may do, is start off by saying "Here's the output that we want for a particular improvement enhancement. First of all, is it necessary to achieve the objective; secondly, are there different ways of doing it, and which is the best and which is the cheapest; and, thirdly, is there total transparency of the tendering procedure, the output costs and Railtrack's add-on costs." A lot of my colleagues in the industry say that, for the station regeneration, which I accept has nothing to do with freight, Railtrack's project management costs are 54 per cent of the total cost of stationary generation.

  507. Fifty-four per cent?
  (Lord Berkeley) That is what I have been told by a large number of people in the industry, and I cannot give a source, Madam Chairman, because it is all confidential, and Railtrack is a big company and companies are frightened of saying this in public. I can say it because I am independent.

  508. The thing is that I have been told, Lord Berkeley; but the problem with this is this is anecdotal evidence. I have been told that Railtrack is very good at doing up those parts of the station which are on public view, but does not exactly fall over itself to do anything about the bits that are 50 yards outside the station. Is that the sort of suggestion that is being made to you?
  (Lord Berkeley) It is the same suggestion, Madam Chairman, but, the work that they have done, I am saying, the costs are well above what they should be.

  509. That is a massive figure. It is very difficult for the Committee, do not misunderstand me, we know your very wide experience of the industry, but it is a bit difficult for us to accept a figure like that, if we do not really have an identifiable source, or someone who is prepared to put their head even an inch above the parapet and give us real evidence. Am I to take it that you are, in effect, reproducing something that has been said to you, not something of which you have personal knowledge?
  (Lord Berkeley) I have been given it verbally from several sources who have been involved in it but obviously cannot be named. I had understood that the Regulator had done some work on it but I have not been able to find it and I have asked the Regulator; now whether the Committee would be able to ask the Regulator, because he does have the powers to go into Railtrack's books and see if it is true or not.

  510. Can I ask you, do you think the Regulator was justified in reducing the level of efficiency expected from Railtrack, in view of the prospect of rising prices in the construction sector?
  (Lord Berkeley) I do not think he was justified in doing it, but not for the reasons that perhaps were inferred in the second part of your question. I do not believe the contractors are being at all inefficient, I think they are trying very hard, and I think the problem is that they are not being managed properly. I think they have a problem about getting possessions, they have problems about getting materials and they have problems in being told who is doing what, and where, and planning their work. And, also, in the past, they have not had a long enough contract to enable them to purchase what is standard equipment in every other country of Europe, just about, very much automated track-laying and ballast-cleaning, and things like that.

  511. Yes, but the thing about that is that, if I were running a company which assumed that it was going to remain in the business of railway management, even if the contract that I signed was only a few years long, because I was planning to remain in that industry, presumably, I would want to equip myself with capital equipment that could be used through a much longer period than a short contract, surely?
  (Lord Berkeley) I think, in general, Madam Chairman, you are absolutely right, but, if you put yourself in the role of one of these contractors, they have one client in the UK; if they fall out with that client, for whatever reason, and it is very easy to fall out between contractor/client, in any line of business, their business is dead in the UK. Therefore, the risk of buying many million pounds' worth of equipment is higher, and that is not the main reason I have suggested in my paper that Railtrack should be split up, but it is an additional reason.

Mr O'Brien

  512. Can I put it to you that, from the Rail Modernisation Fund, do you consider that rail freight will receive its fair share or will benefit from the fund?
  (Lord Berkeley) Madam Chairman, I have tried quite hard to find out what the Modernisation Fund could be spent on, and could it be spent on freight; it can certainly be spent on mixed development. I have not had a definitive answer from the SRA, but my understanding is that it may not be used for freight-specific projects, and that might have to come through a different route, which is part of this £4 billion which was in the ten-year plan allocated to freight, that is private and public, of which I understand about £3.4 billion is public, and that would include grants as well as infrastructure enhancement. I think it is enough, if it is like that.

  513. What about bottle-necks; the East Coast line, which I use, has had problems with the passenger traffic and freight, there are bottle-necks there. Do you see any of this funding easing those bottle-necks?
  (Lord Berkeley) I do; but that is part of the project. Now whether it is part of the Rail Modernisation Fund or whether it is done as part of the East Coast Main Line refranchising process is something which I certainly do not know at the moment. All I know is that there are these things being planned by the SRA and Railtrack to provide a sort of parallel route for freight up the East Coast Main Line, which, if they are implemented as they say they are, will give reasonable overall journey times for most of the traffic, and a great deal of extra capacity. Where the funding is coming from is not quite clear to me at the moment, because it is still pretty early days.

  514. Is it not coming out of the Modernisation Fund?
  (Lord Berkeley) It may do, but it may come as part of the new Great North Eastern passenger franchise to provide extra capacity, or to replace the capacity that the passenger people are taking with additional freight capacity somewhere else.

  515. Do you think the Strategic Rail Authority is taking a sufficiently strategic approach to managing the competing demands for passenger and rail freight?
  (Lord Berkeley) I think the SRA has got a lot better at doing it compared with when they first started, when I was extremely worried. On the freight side, they are looking ten to 20 years ahead now, I understand, because I sit on a property advisory group of the SRA; on the passenger side, sometimes they look less far ahead. The problem is when the freight growth in a particular area, for example, Southampton to the West Midlands, is required to be done pretty soon and whereas the passenger franchise on the Great Western is not required for two or three years' time; somebody has got to make a decision, "Right, we're going to do something now and not wait for five years," otherwise freight will be constrained, seriously. I think everybody is talking about the problem now, and I am pretty confident it will get resolved, but it has not been yet, necessarily.

Mr Donohoe

  516. Why do you think the Government has chosen not to take any equity in the immediate investment that they are making over the next 10 years?
  (Lord Berkeley) Madam Chairman, I find that very surprising, that it has not, because it is my rough estimate that something like 75 per cent of Railtrack's revenue is coming somehow from the public purse, and to see that go to a private company, with very little control or audit of how it is done, whether value for money is being obtained, and having nothing at the end of it, I think it is wrong, myself. Equity is one solution, and one has got to be careful about contingent liability; bonds is another, a trust is probably not the flavour of the month at the moment; but all these things should be looked at so that we, the taxpayer, have something to show for it at the end of it. Because it is not just the fact that all this money is going, it is the fact that we have to check that it is being spent wisely, and I have given you one example, or a bad one, about stations; there are many other examples. You get a quote from Railtrack for doing something, one of my members wants a siding connection, or something, it is very difficult to say, "Is that the right price; shouldn't it be half that?" We got a quote for a level-crossing in Scotland the other day, a million pounds for a level-crossing, on a branch line; they had built exactly the same thing in Medway Port for £80,000.

Chairman

  517. But, if you are the customer, surely, even if you are spending a million pounds, which is a nice thought, you do say to them, "Well, we've seen the same sort of project done elsewhere and the prices quoted to us are rather different"?
  (Lord Berkeley) If one knows that; but, on the other hand, if you are the customer, and there is only one network, and they are a monopoly supplier of services, and they say, "Tough; that's the price," yes, you can go through the regulatory process under Section 17 of the Railways Act, but we do not all have lawyers growing on trees, it is very expensive.

  Chairman: I should have thought that everybody in the privatised railway industry had lawyers, whatever else they have not got, they may not have maintenance and signal men, but I think they have all got lawyers.

Mr Donohoe

  518. Can I just take you to that point and where we were as far as the sort of options that there are at their disposal. Which would be your preferred option?
  (Lord Berkeley) My preferred option, for a start, is to see Railtrack split into, I am suggesting, seven plcs, based on the zones, because that would involve the least change to the existing thing. The reason for that is that at the moment the Regulator has very little power, apart from fining Railtrack, which is a bit of a hiding to nothing, shall we say, or taking their network licence away. He has to recommend to the Secretary of State to take the licence away; well, if he does that, the network will close down. But if there are six or seven zonal plcs, each with their own licence, and if one was seen not to perform they will know that it is possible to have their licence taken away. So the first thing I would do is split it, like that, and have the SRA and others and the new safety authority sort out the co-ordination, which is a problem, but at least the Regulator would have real power, he can take their licence away if they do not perform.

  519. We talked earlier about lawyers. You are going into a minefield if you suggest that, and it is a private company, it stands on its own, it is not that Government can take it down that road, surely; they have not got that power, have they?
  (Lord Berkeley) With respect, Madam Chairman, I think the similar thing has happened in the gas industry; it was done voluntarily, as I understand it, in the end. Yes, it might need legislation, but I think it could be done voluntarily, given the right persuasion.



 
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