WEDNESDAY 14 NOVEMBER 2001
Mrs Gwyneth Dunwoody, in the Chair
Examination of Witness
MR STEPHEN BYERS, a Member of Parliament, Secretary of State for Transport, Local Government and the Regions, examined.
(Mr Byers) I am Stephen Byers, the Secretary of State for Transport, Local Government and the Regions.
(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 -
(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.
(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?.
(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.
(Mr Byers) I understood it was a decision that Railtrack themselves had taken.
(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.
(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.
(Mr Byers) Sir Alistair Morton expresses himself in his own colourful way and I am aware of his own particular views, yes.
(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.
(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.
(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 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.
(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.
(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.
(Mr Byers) Yes.
(Mr Byers) I am not sure that is the model that we will end up with at the conclusion of the period of administration.
(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.
(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.
(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.
(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.
(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.
(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.
(Mr Byers) There was no meeting on June 25.
(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.
(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.
(Mr Byers) The conversation was if Railtrack were unable to access these facilities or receive extra financial assistance from Government -
(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.
(Mr Byers) On 25 July Mr Robinson came to me and said they had real difficulties.
(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.
(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.
(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.
(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.
(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.
(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.
(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.
(Mr Byers) We certainly did not block any payment of £162 million to Railtrack.
(Mr Byers) Not that I am aware of.
(Mr Byers) I did meet him.
(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.
(Mr Byers) Off-hand I cannot remember. I am more than happy to write to the Committee with the detail.
(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.
(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.
(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.
(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.
(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.
(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.
(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.
(Mr Byers) As part of the contingency planning, legislation was drafted.
(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.
(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.
(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
(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.
(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.
(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.
(Mr Byers) No, I have not.
(Mr Byers) There would have been a note taken in the Department, which is standard practice.
(Mr Byers) We will certainly cooperate with the Financial Services Authority in any preliminary inquiry they are conducting.
(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.
(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
(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.
(Mr Byers) No, I have not.
(Mr Byers) Time will tell. It is an occupational hazard of being a Secretary of State.
(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.
(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.
(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.
(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.
(Mr Byers) No.
(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.
(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.
(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.
(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.
(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.
(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.
(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
(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.
(Mr Byers) It is conceivable that I do not approve his proposed scheme.
(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 ----
(Mr Byers) The guidelines are clear and the administrator is aware of them.
(Mr Byers) He will but we have to be mindful of the administrator's legal obligations as well.
(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
(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.
(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.
(Mr Byers) On the one hand I am being accused by Railtrack of having embarked on a military style operation.
(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
(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.
(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.
(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?
(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.
(Mr Byers) It is a sign that I do not sleep at nights.
(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 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 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 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.
(Mr Byers) Did he say when it would be completed?
Andrew Bennett: Some time.
(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 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.
(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 Byers) The Strategic Rail Authority is paying for the development work at the present time.
(Mr Byers) It comes from the government.
(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.
(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.
(Mr Byers) As soon as possible, but that is not very helpful.
(Mr Byers) The commitments that have already been made will not be affected by Railtrack going into administration.
(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.
(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."
(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.
(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.
(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.
(Mr Byers) We do not have too long.
(Mr Byers) I have only been in this place a matter of months.
(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.
(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 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.
(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.