Examination of Witnesses (Questions 700
WEDNESDAY 29 NOVEMBER 2000
700. I was going to ask you about that considerable
interest, if I might, Sir Alastair. In July of this year, the
then Chief Executive of Railtrack, Mr Corbett, with the full support
of his Finance Director, who is now Chief Executive of Railtrack,
said in evidence that Railtrack had proposed to your authority
that they should invest in preference shares in Railtrack, ("they"
being your authority), "as the most efficient way to lever
public money into Railtrack". When Mr Marshall last week
was questioned on this, he said that they considered many options
but they came out, as Mr Corbett said, with this as being the
best option. Why have you rejected them?
(Sir Alastair Morton) I was asked about this the last
time I was here. I said that being a shareholder in Railtrack
does not convey much control. You have more control by conditions
of lending, conditions of contract, and so on. Wringing your hands
as a shareholder is not a very controlling form of activity. What
may be saidand this is a political decision, I seem to
remember saying, but I am open to correction as to what I saidthis
is a political decision about return on investment. If the Government
says it wants to put money in and get a return on it, that is
a different political statement from it wants to put money in
701. I understand that, Sir Alastair, but of
course your good self and your authority are in a very influential
and important (some might say in a critical) position in this
interface between the changes we all want to see in the railwaysyou
have referred to some of themRailtrack's performance as
a company, and confidence in that company in the future. You have
mentioned that. Also, the massive amounts of public money. This
may not surprise you but £4 billion has been made available
to the Regulator as a direct grant, which is over twice as much
as the gross proceeds from the Railtrack sale. The latest capitalisation
figures that I have is that at the end of July capitalisation
for Railtrack was 5.2 billion and at the end of October it was
4.7 billion. You are proposing to give to a private monopoly company
nearly as much as the capitalisation of the whole of the company.
How is the public interest being protected in those circumstances?
(Sir Alastair Morton) This money will not pass across
to Railtrack, these grants to which you are referring, until three
or four years hence; about three or four years from now. By then,
of course, a lot of the things we are discussing will become clearer.
I say that by way of qualification. If things get worse, we may
arrive at that nuclear situation. I hope they will not get worse,
I have no reason to expect that they will get worse, but if they
do get worse. That is the first point I would like to make. The
second point I would like to make is a question in my mind of
return on investment. Does the Government want to grant money
to this private sector enterprise and say, "There you are,
chaps. Go away and use it well. It is yours." That is the
decision which the Government has taken so far. The alternative
decision would be to say, "We are going to advance this money
to Railtrack and we are going to advance it on conditions."
The Government did not take that decision. I would be comfortable
with either decision. The second, that it be advanced, does recommend
itself to a person like me who believes in return on investment,
but I think this is a political decision.
702. But you see, Sir Alastair, Mr Marshall
last weekand I am using my memory so I will stand to be
somewhat corrected, but I do not think I am wrong although I may
paraphrase slightlyin answer to a direct question made
it clear to the Committee that without this 4 billion grant, whatever
period of time it is paid over, whenever it is made available,
the West Coast Main Line project simply would not go ahead. If
they had to raise that 4 billion on the capital market, he said
that they would have to take on board another rights issue to
the value of £1 billion; so it is not just a matter, is it,
of the Government saying, "We want to pump prime this."
This is not a partnership surely when the Government are paying
for four-fifths of this project; are saving Railtrack another
£1 billion in call-outs to its shares; and the project will
not go ahead under Railtrack. That is not a partnership, is it?
(Sir Alastair Morton) It is a grant.
703. It is not a partnership. If you take all
(Sir Alastair Morton) I understand your question,
sir. It is a grant, it is a gift.
704. Unless you challenge me on the points I
have made about our evidence, take the other points into account
as well as the grant, you said that you wanted a partnership with
Railtrack. What sort of partnership is it that provides four-fifths
of the money in a direct interest-free grant to a private monopoly
company? The company tell us that the project would not go ahead
without that grant. That saving the company another £1 billion
in rights issue, which would be a call on the company's finances,
what sort of partnership is that? I put it to you.
(Sir Alastair Morton) I have given you a point of
view but may I take it round the regulatory loop. I do not speak
for the Regulator, so I hope he will agree with the general course
of what I am saying. The definition of the regulatory settlement
is to cover operations, maintenance and renewal costs, and to
make it possible for Railtrack to fund its investment programme
without undue difficulty. Now within that there is this word "renewal".
What happened on the West Coast Main Line was that they moved
from an upgrade to a new form of signalling, to a renewal of an
existing type of line side signalling, and the costs went through
the rooffor that reason amongst others. Whatever the reasons
were, they were included in the renewal programme. Being in the
renewal programme, they became part of the Regulator's five-yearly
settlement. He did a lot of hard work with his consultants on
the total cost of that renewal programme and it came out to the
number it came out at. He put forward, as being the amount that
had to be passed into Railtrack by one of two methods: track access
charges, which are paid by the TOCs, assisted by us; or direct
grant, Government having made it quite clear that it was willing
to consider direct grant from us to Railtrack as one of the channels.
So the money was to go in for a renewal programme by direct grant
from us. But it was a renewal and, therefore, it was part of the
regulatory settlement. The question you are askingand again
I think the answer is political rather than from meis was
this really a renewal programme or is it a major enhancement of
the system to have this line resignalled in this way? It was decided
that it was part of the renewal programme. Therefore, it would
go ahead under the way the regulatory plan is set up.
705. Yes, I think we are aware of that. I simply
want to ask one more question. I understand that the notion of
the SRA taking over Railtrack's offer of preference shares as
the bestnot one of the optionsbut the best way of
levering in private money, you have rejected that as an authority?
(Sir Alastair Morton) I did not recommend it to the
706. Would you care to elaborate now or at some
future date to the Committee why you did not recommend that? That
was not a political decision but it was your decision.
(Sir Alastair Morton) Not to recommend but I did not
have the final say. My decision not to recommend it was based
on a view. It had two parts, which I think I have referred to.
One part is what I thought of it as a proposition for an investment.
I thought it would bring more trouble than it was worth. There
are other ways of getting a return on your investment. They were
not proposing voting shares and half interest in the company or
25 per cent interest in the votes of the company, I can assure
you. The other point was that it was categorised as renewals and,
therefore, went into the regulatory settlement. Therefore, that
was not a way one would normally have dealt with the regulatory
settlement, passing money that way. So you had two reasons. One,
why I did not recommend it and the other, why it did not become
part of the plan. Both add up and it did not happen.
707. Sir Alastair, I have followed with interest,
and I am sure other people have, your answers to the questions
about money. I think the general public would be looking at your
authority to say, "There is all that money there. Are we
really getting value for money?" What do you see as your
role in achieving that?
(Sir Alastair Morton) Our role in achieving value
for money is to look at the total amount of money going out and
the total socio-economic return and the total cash return, and
see what the total benefits arevery much including what
I briefly call socio-economic, meaning things that cannot necessarily
be expressed in cash.
708. As a Strategic Rail Authority you get advised
regularly by all of the users or parts that make up our railways.
Do you get advice as to what is happening at the moment?
(Sir Alastair Morton) You mean the train operators,
the passengers, all the stakeholders in the system?
(Sir Alastair Morton) We certainly hear a lot from
lots of them, yes. The Rail Passengers' Council and the Regional
Committees are very active in telling us what they think. The
operators are pretty active in telling the Franchising Director
what they think. We do have contact with the other parties like
the contractors. We meet most of the people who are proposing
to do business one way or another. We talk to the local authorities
who are concerned about services. We see a very great deal of
the PTEs, the Passenger Transport Executives.
710. Have you been told today, or perhaps you
will be told tomorrow, why there were a further two derailments
late last night?
(Sir Alastair Morton) I think first you would have
to tell me whether those are the sorts of derailments that are
two-a-penny normally and they probably were. There are always
derailments on the railways. The railways are not some sacred,
perfectly conditioned, fully functioning thing. They have always
had their little derailments, their bumps in the night.
711. We have had rather a lot lately, have we
(Sir Alastair Morton) Stick to the definitions. If
they were the two-a-penny variety, then I do not think there would
be a great call for people to come tearing along to tell us. We
would probably have heard in the normal reporting system somewhere
along the way.
712. One of these has damaged four miles of
(Sir Alastair Morton) That often happens. It is usually
tidied up within hours.
713. So it is all tidied up now?
(Sir Alastair Morton) I do not know, to be honest.
(Mr Grant) It is not. Railtrack are inspecting it.
It is quite a bit of line so they are inspecting it. That was
the last report we had before we came to the meeting. It was a
freight train and the last couple of carriages came off and dragged
it for quite a few miles, so the damage is being checked on the
714. You are convinced, Sir Alastair, that this
will be put right in a couple of hours?
(Sir Alastair Morton) Not in a couple of hours, clearly.
It will be put right. It is the sort of thing that does happen
on the railway. Just like when there is an accident on the motorway,
the wreckage is cleared away reasonably rapidly, with all due
715. I have to say that I think the travelling
public have been extremely tolerant over the past few weeks. It
seems to me they need a champion to ensure that what is to happen
really does happen and happens for the better. It does concern
me that you are perhaps not being vigorous enough, as a Strategic
Rail Authority, in banging the table a bit.
(Sir Alastair Morton) I can assure you they will tell
you they have had some table banging, probably more than they
would like, from a number of parties on the Government side, including
me. We are strategic, we are not a railway management authority.
It is not our task to put a crane train and spares train and sleeper
train out on the circuit at Northampton, no matter what elsewhere
might be needed.
716. If it were, Sir Alastair, you would have
heard from us before.
(Sir Alastair Morton) I accept that. I think the answer
concerns the ailments of the system: if there is a system reason
why nobody fixes that quickly, that concerns us. If there is a
system reason why this broken rail problem seems to go on bumping
along at the same high level as opposed to coming down sharply,
which we all hoped it would by now, if there is a system reason
for that, that involves us; but actually finding that the third
rail from the left is cracked and doing something about it, is
not our business.
717. Can I bring you back to the SRA's strategic
plan. When you gave evidence to us in July, you did say that you
would be expecting to produce it late October, early November.
Could I ask when the date of publication of this will be, since
we are nearly at the end of November.
(Sir Alastair Morton) We announced in late October
that some working groups have been set up within the industry
and convened by us, supervised by a steering group, chaired by
me, to look at a number of questions affecting the possible smoother
running of the industry. We said that these were trying to come
up with industry solutions that could be voluntarily adopted to
eliminate conflicts of interest, conflicts of priority, friction,
operating difficulties between the parties, whether that be operators
and Railtrack, or whether it be maintenance of the track and somebody
else, the suppliers of rolling stock or whatever. We said these
would report in early December. They are all going to report by
5 December to the Steering Committee. We said that their conclusions
would not only be discussed with Ministers, in case action was
needed by Ministers, but would also condition our Strategic Plan.
If people come up with a way of looking at line speed restrictions
in a totally different way, (just to think of an example), it
would be useful to be able to reflect the kind of co-operation
that is required for the way we say things can be handled in future
in the strategic plan. So we put the plan back to January in that
718. Back to January. That has basically been
delayed because of the recent happenings on the railway?
(Sir Alastair Morton) Yes.
719. What evaluation do you involve yourself
in as far as input into new products through R&D is concerned,
if any at all? Do you have any understanding about what the levels
of R&D are within industry in the United Kingdom?
(Sir Alastair Morton) We have a concern about it.
It is not, to date, something we have involved ourselves heavily
in. We see it as something that is going to ask more and more
from us in future, partly for funding reasons and partly for strategic
reasons. The first push in that direction came from Sir David
Davies, who suggested we should convene rather more research than
was going on. There is a concern, which we share, that there is
not enough research and technological development going on since