Select Committee on Transport, Local Government and the Regions First Report


PROCEEDINGS OF THE TRANSPORT SUB-COMMITTEE RELATING TO THE REPORT

At the meetings of the main Committee on 19 July 2001, and of the Transport
Sub-committee on 17, 24, 31 October 2001, 7 and 14 November 2001
the following Declarations of Interest were made

Mrs Gwyneth Dunwoody declared a non­pecuniary interest as a member of the Rail, Maritime and Transport Workers' Union.

Mr Brian H Donohoe declared a non­pecuniary interest as a member of the Transport and General Workers' Union.

Mrs Louise Ellman declared a non­pecuniary interest as a member of the Transport and General Workers' Union.

Helen Jackson declared a non­pecuniary interest as a member of the Transport and General Workers' Union (not present at the meeting of 24 October).

Mr Bill O'Brien declared a non­pecuniary interest as a member of the Transport and General Workers' Union.

Mr George Stevenson declared a non­pecuniary interest as a member of the Transport and General Workers' Union.

Miss Anne McIntosh declared a pecuniary interest as the holder of shares in Eurotunnel plc, FirstGroup plc and Railtrack plc.

WEDNESDAY 16 JANUARY 2002

Members present:

Mrs Gwyneth Dunwoody, in the Chair


Andrew BennettHelen Jackson
Mr Gregory CampbellMiss Anne McIntosh
Mr Brian DonohoeMr Bill O'Brien
Mrs Louise EllmanDr John Pugh
Chris GraylingMr George Stevenson

The Sub-committee deliberated.

Mrs Gwyneth Dunwoody declared a non­pecuniary interest as a member of the Rail, Maritime and Transport Workers' Union.

Mr Brian H Donohoe declared a non­pecuniary interest as a member of the Transport and General Workers' Union.

Mrs Louise Ellman declared a non­pecuniary interest as a member of the Transport and General Workers' Union.

Helen Jackson declared a non­pecuniary interest as a member of the Transport and General Workers' Union.

Mr Bill O'Brien declared a non­pecuniary interest as a member of the Transport and General Workers' Union.

Mr George Stevenson declared a non­pecuniary interest as a member of the Transport and General Workers' Union.

Miss Anne McIntosh declared a pecuniary interest as the holder of shares in Eurotunnel plc, FirstGroup plc and Railtrack plc.

Draft Report [Passenger Rail Franchising and the Future of Rail Infrastructure] proposed by the Chairman, brought up and read.

Ordered, That the draft Report be read a second time, paragraph by paragraph.—(The Chairman.)

Paragraphs 1 and 2 read and agreed to.

Paragraph 3 read, amended and agreed to.

Paragraphs 4 and 5 read and agreed to.

Paragraph 6 read, amended and agreed to.

Paragraphs 7 to 10 read and agreed to.

Paragraph 11 read, amended and agreed to.

Paragraph 12 read, as follows:

The Strategic Rail Authority has failed to date to provide the leadership, priorities and precise timetable for implementation of improvements to the railways that were the main purposes of its establishment. It has also procrastinated over the production of its Strategic Plan. The Government must ensure that the Strategic Rail Authority provides the industry with a clear direction and must hold it to the deadlines for publishing future Strategic Plans.

Amendment proposed, in line 3, to leave out from the word "Plan" to the end and insert the words "The Government will allow the SRA to operate independently and free from Government interference. The SRA will publish an annual report and update on its ten year Strategic Plan.".—(Miss McIntosh.)

Question, That the Amendment be made, put and negatived.

An Amendment made, in line 5, after the word "Plans" to insert the words, "We are concerned that the exact cost and the timescale for implementing all the Plan's proposals have not been set out. The first Plan must be implemented to a clear timetable, so that passengers will know when they will see improved services.".—(The Chairman)

Paragraph, as amended, agreed to.

Paragraphs 13 to 16 read and agreed to.

Paragraphs 17 and 18 read, amended and agreed to.

Paragraphs 19 to 22 read and agreed to.

Paragraphs 23 and 24 read, amended and agreed to.

Paragraph 25 read and agreed to.

Paragraph 26 read, amended and agreed to.

Paragraphs 27 to 29 read and agreed to.

Paragraph 30 read, amended and agreed to.

Paragraphs 31 and 32 read and agreed to.

Paragraph 33 read, amended and agreed to.

Paragraph 34 read and agreed to.

Paragraph 35 read, amended and agreed to.

Paragraphs 36 read and agreed to.

Paragraph 37 read, as follows

Railtrack's conduct in relation to avoiding being placed in administration is puzzling. Mr Winsor told us that, even though in January 2001 he had intimated to Railtrack that if an application for an interim review were received he would consider it, between 15 January 2001 and 5 October 2001, Railtrack had made no application for an interim review, which could have provided the additional funds it required. On 5 October, the Secretary of State held meetings with the Rail Regulator and with the chairman of Railtrack. At those meetings the Secretary of State explained his intention to apply for Railtrack to be placed in railway administration. The Rail Regulator was unaware of the severity of the company's financial difficulties before that meeting, because "the company wrongly decided not to use the established regulatory mechanisms for dealing with its financial position and instead conducted direct negotiations for additional funding with the Government". On 6 October 2001, the chairman and chief executive of Railtrack telephoned Mr Winsor and asked him whether "if the company made an application [to the Rail Regulator] that night, there was any prospect of my carrying out an immediate interim review". Mr Winsor, said that, having asked about the grounds for the review and the amount of money the company needed, the answers made it clear to him that "in the time available, there was no prospect of doing what the company said was essential to protect it from administration". Accordingly, having been informed of that view Railtrack did not make an application. We accept Mr Winsor's assertion that although he was willing to undertake a review it could not be concluded in the time required by the company.

Amendment proposed, in line 17, to leave out from the word "application" to the end, and insert the words, "We note that although Mr Winsor had made it clear that he was willing to conduct a review, he told the company that draft legislation had been prepared to curtail his power to revise its financial arrangements.".—(Chris Grayling.)

Question, That the Amendment be made, put and negatived.

Paragraph agreed to.

Paragraph 38 read and agreed to.

Paragraph 39 read, amended and agreed to.

Paragraphs 40 and 41 read and agreed to.

Paragraph 42 read, as follows

Railtrack's precise financial position at the time of the administration order is shrouded in mystery. Certainly, if the company were solvent at the time of that the Secretary of State applied to the High Court then the company would be justified in its subsequent complaint. It is very surprising that Railtrack's management were unable to provide the High Court with proof of that financial position. Railtrack were unable to provide the Rail Regulator, their only remaining remedy, with sufficient information for him to undertake an interim review and were "nowhere near being able" to make a case for a review.

An Amendment made

Another Amendment proposed, to leave out from the word "position" in line 5 to the end.—(Miss McIntosh.)

Question, That the Amendment be made, put and negatived.

Paragraph agreed to.

Paragraph 43 read, as follows.

For the purposes of this inquiry, however, the key issue has been not the events surrounding the decision of 5 October, but whether Railtrack had performed its task effectively and whether it was likely to do so in the future. The company's performance has left much to be desired, and criticism of the company has been widespread and sustained. Indeed, in December 2001, what was reportedly one of the largest corporate fines to date was imposed on the company for failing to meet its performance targets. Mr Tom Winsor, the Rail Regulator, told us that the railway industry's core problem was the competence of Railtrack's management. The company appeared to have adopted a policy of neglecting its assets and being hostile to its customers. Moreover, Mr Winsor described dealing with Railtrack as being "a very, very difficult and unpromising process". Those failings within Railtrack had direct consequences for the franchise replacement programme. For example, the company's inability to estimate the cost of infrastructure enhancements accurately and in a timely manner posed considerable difficulties for train operators when preparing their bids for new franchises. According to Mr Stephen Grant, Railtrack would inflate project costs by three or four times, but as a monopoly supplier, it was not required to justify its figures. This Committee's predecessor—the Environment, Transport and Regional Affairs Committee—examined the maintenance, renewal and development of the national rail network in considerable detail and concluded that Railtrack's stewardship of the nation's rail infrastructure was severely lacking, not least its failure to maintain and renew the network properly, its inadequate knowledge of its assets and its poor management and monitoring of the work of its maintenance contractors. On balance the Committee considers the Secretary of State's decision to apply for railway administration was correct. It was the failings of its own senior managers that led to Railtrack's downfall. As the Rail Regulator has said: "Railtrack are the authors of their own misfortune".

Amendments made.

Another Amendment proposed, in line 20 , to leave out from the word "contractors" to the end of the paragraph, and insert the words "On balance the Committee believes it is too early to judge whether the Secretary of State's decision to apply for a railway administration order was correct. That question can only be adequately answered once it is clear how long administration will last and what form the successor company will take. However it is clear that there were serious management shortcomings at Railtrack which were a major factor in causing the problems which led to the Secretary of State's decision.".—(Chris Grayling.)

Question put, That the Amendment be made.

The Sub-committee divided.


Ayes, 3Noes, 7
    
Mr Gregory CampbellAndrew Bennett
Chris GraylingMr Brian Donohoe
Miss Anne McIntoshMrs Louise Ellman
Helen Jackson
Mr Bill O'Brien
Dr John Pugh
Mr George Stevenson


Another Amendment proposed, in line 20 , to leave out from the word "contractors" to the end of the paragraph, and insert the words "We are appalled at the Secretary of State's decision to apply for railway administration. By putting a solvent company into administration, he has robbed the shareholders of their investment. The implications for future investment from the private sector in transport projects, in particular under Government's ten year transport plan are grave.".—(Miss McIntosh.)

Question put, That the Amendment be made.

The Sub-committee divided.


Ayes, 3Noes, 7
    
Mr Gregory CampbellAndrew Bennett
Chris GraylingMr Brian Donohoe
Miss Anne McIntoshMrs Louise Ellman
Helen Jackson
Mr Bill O'Brien
Dr John Pugh
Mr George Stevenson


Another Amendment made.

Paragraph, as amended, agreed to.

Paragraph 44 read, amended and agreed to.

Paragraphs 45 and 46 read and agreed to.

Paragraphs 47 and 48 read, amended and agreed to.

Paragraphs 49 to 52 read and agreed to.

Paragraphs 53 and 54 read, amended and agreed to.

Paragraph 55 read and agreed to.

Paragraph 56 read, amended and agreed to.

Paragraph 57 read and agreed to.

A paragraph—(The Chairman)—brought up, read the first and second time, and inserted (now paragraph 58).

Paragraph 59 (now paragraph 60) read, amended and agreed to.

Paragraphs 60 to 62 (now paragraphs 61 to 63) read and agreed to.

Paragraph 63 (now paragraph 64) read, amended and agreed to.

Paragraph 64 (now paragraph 65) read and agreed to.

Paragraph 65 (now paragraph 66) read, amended and agreed to.

Paragraphs 66 to 68 (now paragraphs 67 to 69) read and agreed to.

Paragraphs 69 and 70 (now paragraphs 70 and 71) read, amended and agreed to.

Paragraph 71 (now paragraph 72) read and agreed to.

Motion made, and Question put, That the Report be the First Report of the Sub-committee to the Committee.-(The Chairman.)

The Sub-committee divided.


Ayes, 8Noes, 2
    
Andrew BennettChris Grayling
Mr Gregory CampbellMiss Anne McIntosh
Mr Brian Donohoe
Mrs Louise Ellman
Helen Jackson
Mr Bill O'Brien
Dr John Pugh
Mr George Stevenson



Ordered, That the Chairman do make the Report to the Committee.

[Adjourned till Wednesday 21 January at a quarter to Four o'clock.




 
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Prepared 31 January 2002