Members present:

Mrs Gwyneth Dunwoody, in the Chair
Andrew Bennett
Mr Brian H Donohoe
Mrs Louise Ellman
Chris Grayling
Helen Jackson
Miss Anne McIntosh
Mr Bill O'Brien
Mr George Stevenson
Dr John Pugh


Examination of Witness

MR STEPHEN BYERS, a Member of Parliament, Secretary of State for Transport, Local Government and the Regions, examined.


  1. Good afternoon, I am grateful to you for coming. Would you be kind enough to identify yourself for the record.
  2. (Mr Byers) I am Stephen Byers, the Secretary of State for Transport, Local Government and the Regions.

  3. Can I ask you, Secretary of State, if you have anything you would like to say.
  4. (Mr Byers) Mrs Dunwoody, if I could make a relatively brief opening statement to the Committee. And can I begin by saying, as this is the first time I have had the pleasure of appearing in front of your Select Committee since my appointment on 7 June, that I would like to think that we will have a long and constructive relationship -

  5. Seldom have men made offers like that to me so I can assure you I accept!
  6. (Mr Byers) Thank you so much! --- A long and constructive relationship with you as Chairman of the Committee and myself as Secretary of State for the Department. Mrs Dunwoody, it was a year ago that the rail industry was just recovering from the aftermath of the terrible events at Ladbroke Grove when the accident at Hatfield threw the industry, and particularly Railtrack, into turmoil. Partly as a result of Hatfield, Railtrack came to the Government for more money and in April of this year we agreed a deal with them based on their business plan at that time. We agreed to bring forward 1.5 billion of investment, the first installment of which was paid on 1 October this year, a sum of 337 million paid in full. My decision on 5 October to refuse further funding to Railtrack was not an easy one, but I firmly believe that Railtrack had become not part of the solution for our railways but indeed was a major problem. We had to say, "Enough is enough, let's get to the root cause of this. Let's look at the structure and put it right so that the extra money we intend to put into railways secures real value for money and an improved service to the travelling public." Railtrack went into administration because it was insolvent. My petition to the High Court was unopposed. Our evidence showed a deficit for Railtrack of 700 million by 8 December this year rising to 1.7 billion by March of next year. Little wonder that faced with these facts Mr Justice Lightman, the High Court Judge said: "This is clearly a case where the making of an Order is not only appropriate but absolutly essential; I shall therefore make the Order immediately." Mrs Dunwoody, you will know that the House has had the opportunity to discuss on three separate occasions the circumstances leading up to the granting of that petition on 7 October. We now need, I believe, to concentrate on the measures that have to be introduced and the steps that need to be taken if we are to create a railway system which is fit for the 21st Century, and I would certainly very much welcome the views and recommendations of the Committee on the action necessary to achieve this particular objective. As the Committee has identified in your earlier reports to the House, Railtrack had many failings, but Railtrack, in reality, is only part of the jigsaw that is the modern railway system, and I want this afternoon to share with the Committee part of mine and the Government's wider vision for the railway network. We first must consider the successor to Railtrack. There are some excellent people working at Railtrack and throughout the railway industry, but Railtrack was not delivering and these excellent people deserve to work in a structure that does. The Committee knows that we are proposing to the administrators a company limited by guarantee to take over Railtrack's stewardship of the network. It would include membership representing the industry and those with an interest in it, and that is only right, but the membership would not be involved in running the railway or taking any day-to-day decisions. The company would be run by a professional board of directors. The directors of that board would be charged with one aim and one aim only; to deliver a safe and efficient railway system. But the company limited by guarantee is only one possible model. We welcome the interest that has been shown by other third parties in Railtrack and look forward to seeing if and how that interest will be translated into firm proposals for the administrator. All will be considered fairly and on their merits and I have issued guidelines detailing the principal issues which I will consider before approving a transfer of Railtrack's undertaking. We will only proceed when we are happy that the successor to Railtrack can really deliver for industry and for the travelling public. The Ten-Year Plan, published last year, and coming into effect in April this year, was a milestone in transport planning. It contains key targets for the railway: a 50 per cent increase in passenger growth; up to 80 per cent growth in rail freight; and less over-crowding, particularly on busy commuter lines. We remain, in Government, committed to these targets despite the disruption caused by last October's crash at Hatfield. Among other things, Hatfield proved a stark warning to the industry of the continuing need to maintain and improve safety standards. Hatfield also caused massive disruption across much of the network. Some of the effects are still being felt. Six months after Hatfield there were still 1,000 temporary speed restrictions in place. As the Committee will know, the Strategic Rail Authority is our principal delivery agent. I am pleased that Richard Bowker is to become its new Chairman. He brings commitment, energy, clear vision and a great knowledge of the industry. The Strategic Rail Authority will be publishing its first Strategic Plan shortly. It will set out how the Ten-Year Plan is to be delivered and how to create a safer, better and bigger railway. The publication of the Strategic Plan will be a major event in the development of our railway for the future. As the Committee will also know, I have issued in draft form new Directions and Guidance to the Strategic Rail Authority. These are not about prescription or second-guessing. When finalised they will set the overall framework in which this Government body will operate. I have no intention of getting involved in detailed operational issues that properly belong to the Strategic Rail Authority, but I do believe on behalf of Government that it is right to set objectives and the 12 objectives set out in the draft Directions and Guidance are, I think, the key priorities for the future: to secure progressive improvements in the performance of the franchised rail services and improve levels of customer satisfaction with the quality of stations and services (and, as we have just heard from the Honourable Member for Wakefield, we know that is something that clearly does need to be addressed as a matter of urgency); to manage passenger franchises actively; to take opportunities to achieve improvements in terms of existing passenger franchises both in relation to performance and otherwise; to extend or replace existing passenger franchises in due time before expiry, or earlier where to do so is warranted by the potential benefits to passengers and other users, and is affordable; to carry out a national passenger survey twice a year; to keep under review the level of regulated and unregulated fares; to implement an improved system of support to freight operations; to replace the existing freight facilities and track access grant schemes; to secure increases in the capacity of the railway to accommodate the expected growth in passenger and freight traffic; to develop a policy for the allocation of capacity amongst users; and to ensure that rolling stock is available so that train operators are able to accommodate expected passenger growth in appropriate model standards of comfort and safety and, specifically, in order to replace the existing Mark I stock as it is progressively removed from the network between now and 2004. And the final two objectives: to achieve a significant improvement in the resilience of railway operations; and to promote co-operation among different parts of the rail industry. In addition to the Directions and Guidance, I also want the Strategic Rail Authority to be flexible in its approach to franchising. In some cases 20-year franchises will be appropriate. Indeed, the Strategic Rail Authority is now in the final stages of negotiating a new 20-year franchise on Chiltern. In other cases short extensions may well be the answer, as with the East Coast Main Line. Here a new long franchise may be appropriate but it would be premature to commit to it at this particular stage. I also want to see franchise bids invited against a clear specification of core outputs so that everybody can be clear what they are trying to achieve and we can enable bids to be properly evaluated one against the other. The Ten-Year Plan backs up our vision with a commitment to massive investment. Over the ten years of the plan, public support to the railway will be some 30 billion, far higher than in the past ten years. Public funding will lever in some 34 billion of private finance on the Channel Tunnel Rail Link, on new rolling stock, and on major schemes to expand the network such as the planned upgrade of the East Coast Main Line. Mrs Dunwoody, money and commitment alone will not be enough to transform the railway over the next ten years. We also need to tackle some practical problems, including the current shortages of drivers, signalling engineers and other key staff. The Strategic Rail Authority is working with the industry and government agencies to ensure that the right people are trained and available in the right places. The short-term approach to training and skills development that we have seen over recent years is now leading to real difficulties. We must now invest for the long term and that means providing a structure in which the talents of individuals are enhanced by high-quality training. Mrs Dunwoody, the action we have taken in relation to Railtrack is an important first step towards creating a railway system fit for the fourth largest economy in the world. But I am clear that much more needs to be done. We need to have a successor to Railtrack that concentrates on operations, maintenance and renewals; a strategic plan which is an agenda; a franchising regime which uses its powers as a key lever to drive up quality, investment, both public and private, which brings real benefits for passengers and freight; a skilled workforce to meet the demands of the industry. Some might say that this is too bold and ambitious but I do believe it is a vision that can be achieved.

  7. Thank you, Secretary of State. We will want to question you on various aspects of that statement. I want, if I may, just to ask you a couple of questions. You will have read the evidence given to us by the Rail Regulator and you will also know that, whatever form the successor to Railtrack takes, one of the ways in which certainly the private sector and banking sector will expect to have their interests protected is by the role of the Regulator who acts as a vital arbitrator in the case of any difficulty. Do you feel that the Rail Regulator was sufficiently consulted in the talks between yourself and other members of the industry before your decision to go for administration was announced to him on the Friday before the relevant date?
  8. (Mr Byers) It was Friday 5 October, Mrs Dunwoody, when I met the Regulator to inform him of the decision that I had taken earlier that day in relation to Railtrack's request for further additional funding from the Government. In practice, it was very difficult to consult the Regulator before that decision for a simple reason, which was the discussions that had been taking place with Railtrack and with their advisers were taking place in the strictest of confidence. As you will be aware, as Secretary of State I am under no legal obligation to inform the Regulator of discussions of that nature. It would have been open - and I think the Rail Regulator in his evidence to the Committee made this very clear - to Railtrack to have made an approach to the Regulator at any time during that period?.

  9. Were you aware that he had not done that?
  10. (Mr Byers) I learned that from the Regulator in his evidence last week. I was aware from Railtrack that they had not approached Regulator; that was clearly a decision for Railtrack.

  11. Did you ask them why they had not done that when this was a recognised route by which they could have raised money?
  12. (Mr Byers) I understood it was a decision that Railtrack themselves had taken.

  13. That was what they said to you at the time?
  14. (Mr Byers) I cannot recollect in detail but it was clearly a decision Railtrack had taken. Whether they expressed it openly in those terms I really cannot remember.

  15. Were you surprised that they had not chosen that route to raise extra cash?
  16. (Mr Byers) I would have thought that they would have considered some of the comments which have been made by the Rail Regulator about the position of Railtrack. Clearly it was an avenue open to them and, for whatever reasons, Railtrack chose not to go down that particular avenue.

  17. Were you aware that Sir Alistair Morton regarded the right of the Regulator to raise money in this fashion as the right to take money out of the pockets of the Strategic Rail Authority?
  18. (Mr Byers) Sir Alistair Morton expresses himself in his own colourful way and I am aware of his own particular views, yes.

  19. Do you feel that the reaction of the Regulator, which was one of considerable shock according to the evidence he gave us, was justified by the fact that he felt his role had been undermined and it was impossible for him to continue?
  20. (Mr Byers) I did not read the Regulator's evidence in that way, Mrs Dunwoody. Thankfully, because of the transcript that you made available yesterday, I was able to read the transcript and the message I got from the Rail Regulator's evidence was that if Parliament, both the Commons and the Lords, had agreed to proposals to constrain him, then his independence would have been affected. But clearly he said to the Committee for him it was "business as usual" and I think what is particularly noteworthy is on the evening of 6 October he indicated, certainly in evidence before the Select Committee last week, that he said to Railtrack if they applied for an interim review then he would certainly give it appropriate consideration.

  21. He also said they did not ask for that because they had put a 24-limit on the length of time this should take.
  22. (Mr Byers) I cannot really understand that because Railtrack was aware that there was a petition being made to the High Court on the Sunday. That petition of course was from myself because I had evidence which led me to believe that Railtrack was not solvent. Railtrack attended in the High Court on the Sunday afternoon with counsel and they did not oppose or challenge the petition that I presented.

  23. You do not think you undermined the role of the Regulator?
  24. (Mr Byers) No, the nature of conversation - and it is important for the Committee to be aware of this - was it was the Regulator himself who said almost "what if?" It was not me volunteering that there was a potential for the introduction of emergency legislation if that were necessary. It was a consequence arising from a comment that Mr Winsor himself had made. I put it to the Committee that had I not disclosed the decision that Government had taken then, quite rightly, people could have alleged that we were misleading the Regulator as to the approach of the Government. I was simply very open and very honest with the Regulator in response to an issue that he himself raised.

    Mr Stevenson

  25. I would like to ask the Secretary of State questions in two areas, if I may. The first is on the options that may be forthcoming from the administrator which might determine the successor to Railtrack. One of those options that I think is being suggested is that a private sector buyer headed by a consortium that may be based in Germany would be interested in buying Railtrack lock, stock and barrel. Could the Secretary of State confirm that as a possible option?
  26. (Mr Byers) What the Government has done is to make sure that there is what we regard as an appropriate vehicle to take Railtrack out of administration and that is why we have worked up the model of a company limited by guarantee which we feel is an appropriate model. It overcomes many of the flaws and weaknesses that we have seen with Railtrack. However, we do believe it is right that we should not close the door on other proposals coming forward. I think some two weeks ago I issued some guidelines when I answered in a Parliamentary question outlining the sorts of issues that we would want to take into account when considering whether or not I should approve a successor for Railtrack under the powers that I have under the Railways Act of 1993, and you are right to say that one of those organisations so far which has expressed some interest is a German company called WestLB. They have made an approach in outline to the administrator and it is the administrator who will deal with these issues as the first port of call. I understand that they are now working up a more detailed proposal which they will put to the administrator in due course.

  27. But I understand, Secretary of State, that you will make the final decision?
  28. (Mr Byers) The sequence will be that the administrator will effectively make a recommendation. Railway administration is a very unique form of administration in that normally if would be for the administrator to take the final decision. With railway administration it is unique in that the administrator will take a decision as to what he believes is the right conclusion, taking into account all of the interests but then that has to be approved by the Secretary of State.

  29. Fine. Given that you have, I think, consistently indicated, and yesterday you specifically said, that Railtrack plc - and I think I quote you not too incorrectly - had put the interests of its shareholders before that of the railway infrastructure. Given that is the case, how are you going to ensure that another private company is not going to do exactly the same thing?
  30. (Mr Byers) This is going to be one of the issues that will need to be considered when we look at whatever proposals come from the administrator.

  31. Could I pass on to my second area. You describe, Secretary of State, the rail system as a "jigsaw", some may describe it as a "maze" and you will be aware of the consistent evidence that the Committee has received over recent times from, I think I am correct in saying, every organisation that has given evidence to this Committee, that one of the major problems confronting the industry is fragmentation. You are aware of that?
  32. (Mr Byers) Yes.

  33. It is consistent right across the board. That being the case, how do you think that Railtrack Mark II (or Renewco, whatever it may be) plus up to 15 special purpose vehicles, Renewco having responsibility for maintenance and renewal but the Strategic Rail Authority and special purpose vehicles having responsibility for major new infrastructure, plus the possibility of six or more regional companies, is going to reduce fragmentation in the industry?
  34. (Mr Byers) I am not sure that is the model that we will end up with at the conclusion of the period of administration.

  35. Are you saying that you are not in favour of special purpose vehicles?
  36. (Mr Byers) What I am saying is we should not see it in terms of special purpose vehicles causing the fragmentation that you are perhaps concerned about. My own view is that the bodies that will take over those major upgrades, for example the East Coast Main Line, the one that is due to come up in the not-too-distant future, would be a very good example of where special purpose vehicles might be used, and there we would expect the Government, the Strategic Rail Authority and the private sector to be involved in working up the details but there will need to be an oversight by the successor of Railtrack or else you create the sorts of divisions that you are particularly concerned with.

  37. It is not a matter of any individual creating the divisions; surely it is that sort of structure that inevitably will lead to further fragmentation? I fail to understand, perhaps you could help me, given that the system which included Railtrack plc was described as "blighted by fragmentation" from the word go, how the creation of up to 50 special purpose vehicles, how a distinction between Renewco for maintenance and renewal and SRA special purpose vehicles for major upgrades, and up to six regional companies, is going to reduce fragmentation. I simply do not understand that and perhaps you might be able to help me.
  38. (Mr Byers) I will certainly do my best to try to explain how I think it might be a better system that overcomes some of the problems we have at present. One of the big issues that we have at the moment - and this was also referred to in one of the reports from this Select Committee - has been the lack of what I would call a "clear line of sight". In other words, sometimes it is very difficult to identify who is responsible for certain events which take place which means very often - and we have all been aware of this within the railway industry in recent years there has developed almost a blame culture where people point the finger at each other but no one part of the industry is prepared to put up their hand up and say, "Yes, we are responsible for this and we need to improve it in the future." I do think it is important to bear this in mind, and I can understand why given what has happened since October 5 that people, understandably, are concentrating on Railtrack, but I think it would be a terrible mistake if that is all we looked at because what has happened with Railtrack, as I said in my opening remarks, is really one part of the jigsaw, of the maze if you like. What we have got do is to make sure that when this period of administration is over we have not only have a successor to Railtrack but we also address some of those key issues like the role of the Regulator, like the Strategic Plan from the Strategic Rail Authority, like how we can use the franchising regime in a more positive way than perhaps it has been so far. I do believe that by using all of those levers then we can overcome the sorts of fragmentation you are so concerned about.

  39. I have listened very carefully to your answers and we will have to assess how persuasive your answers are. Given that whatever successor to Railtrack is, it will have to be backed up by considerable amounts of public money, I think that is a foregone conclusion, and that money will in the main, if not entirely, be directed through the Strategic Rail Authority who will be responsible for the dispersement of that money consistent with policy objectives and also responsible for major infrastructure developments with special purpose vehicles, and the need to simplify the industry is an overriding consideration. I put it to you what do we need a successor to Railtrack for? Why can it not be done through the SRA?
  40. (Mr Byers) We need a body which will hold the operating licence and will do simple things and do them well, which means operations, maintenance and renewal, and that is their overriding priority, and not to be distracted by the big enhancement projects. The difficulty, so I have been told, at the heart of the Railtrack was that in order to enhance shareholder value and make a profit - there is not much profit from operations, maintenance and renewals works, the real profit comes from the major upgrade - a lot of time is spent looking at that particular part of their responsibility. I believe that with the new company that we are proposing taking over from Railtrack, concentrating just on running the track and getting that right as far as the network is concerned and the other responsibilities as well, then that is what they need to be concentrating on. I do think we need a dedicated body to do that and it does not fit in with the role of a Strategic Rail Authority which is really a body at arm's length from government but which sets the strategic objectives of the railway network. Some would say it is a bit ironic that we have got a Strategic Rail Authority at the moment which does not have a Strategic Plan but we will have an Strategic Plan in the not-too-distant future and the SRA also has the responsibility for the franchising programme as well. I think there are distinct roles to play and that has to be done by the Strategic Rail Authority and I do believe a successor to Railtrack is necessary in order to do those basic things - operations, renewals and maintenance and do them well and do them on time.

    Chris Grayling

  41. Can I start, Mr Byers, with franchising. You will be aware that from October 1999 onwards the industry was very focused on 10 and 20-year franchises. When you took over as Secretary of State you said on June 18, "I am not going to embark on any big structural changes. What the industry needs now is a period of stability and certainty." What happened between the 18 June and 16 July to change your mind on that and to make you press ahead with two-year franchises? Was it your idea or the Department's idea or did the idea come from 10 Downing Street?
  42. (Mr Byers) I think the idea was myself as Secretary of State and my Department's. It would be inaccurate to present the policy as being one which was in favour of two-year franchises. What I wanted to move to was a situation where there was a greater degree of flexibility in terms of the type of franchise to be awarded in particular cases. In the way the regime was operating when I came in there was almost a presumption in favour of long-term franchises, 15 or 20 years. That may be appropriate in certain situations. I think I indicated to the Committee in my opening remarks that it may well be the case that the East Coast Main Line is a good example of where a long-term franchise will be appropriate because of the upgrade that is necessary and the long-term investment.

  43. That has already been recommended by the SRA.
  44. (Mr Byers) It was recommended by the SRA on balance. It was a close run thing as far as the SRA were concerned. However, in terms of other contracts other franchises there may well be benefits that can be achieved by either a short-term extension, if that is deemed to be appropriate, or where a shorter period of franchise may be regarded as necessary in the particular circumstance. What I was trying to do was a change of policy but it was almost "horses for courses", what type of franchise is best in the circumstance of each case and let's judge.

  45. With the finances for the modernisation of the network, the Regulator's most recent announcement shifted the funds available for renewal, maintenance and operational expenses for Railtrack (excluding the West Coast Main Line) by a very small amount, from 12.9 billion to 13.3 billion. Railtrack's recommendation was that a total of 17.1 billion should be spent. Was that sum correct? Will you be making that sum available to the successor body or will you only be making available to the successor body the 13.3 billion available to Railtrack?
  46. (Mr Byers) Our proposal at the moment is that the successor body should be operating within the financial framework within which Railtrack was operating and should not cost any more, so it will be within the remit established by the Rail Regulator.

  47. When you met on June 25 the Chairman of Railtrack did Railtrack actually ask you for more money and, if they did, how much did they ask you for and when?
  48. (Mr Byers) There was no meeting on June 25.

  49. I beg your pardon, July 25.
  50. (Mr Byers) On July 25 there was a meeting with the Chairman of Railtrack, as I said to the House yesterday. He outlined to me the particularly difficult financial circumstances that Railtrack were facing. He did not go into detailed figures but as a result of that meeting my officials met his advisers over the next few weeks to discuss the detail of the position as Railtrack faced it at that particular time.

  51. Did they actually ask you for more money?
  52. (Mr Byers) On 25 July Mr Robinson discussed a range of issues. He outlined to me in general terms the seriousness of Railtrack's financial situation, making clear that the position was far worse than he first thought. He spoke to me about needing a soft letter of comfort from the Government by the autumn before being able to access existing banking facilities. If Railtrack were unable to access these facilities or receive extra financial assistance from Government it was clear that on 8 December, when Railtrack was due to give its interim results, it would be unable to make a critical statement that it was a going concern. That was the conversation.

  53. We know Railtrack's business plan involved them seeking first of all to draw down funds that had already made available to them as credit facilities from the banks and subsequently to launch a bond issue which is where the cash for the next few months was coming from. My question to you again is did they actually ask the Government for more money or did they simply ask the Government for a letter of comfort which would enable them to proceed with that business plan?
  54. (Mr Byers) The conversation was if Railtrack were unable to access these facilities or receive extra financial assistance from Government -

  55. So they did not actually ask you for more money?
  56. (Mr Byers) The conversation was in relation to the need for a soft letter of comfort to be able to access existing banking facilities. The important point was from that meeting (because it was in outline only) detailed conversations then took place between his advisers and my officials in the Department.

  57. Let's be clear; there was never a specific request from Railtrack for additional Government funds over and above what was already being provided to them?
  58. (Mr Byers) On 25 July Mr Robinson came to me and said they had real difficulties.

  59. But he did not ask for a specific amount of money?
  60. (Mr Byers) What he did ask for was for a soft letter of comfort from the Government by the autumn before being able to access existing banking facilities. If Railtrack were unable to access these facilities, in other words if we did not give a soft letter of comfort, they did not or receive extra financial assistance from Government it was clear that on 8 December he would have difficulties when it came to him giving his interim results. But that was the first meeting of a number of meetings. Arising from that we then had, at Mr Robinson's request, a number of meetings between my officials and the advisers who were being employed by Railtrack.


  61. Because he was asking you for vast sums of money? He was asking for moneys to be brought forward?
  62. (Mr Byers) On 25 July that was not the detail of the conversation. 25 July was the first opportunity Mr Robinson had to alert me to the looming financial crisis faced by Railtrack. Following on from that there was a series of detailed conversations taking place between his advisers and my officials.

    Chris Grayling

  63. There is an important point here from the Chief Executive of Railtrack and indeed from the Rail Regulator who called into question the Department's statement that Railtrack was insolvent on October 5. There are two possible avenues here. If it is the case that Railtrack had come to you looking for a letter of comfort and they were then seeking to launch a bond issue and draw down capital facilities, was it the case that you ever received from any of your advisors professional advice that had they been able to do those two things they would still have been facing insolvency as a company?
  64. (Mr Byers) The situation was that there was a series of meetings between officials and advisers for Railtrack, and on my behalf, following on from our meeting of 25 July. That led in due course to a situation where I then had to consider whether or not additional government money over and above the business plan that had already been agreed, over and above all of the financing arrangements which had been put in place, more money was needed by Railtrack, which is why on 5 October I had to take a decision whether to allow more Government money to go to Railtrack, additional Government money, or not.

  65. I am interpreting from the fact that you have not given me a direct answer to my question --- at no point between 25 July and 5 October did Railtrack specifically ask you for an additional sum of money beyond that already committed?
  66. (Mr Byers) They did and that was part of what was called "Project Rainbow" which was their new restructuring proposals. As the Committee may know, when their advisers came to meet my officials there were three options which their advisers put to my officials. They were restructuring, renationalisation or receivership, as they put it. The restructuring option was the one that was worked on in some detail. This was to see what regime we could put in place that would be of benefit to Railtrack. That regime would have meant unspecified additional government money going into Railtrack.

  67. That was what your advisers said, but Railtrack itself never asked you for more money. What they asked you for was for Government backing to ensure that they could pursue their plan of raising capital in the markets and drawing down banks assets. I am referring to your statement to the Commons yesterday.
  68. (Mr Byers) No, that was in relation to the meeting on 25 July. As I think I said to the Committee earlier, that was the first of a series of meetings. It was a meeting where Mr Robinson outlined to me the financial difficulties that had been identified. He was a new Chairman of Railtrack. He had appointed new advisers. They had come to him and said, "We have had a very close look at the position of Railtrack and it is worse than we expected." Mr Robinson then came to see me on 25 July, outlined in broad terms the problems that he was facing, and said in the light of this could I agree that my officials would meet his advisers to go through the detail and I, of course, said yes. What then happened throughout August and September was a series of very detailed meetings about the financial situation that Railtrack faced. Arising from that there was a proposal - in fact there were separate proposals - which would have meant significant sums of additional Government money being provided to Railtrack and that was the consequence of those discussions.

  69. The situation over discussions with the Treasury which has been highlighted in the last few days, can we clarify that point; did you ever enquire about the possibility of extending public funds for Railtrack and, if so, what was the response?
  70. (Mr Byers) The Treasury, like other government departments, were involved throughout as we were working up the two programmes of work, if you like. Throughout August and September what we were doing, to begin with we were looking at the proposals that were being put to us by Railtrack for restructuring and the details contained within it. Towards the end of August I was concerned that we needed a fall-back, as it were, in case we decided that no extra government money should be made available, so we had two programmes of work going alongside each other. Of course, as is the very nature of the government, the Department will be working with the Treasury in working up those proposals and from time to time I had reports about the progress of those programmes of work. In the end it was on 5 October that I had all of the relevant advice and I took my decision.

  71. A very brief final point; did your Department in any way intervene with the Strategic Rail Authority over the Renewco issue and the repayment of 162 million which has been a matter of some dispute. I ask that because I know that the SRA has now offered that sum to Railtrack in receivership some three or four months after it was first due to be paid and Renewco was supposed to be set in play.
  72. (Mr Byers) That was a matter between the Strategic Rail Authority and Railtrack in line with the agreement that was entered into in April. My understanding, which is the understanding I reported to the House yesterday, was that the conditions that were attached to that, bearing in mind the agreement was to use best endeavours to achieve this particular outcome, the conditions were not met on 1 October and therefore the payment was not made. It is worth reminding the Committee, of course, that in the course of those discussions in August and September Railtrack indicated that even if Renewco, for which the 162 million was put in place, Railtrack would still need additional government support over and above that. I think if the Committee considers the 162 million in the context of the 700 million deficit which Railtrack would have had on 8 December, then one can see that there would still have been great difficulties as far as Railtrack was concerned.

  73. So your Government had no involvement in delaying or intervening in any way in that payment?
  74. (Mr Byers) We certainly did not block any payment of 162 million to Railtrack.

  75. Was there any discussion, theoretical or otherwise, in your Department before 25 July about the possibility of a future change in status for Railtrack, whether nationalisation, the move into a company limited by guarantee, or whatever?
  76. (Mr Byers) Not that I am aware of.

    Miss McIntosh

  77. Mr Byers, you said in your evidence to us this afternoon that the Strategic Rail Authority will be the principal delivery agent. Why did you never meet Sir Alistair Morton as Chairman of that Authority?
  78. (Mr Byers) I did meet him.

  79. That is contradictory to the evidence we have taken, that up to the time that he resigned he said that he had asked for meetings with you and never had a meeting. I put a question to Sir David Jameson of the Department about what meetings Ministers had had with the SRA and the written answer came back that officials had met the Authority, but no minister (by implication) had met.
  80. (Mr Byers) I do not know about the details of that parliamentary reply but I do know because if you have a meeting with Sir Alastair Morton it is not something you forget, and I have certainly met Sir Alastair to discuss these matters.

  81. What dates were these meetings?
  82. (Mr Byers) Off-hand I cannot remember. I am more than happy to write to the Committee with the detail.

  83. Do you have in your possession or did you receive a letter from Sir Alastair Morton to the Department on 1 October addressed to the Permanent Secretary?
  84. (Mr Byers) I would need to refresh my memory.

    Miss McIntosh: Could I help you there. In the letter Sir Alastair Morton writes that a decision should have been reached on 1 October and I quote from his letter. "We have now arrived at 1st October, when all should have been implemented" (ie implemented in relation to the Renewco agreement.) He concludes by saying: "The SRA has played its part fully competently in this story" - I quote again - "Personally I regard the episode as confirming my views that the SRA needs to have satisfactory delegated authority rather than be placed under the direct, point-by-point control of your Department ..."

    Chairman: I have to say we do not normally have access to the Permanent Secretary's correspondence. Do you, Secretary of State?

    Miss McIntosh: If would be enlightening if the Secretary of State could let us know if the account at the time of that letter is accurate or not.


  85. If the letter is made available to the Secretary of State, I am sure he could elaborate.
  86. (Mr Byers) It would be nice to see it at some stage. I think there Sir Alastair is expressing a view that he has expressed on many occasions, that he believes the Department is involved in point-by-point scrutiny of everything the Strategic Rail Authority does. That is a view that Sir Alastair has expressed over a period now and the Committee will be aware of that and it is something he feels strongly about. It is one of reasons why I have tried to introduce new Directions and Guidance which make it absolutely clear the roles of the Department and Strategic Rail Authority. I hope that when we have the new Chairman in place there will be a very positive and constructive relationship because through those Directions and Guidance people will know exactly what role they are expected to play. As I said in my opening remarks, it is not part of what I want to do to be involved in the micro-management of the Strategic Rail Authority. They are a strategic rail authority, they are going to be arm's length away from me as Secretary of State. I want them to come up with a Strategic Plan which I hope you will agree with in the Select Committee and I will agree with as Secretary of State, and then get on with it because the thing that has bedeviled this industry for far too long is people once again, and I have to say from what you read from the letter this may be an example of it, trying to blame someone else, when in reality what we need to do is try to work together.

    .Miss McIntosh

  87. Secretary of State, your Department asked for an agreement on Renewco to be made on 1 October. Did your Department simply fail to act or to positively intervene to stop from happening something that was important to the future of the Railtrack?
  88. (Mr Byers) I think you will be aware that the agreement on April 2 was for all parties to use their best endeavours as far as Renewco was concerned, and the conditions that were attached to that, the main one that I am aware of is that Renewco should not score as a public sector body. That condition had not been met by 1 October and therefore the money could not be paid over. If I can just remind the Committee of this - and I can understand why the 162 is of some concern, it is a large sum of money - on October 1 we did pay over 337 million to Railtrack because that was part of the legally-binding agreement entered into on April 2. The 162 million was using best endeavours and I do believe that was the case. What I would go on to say is that if one looks at the 162 million compared to the financial meltdown that was being faced by Railtrack, I do believe it is a bit of red herring because they would have been 700 million in deficit by 8 December of this year.

  89. Do you believe in the role for an independent economic regulator for any industry?
  90. (Mr Byers) I have said, and I have said it to the House on more than one occasion, I do believe with railways and with other areas why as well, where it is appropriate, there should be independent economic regulation.

  91. I do not know if you have with you today the evidence that we took from Mr Winsor but may I draw your attention, Secretary of State, to the rather powerful remarks that he made. he only person that could have approved an interim review was the Rail Regulator. You effectively neutralised his power to apply for such a review because you told him - and I quote -"Mr Byers said that they had thought of that [ie Railtrack] and that if such an application were made, he [Mr Byers] had the necessary authority immediately to introduce emergency legislation to entitle the Secretary of State to give instructions to the Regulator. After pausing to consider [this is Tom Winsor] whether I had really heard what I had just heard, I asked whether that would be to over-rule me in an interim review or in relation to all my functions. Mr Byers said it was cover everything but that its first use would be in relation to an interim review which the Government did not want to proceed" This has enormous implications not just for the rail industry but for the Bank of England, all energy, telecommunications, transport centres, the Offcom Bill and the Health Bill. Where do you stand on the role of an independent regulator and when will you give further directions to neutralise his power to intervene in the future?
  92. (Mr Byers) The Secretary of State has no power to do that. What the Secretary of State is able to do is to introduce a measure before this House. The House of Commons would need to agree to it, as would the other place. It is Parliament that decides the role of the regulator. The important point to stress to the Committee is that the rail regulator - and given the character of the rail regulator this is no surprise - did not feel his independence was curtailed at all, as I think he said to the Committee. It would have been if Parliament had agreed but Mr Winsor, on the evening of Saturday 6 October, said in very clear terms to Railtrack that if they made an application to him for an interim review it would be considered and it would be possible for him to immediately and publicly announce that he had begun such a review.

  93. You went on in evidence yesterday to the House to express surprise that Railtrack did not oppose the petition before the court on the Sunday. The only ground Railtrack would have had at that stage to oppose such a petition would have been a successful application for an interim review. I am not going to use the word "threaten" but I quote: "The Secretary of State said to me" - Tom Winsor - " that if there were an application for an interim review he, the Secretary of State, had the necessary authority to introduce immediate legislation to prevent a review taking place. I explained that such legislation would be a card which the government should be extremely reluctant to play." The point is that you placed the independent rail regulator in an impossible position because if he had turned to you on that Friday afternoon and said that yes, he was going to support a possible application that we know for a fact came on the very next day, the Saturday, you had already prepared emergency legislation which you were prepared to put before Parliament to block him. I put it to you, Secretary of State, that you had taken away any possible application for an interim review because you had prepared to put before the House on Monday emergency legislation to block it. We are under no illusion on this side of the House that your majority would have worked in your favour and you would have blocked it.
  94. (Mr Byers) For accuracy in the Committee, it must be made clear that the question you have just put is factually inaccurate. No application was made to the regulator. The regulator was crystal clear in the Committee last week that he said to Railtrack on the evening of the 6th in a conference call that if they could apply to him it would be considered. With respect - and the record will show this - you said that an application had been made to the regulator and I think it is important that we get on the record that no such application was made. Indeed, the regulator in his evidence before the Committee was absolutely clear that he said to Railtrack on the evening of Saturday 6 October that, if an application was made to him for an interim review, it would be considered and it would be possible for him to say publicly that he had begun such a review. No such application was made by Railtrack. Those are the facts of the case as reported to the Committee by Mr Winsor last week.

  95. To keep to the facts, Mr Winsor had been told that you had emergency legislation to block such a review. What purpose would it have served for Railtrack to then come forward with such an interim review, when you had petitioned to the court that Sunday and the emergency legislation was going to be presented to the House on Monday, when you were going to block the interim review and undermine the independence of the rail regulator by doing so?
  96. (Mr Byers) There are two very important points to make here. First of all, it would have been a factor that the High Court judge could have taken into account that Sunday afternoon because the regulator, as he indicated on the evening of Saturday the 6th, would have said publicly, immediately, that he had begun a review, clearly a material factor that the High Court judge would have taken into account when considering my petition on the Sunday afternoon. The second important point is it is not for me as the Secretary of State to introduce legislation just when I want to. It has to go through this House; it has to go through another place. It is for Parliament to decide the role and the responsibility of a regulator. That is quite right and proper. Tom Winsor is clearly still totally independent, demonstrating that in his conversation with Railtrack on the evening of 6 October. His powers are not curtailed in any way.

  97. You do not deny that you had the legislation ready? I would like to know precisely what date that legislation was prepared.
  98. (Mr Byers) As part of the contingency planning, legislation was drafted.

  99. At what date? It is a very simple question. At what date was the legislation prepared?
  100. (Mr Byers) It was drafted so that, if need be, if I took the decision on 5 October, it could be introduced at an appropriate time in Parliament. However, I know this has been presented like some great secret that we were keeping hidden from people but can I say for the record to the Committee that the fact that I had power to introduce a bill at the earliest opportunity giving me the power to direct the rail regulator was in my evidence to the High Court on 7 October. It was placed in this House on 23 October in the library. We drew it to the attention of the Shadow Transport Minister on 2 November and indeed Mr Steve Marshall, when he gave his evidence before this Committee on 31 October, referred to it as well. We have been absolutely clear about the position that had been adopted by the government; no secrets; totally open and honest about our intentions. The reason why is because it is a natural consequence from our decision that no additional, extra public money would go to Railtrack.

  101. Was the legislation prepared in August, September or October?
  102. (Mr Byers) It was prepared on a contingency basis so that, when I took the decision on 5 October, we could introduce it if I felt it necessary to do so.

  103. Against the background of the evidence we have heard over the course of this inquiry, what assurance can you give track operators as well as prospective investors that there will be adequate funding for any new vehicle that replaces Railtrack, free from interference from the Secretary of State?
  104. (Mr Byers) We will ensure that appropriate funding is made available. I think I said earlier in my evidence to the select committee that we would want to ensure that funding was at a level which has been made available to Railtrack. We are putting in place some very positive measures to support financially the company limited by guarantee and I do believe that, with the money that we are now putting in, we have an opportunity of receiving real benefits as far as the travelling public is concerned. I do believe, as I think I said to the House when I made my statement on 15 October, that whatever structure we come up with after administration there will be a need for independent, economic regulation.

    Mr Brian H Donohoe

  105. Had you not taken the action that you took on 5 October, what would have been the consequences to the workers of Railtrack the following week?
  106. (Mr Byers) The reason why contingency plans had to be put in place was that on 5 October I had to take a decision whether to in principle put more, extra, public money into Railtrack or whether to simply say enough is enough. Saying enough is enough, I then have to inform the chairman of Railtrack which happened that Friday afternoon. We had to ensure that if the High Court agreed to my petition for administration we would have a railway system operating properly on the Monday morning. Because of the contingency arrangements that we had in place, we were able to do that. Indeed, the railway system has run since, even though in administration and I should take this opportunity of complimenting all of those workers in the railway industry who even in difficult circumstances have continued to turn up to work and do a good job for all of us.

  107. Had you not taken the decision that you took on that date, would it not have been the case that the following week Railtrack, the administrator or whoever, the receiver, would have been issuing redundancy notices?
  108. (Mr Byers) I honestly do not know the answer to that and what the consequences would have been. I do know that what I was trying to achieve by having the contingency arrangements in place was that we could still operate a railway system and it would not descend into chaos.

  109. Had you not taken that decision, Secretary of State , there was a very real threat, was there not, that it was possible that the whole of the infrastructure, in terms of the employment of the individuals, would have collapsed? You would not have had at that stage a railway running in this country.
  110. (Mr Byers) There would have been very real dangers that we would have faced difficulties along those sorts of lines but I would not want to speculate as to precisely what the consequences would have been. I just felt that we had to ensure that we had contingency arrangements in place so that the railway could continue to operate smoothly and that those people turning up for work on that Monday morning would know that the administrator could give them certain assurances about their future employment. I think we all know from our own experiences in our own constituencies - I certainly do from my constituency on Tyneside - that when someone hears that an administrator has gone in the immediate reaction is you are going to get your P45 the next week. I am pleased to say that, with the administrator in at Railtrack, that simply has not happened.

  111. If I can turn to this meeting that took place on 25 July between yourself and the chairman, have you seen the notes of Mr Robinson?
  112. (Mr Byers) No, I have not.

  113. Did you take notes of that meeting?
  114. (Mr Byers) There would have been a note taken in the Department, which is standard practice.

  115. These notes have not been made available to, say, the Financial Services Agency. Your notes have not been made available.
  116. (Mr Byers) We will certainly cooperate with the Financial Services Authority in any preliminary inquiry they are conducting.

  117. Do you think it is significant that the notes of the chairman seem to differ from your understanding of that meeting? Do your notes contradict the notes that the Financial Services Agency received from Mr Robinson?
  118. (Mr Byers) I am in a slightly difficult position because I have not seen Mr Robinson's notes but I do know that the account I have given to the House of Commons is in line with the record that we kept of that meeting.

    Andrew Bennett

  119. Could we see those notes?
  120. (Mr Byers) I want to be helpful to the Committee. We will cooperate with the Financial Services Authority and the Committee will decide.

    Mr Brian H Donohoe

  121. Would you make your Department notes available to the Committee?
  122. (Mr Byers) If the select committee would find it useful in their inquiry, of course we would want to be helpful. The issue I face is that I want to look at how we can create a railway for the future. As I think I said to Mr Grayling, the point about the 25 July was it was the beginning of a process but obviously if the Committee would find it helpful we want to be helpful.

  123. Have you at this stage received a writ?
  124. (Mr Byers) No, I have not.

  125. Do you expect to receive a writ?
  126. (Mr Byers) Time will tell. It is an occupational hazard of being a Secretary of State.

  127. On the basis of the evidence that I am presuming you must have read, given the answers you have given to date, you will have heard the proposals being made about vertical integration and the possibility of a pilot scheme. One of the areas that you are talking about is Scotland as an area that would be best suited to the idea of trying out this vertical integration. Do you support that as a possibility in terms of having it as a pilot or not?
  128. (Mr Byers) Vertical integration becomes an option which is now available which was not there perhaps under Railtrack. I would like to see the detail of any such proposal, to be honest. I am not an enthusiast of vertical integration but I do see that it could have merits.

  129. You do not accept the idea that there should be a pilot?
  130. (Mr Byers) I would be interested in seeing proposals come forward. I have not closed my mind to the idea. I think there are difficulties which would be there but I would certainly be interested in looking at any such proposals that might come forward.

  131. One of the difficulties, is it not, is that if there were to be a pilot scheme you could not then award franchises that you are talking of in the area of 20 years because if it were to be the case that the pilot were successful it would take 20 years to introduce it?
  132. (Mr Byers) There are a number of practical consequences which would flow from such a fundamentally new regime being introduced. There would have to be clear clarification, clear protection for other users of the track. There would be difficulties in terms of possible priority being given to trains belonging to the person who is running the track. All of those details would need to be accommodated in any such arrangement, which is why I think we should look at it, why we should not rule it out and why we should give it proper consideration if such a proposal comes forward.

    Mrs Ellman

  133. Do you think that Mr Robinson could have failed in his fiduciary duty in how he did or did not relay information about Railtrack's financial state to fellow directors and to shareholders from 25 July onwards?
  134. (Mr Byers) I honestly do not know the information that he gave to his fellow directors. I would have assumed that Mr Robinson would have been getting legal advice pretty much continuously during that period and I would have assumed that he would have acted in accordance with it.

  135. You are not aware of what information he actually gave his fellow directors?
  136. (Mr Byers) No.

  137. When the regulator gave evidence to this Committee last week, he told us he was very surprised that Railtrack had bypassed the normal procedures, had not approached him for financial support for new settlement and instead had gone directly to the government. Why do you think Railtrack did that?
  138. (Mr Byers) I honestly do not know. I think that has to be a question that you need to ask Railtrack. All I do know is that they approached the government.

  139. A number of witnesses, including Mr Winsor and by implication the SRA and others, informed us that they felt that Railtrack was essentially the architect of its own misfortune. They spoke about managerial incompetence. What was your experience of Railtrack's management ability?
  140. (Mr Byers) I think we can probably look at it in two main ways. The first was in relation to their management ability to run and operate the licence. The select committee has done the House a service by producing your report towards the end of March of this year, which was a catalogue of criticisms of Railtrack's stewardship of the system. It was as a result of a thorough investigation which this Committee had carried out. In a sense, that stands as a very good example of the management of Railtrack in terms of how the licence was being operated. Secondly, in terms of financial control, it was quite clear that it was a company facing financial melt down. The scale of that became clear during August and September and that is why, based on financial advice, in my petition to the High Court, I referred to these sums of 700 million deficit by 8 December and 1.7 billion by the end of March next year, figures which were unchallenged by Railtrack. Clearly, there was a lack of financial control as well as a lack of effective management control of the operating licence itself.

  141. Were you aware that, prior to Railtrack going into administration, discussions had taken place between Virgin and Railtrack where agreement was being reached, or attempting to be reached, on an award of compensation to Virgin of something like 300 million plus in addition to fares increases for passengers because Railtrack had admitted they had failed to modernise the west coast main line in the way they had promised Virgin they would?
  142. (Mr Byers) It is quite clear that the agreement in relation to west coast main line and the enhancement was not being delivered on time and in line with the undertakings which Railtrack had given to Virgin. There was a series of discussions which had taken place before Railtrack went into administration. The important thing now is to try and conclude negotiations between the administrator, between Virgin, between the Strategic Rail Authority, so that we can finally conclude a deal for the west coast main line and get it implemented to a timetable that can be made publicly available.

  143. It has been suggested that part of that deal could mean that the Railtrack of the future will not be required to upgrade line in the way that had been envisaged. Would you think such a decision acceptable and do you think it would be appropriate to take such a decision?
  144. (Mr Byers) I think it would be very disappointing if that turned out to be the case. What we have to try and do is to make sure that we achieve as much of the original upgrade as was originally proposed. Clearly, given the cost over runs, being very honest with the Committee, it may well be difficult now to achieve all of those enhancements, but that is because of the problems created by Railtrack's mismanagement and their failure to deliver on time, on schedule, in line with the original undertakings which they had made to Virgin.

  145. Where will the decisions on what is to happen to the west coast main line in terms of upgrade be taken and when?
  146. (Mr Byers) Discussions are going on at the moment and I am acutely aware of how important this is for many members of this House and for many members of the travelling public. This is one of the major Intercity routes, if I can still use that expression, going up along the west coast into Scotland and it does need to be resolved. I know the Strategic Rail Authority recognise the importance of getting the matter resolved. The administrator is aware of its importance as well. I would hope that it could be resolved within a matter of a handful of months. I mean two or three months at the most and that would then be something which would then at least introduce a degree of certainty as far as the upgrade is concerned. Clearly, we want to make sure that we can retain as much as possible of the original proposals. It is too soon to say whether that can be achieved. I think it will be difficult, given the cost over runs, but we do need to reach a conclusion within two or three months.

  147. Will the regional development agencies or regional assemblies be involved in those discussions so that proper consideration is given to the regional impact of decisions that could be made?
  148. (Mr Byers) I am a great believer in the importance of the regions of England in particular. This particular line goes up into Scotland. I think it would be difficult to involve those bodies in the detailed, commercial discussions but what I think they could usefully be involved in is a discussion about the importance of the upgrade to economic regeneration and the renewal of regions within England. There is a principled discussion that can take place, alongside detailed, commercial negotiations that clearly will need to take place as well.

  149. Can you give the Committee any assurance that the northern regions in particular will not lose out on modernisation and the impact on their economies because Railtrack failed them?
  150. (Mr Byers) I can give that assurance. I am committed to delivering the ten year plan. When one looks at the detail of the ten year plan, it is clear that passenger numbers have to be increased in the northern regions of England, in Scotland, as well as in other parts of the country. It is not part of my job or my objective to just concentrate on one or two major, key routes. The franchising regime that I want to introduce, which is one of the reasons why I have introduced changes, is to ensure that all of those franchises, wherever they are in the country, will benefit from the investment that we are making.

    Dr John Pugh

  151. Can I first of all ask you to enlighten me about the mysteries of railway administration? You said that a recommendation would be made by the administrators but that you will have the final say. Can you foresee a situation in which the administrators recommend one thing and you overrule it? I am not suggesting you should threaten or pressure in any way.
  152. (Mr Byers) I am grateful for that. In considering the recommendations from the administrator, I have to approve his scheme to take it out of administration. That is provided for under the Railways Act 1993. I would not want to fetter my discretion, using a good legal expression, so I will simply need to consider whatever the facts are presented to me by the administrator alongside the guidelines which I have laid down.

  153. It is conceivable that you could overrule the recommendation of the administrator?
  154. (Mr Byers) It is conceivable that I do not approve his proposed scheme.


  155. You have made your guidelines quite clear to him, have you, because it would be pretty barmy if we went through all of this and it cost the taxpayer a small fortune in administration and we finished up with another private company. If it is on that basis, I will make a bid myself.
  156. (Mr Byers) The prospect of Dunwoody Rail has a certain appeal. The guidelines are clear but it is important that the administrator himself, bearing in mind that he has a range of legal responsibilities ----

  157. Has he in his mind the guidelines that you have made clear to Parliament?
  158. (Mr Byers) The guidelines are clear and the administrator is aware of them.

  159. He will be aware of that when he is estimating what is brought forward to him as a suitable solution?
  160. (Mr Byers) He will but we have to be mindful of the administrator's legal obligations as well.

  161. I am very mindful of them and how long will it be before the whole company comes out of administration, given its present cost of 450 an hour?
  162. (Mr Byers) Mr Bloom gave evidence before the Committee and made clear the time that he thought it may last. He has a huge job of work to do and he outlined this to the select committee a couple of weeks ago, I believe. He is aware of the guidelines. He will have to balance them with his own legal duties. He has a duty to the shareholders which he has to discharge and, at the end, we have to decide whether or not we approve the scheme that he brings forward. It would be inappropriate for me to try to constrain him.

    Dr John Pugh

  163. In your own document your Department says, "Confidence in the railways has been severely shaken by recent events." I think we would all agree there is uncertainty about the administration, uncertainty about the shape of the new company, uncertainty about credit rating and how that problem is going to be resolved, uncertainty as to whether special purpose vehicles will work on rail, uncertainty as to how the competing stake holders, if not a proper company, will dovetail together. Given those uncertainties - and any one of those is a severe problem for the railways - can you give some likely dates by which some of these uncertainties, which are manifest throughout the whole industry, are going to be cleared up?
  164. (Mr Byers) I would like to think that certainly in relation to the credit rating of our proposition for a company limited by guarantee I have made clear through parliamentary replies exactly what credit rating we are aiming to achieve and the mechanism by which we believe we will be able to achieve it. We have this period of administration where we can introduce certainty where there is uncertainty at the present time. I do think though that we have been able to make it clear since administration exactly what our proposals are as a government but of course it will be for the administrator as to whether or not to determine the scheme that will come out of administration. A number of the issues that you have raised as being areas of uncertainty I would like to think that we have been able to clarify over the last two or three weeks. Where there is uncertainty still in place, we will use this period of administration to put in place very clear and very precise proposals. That will be our intention. For some of it, we obviously have to wait for the administrator and decisions that he will take but the point I was trying to make in my opening remarks to the Committee is that we now have this golden opportunity to remodel the railway structure. It is not just Railtrack; there are lots of other parts of the jigsaw that we need to look at as well.

  165. Your message to the rail industry is there is not as much uncertainty out there as they think there is?
  166. (Mr Byers) I am not sure they do. I am sure it will come as no surprise to the Committee to know that I have had a series of meetings over the last few weeks with all of the key players in the industry to take them through what we are proposing, to explain the mechanisms that we intend to use. I think a lot of them have been reassured. A lot of them are very interested in the opportunities which are now going to be made available and we must ensure that we continue to talk to the industry so that they are aware of exactly what proposals we intend to bring forward. We are doing that. We are consulting widely and I think the industry has appreciated that particular approach.

  167. Please do not take this as a completely facetious question: could we take this as prima facie evidence that your actions on 5 October and subsequently were forced upon you rather than premeditated, because if they were premeditated they were extremely badly premeditated.
  168. (Mr Byers) On the one hand I am being accused by Railtrack of having embarked on a military style operation.


  169. I think that was regarded as the slightly more ridiculous of their assertions.
  170. (Mr Byers) My own position is, when I came in having been appointed after the general election, I wanted a period of stability in the industry because that would have been the best thing for the industry, to see if Railtrack could have got itself sorted out. I made a number of speeches to that effect and I do not apologise for that. It was not until 25 July when John Robinson came in that it was clear that we would have to look at it again. Either we would have to put extra money in or there would be a period where we would have to look at the possibility in due course, when it became clear, of railway administration. What I could not do before 5 October, because a decision had not been taken until 5 October, was to publicly say, "These are the proposals that we want to put in place." It is only since 5 October, the decision not to provide additional government money, and then on 7 October, the decision of the High Court to grant my application for railway administration, that we have been able to discuss with people what the new network might look like. I can understand the frustration that people have but it could not have been any other way.

    Dr John Pugh

  171. We have listened to people talking about vertical integration and there is a view that train operating companies ought to have a stake in the track, in which case there is an element of frustration with freight and other people who want to use the same track. When you go back to the old scenario of the train operating companies working with Railtrack, you have the conflict between real and rail. Either way, you have friction. Is this not why we had British Rail in the first place and, to some extent, is not the only option open to government now to resurrect something like British Rail or countenance a greater level of government involvement than we have had since privatisation?
  172. (Mr Byers) The situation that we now face provides us with an opportunity of getting the industry to work together in a far more cooperative way than it has done under the regime since 1993 and certainly since 1996 with the flotation of Railtrack. What we need to look at are ways in which processes, mechanisms if you like, whereby a proper dialogue and communication can take place between those people with those responsibilities. It may be the case that vertical integration may be an option which is pursued. I have an open mind on whether or not that will be a good move but I would be interested to see what proposals might come forward. That might be a way in which one could overcome these sorts of problems.

  173. Specifically, are you agreeing with me that we are looking at a greater era of government involvement in the rail industry?
  174. (Mr Byers) There is a pretty large level of government involvement in the industry with 30 billion of investment going in over the next ten years, but I am clear that a company limited by guarantee, which is the model that we are putting forward, will be independent of government, will not be controlled by government. I want the Strategic Rail Authority to be at arm's length from government. What I believe we can achieve, with proper directions and guidance from myself as Secretary of State, is the industry at least pointing in the right direction. All pointing in the same direction would be an achievement for the railway industry, given what has happened over the last few years. I am confident that, through the changes we have introduced, that is something we will be able to achieve.


  175. Is it not true that ultimately the government will have to underwrite the commitments of the railway industry? Now, it does it by passing the money round in a very complicated circle but ultimately the taxpayer and the passenger are the people who are coughing up at every level.
  176. (Mr Byers) Hatfield is probably a good example of what happens in practice. The railways are an essential public service. In the end, the judgment has to be will the government stand to one side and see them collapse. While I am Secretary of State, certainly we will not allow that to happen.

    Mr O'Brien: Long before you took over the stewardship of transport, this Committee debated and discussed the question of rail investment, renewal, maintenance and the development of the national rail network. On 29 March this year, we published a report. The consensus was unanimous. I quote: "There is much criticism of the way Railtrack has handled its relationship with its dependent customers since the railways were privatised. We recommend that measures to improve Railtrack's accountability to its customers be introduced without delay to ensure that the company performs in accordance with the contracts it has entered into." Would you say you have been following that guidance from this select committee?


  177. If not, why not?
  178. (Mr Byers) I read with very great interest the report of 29 March. I think I quoted from it yesterday in the debate in the House.

  179. Three of our reports. We are tremendously impressed.
  180. (Mr Byers) It is a sign that I do not sleep at nights.

  181. It is a sign that someone in your Department has taken to reading them, which is a very great encouragement.
  182. (Mr Byers) I read them myself. There were a number of recommendations contained in the report of 29 March which I think we do need to give proper and detailed consideration to. What I would like to think is that, whether it is a company limited by guarantee or whether it is another body that might be interested, they will need to look very seriously at the recommendations this select committee has made, because what we do not want, and what we must ensure we do not have, is a successor to Railtrack that makes the same mistakes. There is a very good set of recommendations in your report which highlights some of the major failings of Railtrack in very strong language for a select committee. We know the problems because Railtrack has experienced them. We have to learn the lessons from those issues and we have to make sure that any successor body does not repeat the mistakes of Railtrack.

    Mr O'Brien

  183. One other issue which I think is important with regard to the work of the select committee is that we do not hop around from twig to twig when something comes up. If I can quote something else from this report: "We therefore strongly recommend that the government should consider a number of options; that it should take a majority stake in Railtrack and use that stake to exercise influence over the management and policies of the company; that it should take Railtrack, haul it back into public ownership and it should consider the role and responsibilities of the Strategic Rail Authority in relation to maintenance, renewal and development of the Railtrack network." Do you not think it strange that Members of this Committee are now arguing against the recommendations that we made on 29 March?
  184. (Mr Byers) I think I said that not all the recommendations were ones that the government would want to endorse. I noted that particular recommendation. I believe that having a private sector company, which the company limited by guarantee would be, but without the conflict of having to enhance shareholder value, is one way that we will be able to improve the quality of the railway service. There may be other people who disagree. I think Mr Stevenson from his questioning may not be totally happy with that particular model.

    Mr Stevenson

  185. I do not know how the Secretary of State got that impression.
  186. (Mr Byers) It must be your body language. I read the select committee's report and we will need to see what comes out of this period of administration. To be very open with the select committee, public ownership is not one of the options that the government is pursuing.

    Mr O'Brien

  187. One of the other aspects that we developed in our previous reports was that it had been revealed that Railtrack did not adequately take knowledge of the conditions of its assets. If we have a business that does not assess the benefits or the condition of the business that it runs, how can it succeed in providing the service that passengers are entitled to and expect?
  188. (Mr Byers) It is a fundamental weakness. Many of us have been surprised by the fact that a company like Railtrack did not have an up to date record of the conditions of its assets. I think it was one of the requirements that the regulator has laid down that still has not been achieved. Mr Marshall said that when he gave evidence a couple of weeks ago.


  189. He said it would be completed but it would not mean a great deal.
  190. (Mr Byers) Did he say when it would be completed?

    Andrew Bennett: Some time.


  191. I think we ought to stick to the rule that I ask you the questions.
  192. (Mr Byers) It is a serious point because for a company like Railtrack not to know the conditions of its assets is deeply worrying.

    Mr O'Brien

  193. If I could now turn to an issue which involves my constituents and the areas I represent, we were advised by Railtrack that the east coast main line would be increased in four phases and the improvement to Leeds City Station was the first phase. Following that, Railtrack is on record as saying they cannot handle the other three phases which include the improvements to Wakefield Station which serves my constituency and about half a million customers around there. With a view to trying to encourage more passengers and freight onto the railways, how do you see those three phases being completed in view of the programme that was set originally which did give encouragement to people to use the east coast main line?
  194. (Mr Byers) It has given people like myself who use the east coast main line a lot of hope that there will be improvements in the future. What happened at Leeds City Station is a very good example of the problem we had. The way in which that project has been managed is a sign of not being able to control big projects. It is probably worth stressing to the Committee that my decision in relation to the franchise and not agreeing to a 20 year franchise has not affected the timetable for the upgrade of the east coast main line. Phase two is still on schedule. The franchising process is quite separate from the upgrade arrangements. In September, the Strategic Rail Authority allocated another 17 million for development work for phase two of the project to make sure it continued on time. The work is continuing on schedule. I take the point from Mr O'Brien that we should see, in line with the original proposals, the improvement works in stations like Wakefield which were originally promised as part of the upgrade on the east coast main line. There has been no delay. Money is being committed through the Strategic Rail Authority to see the project development work take place. Because it is such a major project, my recollection is that phase two is not due to be completed until 2006/2007. That is one of the reasons why my decision on the franchise does not actually affect the upgrade work itself.

  195. Can I have an assurance from you that, when decisions are taken agreed between government and Railtrack or whoever the new company may be within 12 weeks they will not be changed, as we have seen and experienced from the April to July decision when assurance was given, promises were made and within 12 weeks the whole thing was turned upside down? Can we be sure that that will not happen again?
  196. (Mr Byers) I would hope that one of the things we will be able to see is a far greater degree of both clarity and certainty being introduced into the railway network, a far more focused approach, one in which the industry is working together, not at odds with each other, which is often the case at the present time.

    Mr Stevenson

  197. Who is paying for the east coast main line in total?
  198. (Mr Byers) The Strategic Rail Authority is paying for the development work at the present time.

  199. That money is coming from?
  200. (Mr Byers) It comes from the government.


    Andrew Bennett

  201. The ten year plan was desperately needed. How much time has now been lost as a result of these problems with Railtrack?
  202. (Mr Byers) I do not believe that we have lost any time as a result of the decisions that were taken in relation to Railtrack. I believe that the ten year plan and the objectives within it can still be met. We are now probably, as far as rail is concerned, in almost a stronger position to meet the commitments we made in the ten year plan than we were before railway administration.

  203. How soon do you expect Railtrack to come out of receivership?
  204. (Mr Byers) That will obviously be a matter for the administrator and I would not want to think that the administrator feels under any pressure to come out of administration by a particular date. I think he knows and has said before this Committee that he would like administration to be as short as possible but clearly he has his own legal obligations and he must discharge those to his own satisfaction. It would not be helpful to put a deadline or a timetable as far as the administrator was concerned.

  205. Not even a hope?
  206. (Mr Byers) As soon as possible, but that is not very helpful.

  207. You say that the ten year plan is not going to be jeopardised. Can you guarantee to us that all the improvements on safety, the slam doors, the fail safe systems on the signalling, none of that is going to be delayed as a result of this?
  208. (Mr Byers) The commitments that have already been made will not be affected by Railtrack going into administration.

  209. One of the problems is no one is quite clear what each person is doing. Could you clarify that? As I understand it, the problem with the east coast main line refranchising was that you were trying to compare bananas with eggs. The two bids were not really comparable. That appears to have been the fault of the Strategic Rail Authority. Are you going to try and make sure that the Strategic Rail Authority makes bids comparable in future?
  210. (Mr Byers) Comparing bananas with eggs sounds a pretty fruitless exercise. Mr Bennett highlights an important point which is that what we need to do with any franchise - and the east coast main line is a very good example of this - is to have a core of outputs that we expect to be the minimum that a new franchise owner would deliver on. Then one can compare like with like.

  211. Is it your job to do that or is it the Strategic Rail Authority's job to do it?
  212. (Mr Byers) I think it is for the Secretary of State giving guidance on a new franchising regime and we are consulting on that at the present time. If time is available, it would be very useful to have the recommendations from the Committee to inform our decisions at the end of this process. It is my responsibility to give guidance on the franchising process. What we are trying to do is to have a core of outputs against which bids can be judged. What we should not try and do is to constrain new ideas and innovation. I would not want to stop that happening. It might be that you have almost additional proposals coming from a bidder saying, "For an extra sum of money, we would be able to provide this."


  213. We have been there; we have done that. I hope you will think very carefully. What has happened since you have come in is that, first of all, there has been an announcement of a standstill on the franchises so that some which were expected to be awarded were not awarded. Various operators have said this will affect the way that they go for rolling stock. Whether that is accurate or not we can judge but that is what they have said. It is obvious the SRA itself is in considerable disarray. They have not yet published their report and there has been this complete chaos with Railtrack. What we need to know from you is: is the successor to Railtrack going to be in the same shape as its predecessor? Is it going to have the same assets? Is it going to be able to take decisions? Are you going to go for the same sort of structure or are you going to try and find something different? If you are going to find something different, are you going to accept that Railtrack was incapable of bringing enough engineering expertise within its own board in order to assess what was happening with its contractors? Are you going to push forward these changes? If not, are we going to have three more years of chaos while somebody makes up their mind what we should be doing? Please consult but give us a few answers and we will give you a straightforward plan.
  214. (Mr Byers) What I have sought to do in the time that I have been Secretary of State is to identify the steps that will need to be taken to create a structure within which we can see genuine improvements in the railway network. My own judgment is that we needed to look at the whole franchising regime.

  215. Fine. You have told us that in considerable detail. Now?
  216. (Mr Byers) I have not reached conclusions yet. I will reach conclusions and that will be informed by some of the recommendations which have come from this Committee over the period. As far as the successor to Railtrack is concerned, we have laid down guidelines which should apply. It will be for the administrator to make recommendations to me, but it will not be a body which will be controlled by the government. As far as the Strategic Rail Authority is concerned, I think it is right that I give it directions and guidance but keep an arm's length relationship with it. Most importantly - and I think this is crucial - is that the strategic plan which they are now about to produce at long last will be an agenda on which the industry can move forward. Part of that will be the way in which they are going to approach the whole principle of how franchises are to operate. This is why I was trying to make the point that although understandably people are concentrating on Railtrack there are a lot of other parts of the jigsaw that we have to get absolutely right.

    Andrew Bennett

  217. What about the regulator because you have the regulator regulating on the one hand and you have the Treasury regulating on the other.
  218. (Mr Byers) There does need to be a form of independent, economic regulation. What form that takes is something we need to consider in the light of the new structure that might well be emerging.


  219. How long are all these considerations going to take?
  220. (Mr Byers) We do not have too long.

  221. We have not got any time at all. We are working on borrowed time now.
  222. (Mr Byers) I have only been in this place a matter of months.

  223. Believe me, none of this is having a go at you. There are some of us who say that if these decisions had been taken in 1997, if there had been a Transport Bill then, we would not be talking in these terms, but the reality is that the railway industry is not clear about its franchises; it is not clear about its rolling stock; it is not clear about Railtrack and it is not clear about where the commitment for its new investment is going to come from. We have the SRA apparently having a collective nervous breakdown and ATOC is not far behind it. We need some answers but we need them fast. What timetable are we talking about?
  224. (Mr Byers) I agree with your call for urgency. It was one of the things that struck me when I was first appointed, that time was not on my side.

  225. That is the truest statement you have made.
  226. (Mr Byers) We have to take decisions. Some of them will be tough. Some of them will be controversial and will be disagreed with, but the only way we will get a railway system which is fit for the 21st century is if those tough and difficult decisions are taken. They will be taken and sooner rather than later. I would hope that - I am not sure when I am next giving evidence before the Committee on railway matters - by the time I next come before you in a few months we will have resolved these outstanding questions, but it will be a matter of a handful of months rather than six or nine months.

    Mr Stevenson

  227. In your Department's response to our March report, published in October, on the issue of company limited by guarantee, it says in paragraph 47 that the government believes this - that is, to make the railway industry work in a safer and better manner - can best be achieved by transferring Railtrack's network responsibilities to a private sector company limited by guarantee; not a preference; not a suggestion, but one might conclude almost a decision. I am wondering how consistent that is with what you have said about considering the options. Could you clarify that? This is not a decision that has been taken, I assume; it is government's preference as things stand to date.
  228. (Mr Byers) What was very important was that we had in place a vehicle, if I can use that word, which would be able to take over the responsibility of running the network. That is what we have done through a company limited by guarantee. It is not a decision. I think it would have been foolhardy and a mistake to have ruled out any other proposals that might come forward. There may be other interesting proposals that are made and I think they should be given due and proper consideration. That is really what we are doing at the moment. We are working up the details of the company limited by guarantee but we will also give proper consideration - indeed, I welcome expressions of interest. Let us see what other ideas there are around but the key test has to be whether, at the end, we can have a new licence operator that can overcome the difficulties that we have experienced as far as Railtrack is concerned.

  229. May there not be a conflict between the need for urgency that is consistent with getting the new system correct, the administrator's proposed timetable and your considering what other options may be put on the table for your consideration in terms of what may succeed Railtrack?

(Mr Byers) We have to recognise that the administrator has a particular set of legal duties and responsibilities. As I think I said earlier, I do not want in any way to put him under pressure in terms of laying down a timetable. During this period, he will need to consider the proposition that we have put forward for a company limited by guarantee; he will need to consider the proposition which might come forward from other interested parties. I think you expressed an interest being expressed by WestLB. He will need to give detailed considerations to those particular proposals but, given that there is this period of administration anyway when obviously he and his teams are looking at the assets, looking at the value which is in Railtrack plc which is a part of Railtrack which is in administration, there is this time when we are not losing anything because Railtrack is in administration.

Chairman: Secretary of State, you have been very tolerant and you have been giving us evidence for a long time. I think all the Committee are grateful to you for that. Speaking entirely personally, were it to be the case that we finished up, at the end of all our deliberations, with a company run by Deutsche Bundesbahn, some of us might think that was mildly ironic. I simply leave you with this thought. As you have been kind enough to say that you hope to have the answers by the next time you come before the Committee, I am delighted to hear that and I will just remind you that that is on 16 January. Thank you very much indeed.