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


Examination of Witness (Questions 520 - 539)

WEDNESDAY 22 NOVEMBER 2000

LORD BERKELEY

  520. If we say, for a minute, that that is possible and it is done, the practicalities of that are that there is further fragmentation of the industry, which is probably most of what we have is a problem, in any event, within the industry as a total. You think that that would improve because of the fact that senior managers could take decisions, is that what you mean, that they are not taking just now?
  (Lord Berkeley) That is another reason for doing it, but the main reason is that the Regulator will have real power and real teeth to do something to them which will have a serious effect on their, well, existence, actually. Because if one gets taken away you have always got staff and people from the other one to move in, in a similar way to if a passenger train operator goes into liquidation, the SRA, British Railways Board, can move in, pro tem, and keep the service running. So it is a very similar example. I agree that there are problems, but I have not thought of any other solutions yet.

  521. Can I take you back almost to the beginning of your contribution this afternoon, My Lord. You indicated that, short term, there was a disaster waiting to happen, but one of them that is still to happen is the Post Office delivery for Christmas. Just exactly what are you doing, on behalf of your members, to ensure that the delivery of mail, which as we all know increases ten-fold as we go into the run-up to Christmas, what are you doing on their behalf to make sure that that is not going to be a major, major problem, because the 'planes cannot carry that mail?
  (Lord Berkeley) I have had a meeting with people in the Post Office, and Parcel Force who do much of the transport for them. I know the SRA is also working on it very hard, and so is EWS, and we talk regularly about this. There was a fuss a year ago because Railtrack were going to close Wembley Yard over Christmas, which did not seem very sensible, without talking to their customers. While it is the problem of keeping the trains running, and I believe that they will run but they will run more slowly, but I do not believe the timetable has been sorted out yet, and that is the serious problem, almost timetabling is still a day-to-day business, as I am sure many of the Committee know. And I believe, in fact, that freight is not doing any worse than passengers, at the moment. I have emphasised freight because I am here to represent freight; but I think freight will get through and I think that they will do all they can to get the Royal Mail through, but it will be slower, and you will get less production out of the same number of trains. And this is the same with passengers, that is why there is less traffic going.

Chairman

  522. But the Royal Mail must have had some reservations about that, because they were seriously saying they were thinking of bringing their dates for posting so far forward that this will have a direct effect on the public; so I am not sure that you are absolutely right, are you, My Lord?
  (Lord Berkeley) I am saying there will be an effect.

Mr Donohoe

  523. Just to answer a simple question; do you believe that the Royal Mail this year will be delivered before Christmas?
  (Lord Berkeley) I do not think they will be able to keep to their schedule.

  524. No, no; that is not what I asked.
  (Lord Berkeley) Well it depends if you start early enough.

  525. Do you think that every item of mail, as it normally is, is going to be put through the post-boxes of all members of the public this Christmas; do you think that they are going to be able to deliver that?
  (Lord Berkeley) If they post at the same date they will not, unless the Royal Mail bring in other resources, like road. I do not think the railways will be able to cope, with the present timetables and the way that the speed restrictions and closures are going on.

  526. So they are going to have a disaster?
  (Lord Berkeley) They could do.

Mr Bennett

  527. Railtrack's asset register; originally it was hoped that that was going to be a public document. How much of a problem is it going to give to your members if it is not a public document?
  (Lord Berkeley) In my supplementary evidence, Madam Chairman, I gave an example of a lack of a set of drawings for a particular tunnel, which we hoped would demonstrate that one could increase the gauge to take piggyback, probably saving £100 million on the idea that Railtrack had. I can understand their reticence about every person in the world being able to get access, and somebody will quote security, etc, etc, so I have proposed, in a submission to the Regulator, that there should be some kind of a registration process for bona fide organisations to get this information. It is essential that we do, for two reasons: (a) nobody has the monopoly of good ideas; and, (b) it provides a sort of second line of check, if you like, about some of the things that Railtrack may be proposing and the costs that I mentioned earlier. I am hoping it will come, but it needs further pressure.

  528. You have not had any response yet from the Regulator?
  (Lord Berkeley) No, Madam Chairman, we have not had a response, but it is probably not expected for another few weeks.

  529. What about compensation; there is some talk about passengers getting compensation. Is compensation appropriate, as far as freight is concerned?
  (Lord Berkeley) If one starts off on the basis that the railway is there to be used and the contracts with Railtrack specified that it was to be open for traffic and routes were normally set at certain speeds, the fact that many of the operators have had either to do major diversions or go at very slow speeds has had a very significant effect on their cash flow. For example, Freightliner trains from Felixstowe to Crewe need two drivers now, because it takes so long, because they are beyond their hours, whereas before they did it in one shift. Freightliner do not have lots of drivers sitting around drinking tea, so the fact is that traffic has significantly dropped but they are using the same number of drivers. So there are significant costs, and I know that discussions are going on with Railtrack as to who pays them; in my view, it is down to Railtrack, but it does depend on the contracts that they have between them, and I do not have any details of them.

  530. You said, I think, that one of your members claimed that it had put the freight industry back 20 years; ought there to be some sort of compensation for that general blow to the industry?
  (Lord Berkeley) Madam Chairman, that is a very interesting question. I am not sure how one would pay compensation for future business lost; it needs to be looked at. But I think one of the things that could be done, the last kind of piece of the jigsaw that has been going on all this year to help rail freight provide this growth, is to ensure that the Regulator announces a really good, low figure for track access charges for freight. We have had the 44-tonne thing, we have had, effectively, 8p off the price of diesel for lorries that we all know about; still waiting for the SRA strategy and what they are going to do to mitigate those effects, and we have had Hatfield, post Hatfield. The one thing the Regulator can do is get the price of track access really low so the business can start to pick itself up and compete, and it will.

  531. How big a proportion of the cost of the track being there does freight really meet; it does not meet really a fair proportion, does it, now?
  (Lord Berkeley) Madam Chairman, that is a question one could debate for about three hours.

  Chairman: I am afraid, not today, My Lord, not today.

Mr Bennett

  532. I will settle for a very brief answer.
  (Lord Berkeley) I am going to make a very brief answer. The Regulator has decided that, basically, freight will pay its freight-specific costs and then the marginal cost, because that will enable it to compete with road, we are competing with road, and we have to. So it is going to be kept low anyway, politically, it is just a question of how low. Again, the consultant that the Rail Regulator used for this latest broken rail thing did a similar study for EWS in the summer, which said that Railtrack's costs of maintaining and enhancing the network was three times the best international practice, and I am sure you have read the details of that. I think there is a long way to go.

  533. And what about bits of track which are freight only, well, the one in my constituency, which is really 99.something per cent freight, and has one train in one direction once a week for passengers; ought the freight users to meet the full cost of that piece of land?
  (Lord Berkeley) They would do anyway, I think, that is part of the deal. If it is freight only, they meet the full cost of it; one would hope that it was only maintained to freight standards rather than high-speed passenger standards, but I am sure you have more details about that.

Mr Stevenson

  534. Lord Berkeley, your written evidence is pretty scathing about Railtrack. I think that is fair, fairly structured?
  (Lord Berkeley) Yes.

  535. Could I ask you a question about the West Coast Main Line, because in your evidence you are critical of the £4 billion additional funding, the grant, being made available by the Government through the Regulator for that enhancement, that modernisation. Why should not the Government make this money available for the enhancement and modernisation of the West Coast Main Line, you describe it as "baling out" Railtrack?
  (Lord Berkeley) Madam Chairman, I do describe it that way, because Railtrack is a private company, as the Committee has already noted, and it has contractual commitments with the Regulator and with its customers, in this case Virgin. Now it decided that the way to get more traffic up the West Coast Main Line, at the lowest possible price, was to bring in transmission-based signalling; now, in my view, it is an unproven type of signalling. I am not a signalling engineer but a civil engineer, but it was imprudent to sign such a large and high profile contract based only on a technology which was unproven. When they eventually found it was unproven, then the costs go up by £2 million. Now, if that had been a private company, unregulated, they would have had to find the money or suffer the consequences.

  536. Would you just clarify a point for me, and that is, is it not the reality of the situation that unless that money was provided in a direct grant form by the Government the modernisation would simply not go ahead?
  (Lord Berkeley) That is absolutely correct. I am not saying it should not go ahead; but what I am saying is, we are getting quickly to a situation where, as I say, 75 per cent of Railtrack's revenue comes from the Government and we are almost in a cost-plus situation, as one does not like one's own builders to do. If the Government is happy with that, that is fine. I would say it is not very good value for money. But I am not saying it should not happen, I just think it is worth pointing out.

  537. On that very point, as I recall the figures that we were given during successive evidence sessions on this issue, the original estimated cost of the West Coast Main Line upgrade was about £2.3 billion; because of the changes that you have referred to, I understand the new estimate is something like £5.8 billion. If the Government provides a £4 billion grant, that leaves something like £1.8 billion for Railtrack to find. If we compare that with the original £2.3 billion, without any Government grant, it occurs to me that, with the Government grant, Railtrack are going to have to find less than they would have had to find in the first place. Would you agree with that, or do you think it is just nonsense?
  (Lord Berkeley) I would entirely agree with that.

  538. Can I then go on to your proposals in the paper to create zonal mini-Railtracks, so to speak. The Association of Train Operating Companies have told this Committee in evidence that what is necessary now, vitally necessary, is stability in the industry, not more change. What do you say to ATOC?
  (Lord Berkeley) I understand them, and I sympathise, and I want the minimum change myself. I am struggling with the fact that I do not think we are in a stable situation at the moment. We may feel we are recovering from Hatfield, and let us hope we are, but there is going to be another one because there always is another one. And I want the railways to be in a situation where they can cope with another accident, large or small, and get the network open, and get it maintained so the risk of this happening is reduced to a minimum; and nothing I have seen at the moment indicates that this is going to happen, unless some change is made. Now if they do not want change, then why does not the Regulator take away their network licence; that is all he has got to do, if they do not perform: he cannot.

  539. My last question is relating to one of the options in your document about, I suppose I can describe it as, protecting the public interest, or recognising the public interest, that Government, through SRA or directly, should take preferential shares in equity in Railtrack. Are you aware, and I ask you this question because you put that specifically in your document, that on 5 July the previous Chief Executive of Railtrack, giving evidence to this Committee, said, in answer to a question, which I asked, and the question was: "For clarification, is it a fact that Railtrack proposed to the SRA that they should invest in preference shares in Railtrack as the most efficient way to lever public money into Railtrack?" Mr Corbett: "That is a fact." I do not suggest there is any collusion between you and the previous Chief Executive of Railtrack, but why do you think that Railtrack made that proposal to the SRA?
  (Lord Berkeley) I was aware of that proposal. I certainly have not talked to the previous Chief Executive about it, because I suspect that our proposals were being made from different ends of the spectrum, but they met together in the middle. I suspect that he genuinely did believe it might lever in further private funds. I have put it in my paper as an option but it certainly was not a recommendation, because I see some problems about it, because, apart from the contingent liabilities, and things like that, it leaves Railtrack really being controlled by Government in a way which Government might find difficult. I think it is something that should be explored along with some of the other options. But if that is to be done then Railtrack no longer is a private company, effectively, it will need to act as if it is more closely wedded to the state, and transparency, audits, and everything, will have to come in very quickly.



 
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