Select Committee on Transport, Local Government and the Regions Minutes of Evidence


Examination of Witness (Questions 100-119)

RT HON STEPHEN BYERS, MP

WEDNESDAY 10 APRIL 2002

Chairman

  100. Good afternoon to you, Secretary of State. Could I ask you to give us your name?
  (Mr Byers) I am Stephen Byers, the Secretary of State for Transport, Local Government and the Regions.

  101. Thank you for coming. Do you have something you would like to say to the Committee before you begin?
  (Mr Byers) This is a very pleasant, modern, committee room, Chairman!

  102. We commissioned it especially for you. It is not only built with public money but it is maintained on a long term basis.
  (Mr Byers) I know the financing of this building very well, Chairman, because when I was Chief Secretary at the Treasury I asked a number of questions about it.

  103. So you are responsible. I should have known!
  (Mr Byers) No. The answer I got was I was not responsible because it was a "House matter".

  104. Let us proceed. Do you have something to say, Secretary of State?
  (Mr Byers) No, I do not.

  105. Can I ask you about your response to GNER's concern about rolling stock replacement in short term franchises?
  (Mr Byers) I can understand their concerns and it is something we have looked at. It relates to the operation of section 54 of the Act. I think the Committee will know that GNER tendered for the long term franchise for the East Coast Main Line; I took the decision that, in the circumstances, it would not be appropriate to award a long term franchise because of the difficulties working out the details of the upgrade that was needed for the East Coast Main Line so a two-year extension was awarded to GNER. They have expressed concerns about procuring new rolling stock as a result of that, and we have obviously drawn their attention to section 54 and the way in which that process would work, particularly in supporting the costs of refurbishment of trains to part of the franchise extension. The Strategic Rail Authority will continue to work with GNER on this particular aspect, but there is a difficulty which will be there until the detailed specification for the East Coast Main Line upgrade is agreed and is clear. This goes back to the problem I had when it came to whether or not we could award a long term franchise. The sooner we can get the detail of the upgrade worked out and agreed, then we can make progress and bring certainty and GNER can proceed accordingly.

  106. So you are really saying in effect that they were right to say that rolling stock companies would not be too happy, even with the section 54 of the Railways Act guarantee to allow them to go ahead?
  (Mr Byers) No. What I am saying is that section 54 has operated well in all other situations. There is a particular problem with the GNER two-year extension which has nothing to do with the two-year extension and has everything to do with the fact that the detail of the upgrade on the East Coast Main Line has not yet been agreed. We know there is a legacy from Railtrack, and what they did and did not do. One of the things they failed to do was work up in detail the upgrade that was needed on the East Coast Main Line. In tackling that, Railtrack in administration with the new leadership is looking in detail at the upgrade with the Strategic Rail Authority and, as soon as we can get the details of the upgrade in place, then the problem that GNER has at the present time will be overcome.

  107. You did say all short term franchises would be replaced or extended before their expiry in 2003-04. What is the minimum franchise period you would be expecting the Strategic Rail Authority to negotiate?
  (Mr Byers) I said it should be—and I think I used the phrase—"horses for courses" and I think you have to judge the circumstances for each individual franchise, but I have to say the proposal which has come forward from Richard Bowker which is looking at five year periods up to a maximum of 15 years is one which I think is worthy of a very detailed consideration, because we can offer the possibility of a lengthy franchise for 15 years but with five year breaks which does provide the opportunity of reviewing the situation on a regular basis.

  108. What would you expect to be written in for that termination if, for any reason, the core facilities were not being provided? What kind of sanctions would you expect in that five year break clause?
  (Mr Byers) I think we need sanctions throughout the period of the franchise, not just at a review period.

  109. But you would expect the Strategic Rail Authority to write in sufficient sanctions so that if the company concerned were not delivering they could use that five year break clause to end the franchise? Is that what you are saying, so we can get it clear?
  (Mr Byers) It would be for the Strategic Rail Authority—

  110. I am not suggesting you would want to do it but would you expect the Strategic Rail Authority to put down very firm sanctions at the five year break point?
  (Mr Byers) I think I have said in evidence to this Committee before that I see, and the Government sees, the franchise process as being one of the most significant levers in improving the quality of the railway system. I do not believe it has been used as effectively in the past as it could have been to drive up benefits to passengers and improve quality of service. I do believe that with a new franchising regime there will be that opportunity and yes, the implication of that, or the natural consequence, will be that robust penalties and measures will need to be introduced so that if there is not delivery on the terms of the franchise then the appropriate steps can be taken at whatever time is relevant.

Chris Grayling

  111. When you took the decision a couple of weeks ago about providing the grant to Networkrail's bid for Railtrack assets, my understanding of the situation was that you had been told by both Swiftrail and Network Rail that administration was likely to last at least another 18 months; that European law prevented the Government continuing to provide state aid to Railtrack beyond the 12 month period—there is no provision in European law to extend that state aid; and that you were facing a difficult legal position because the shareholders would have had a much stronger legal case had the administration gone to the Regulator and secured a successful interim review. That was the backdrop against which you took that decision. Is any of that inaccurate?
  (Mr Byers) Yes, it is. I was not told by Swiftrail or Network Rail that administration could take up to 18 months. I think there was a general concern that I know members of this Committee had and I had as well that administration would last longer than anybody would have wanted and I think the Select Committee in its own report said that the sooner Railtrack could come out of administration so much to the good, and I happen to agree with that. You are right to say that state aid has been approved up until September. There is nothing to stop the Government reapplying for an extension of that, if that is necessary. The legal position is amazingly robust as far as the Government is concerned, and if people want to bring a legal action they will be perfectly entitled to do so but certainly all of the legal advice I have received is that the basis on which this legal action has been threatened just does not stack up; it is falsely based—and we have said that very clearly—and most of those reasons are inaccurate. The reason why we were prepared to support a grant of £300 million was because there are real benefits from an early exit from administration.

  112. So you are not aware that the European Commission has said publicly that there is no provision in European law to extend the state-owned provision beyond 12 months?
  (Mr Byers) They have not said it to me.

  113. They have said it publicly.
  (Mr Byers) Well, they have not said it to me.

  114. Did you offer the same terms to Swiftrail as you did to Network Rail, the offer of a £300 million grant and the offer through the Strategic Rail Authority to provide loans of last resort to raise and finance the new business?
  (Mr Byers) The situation was that we were prepared to be even handed with any organisation that had an interest in being a successor to Railtrack. As far as Swiftrail was concerned, and I think it is worth me saying this very clearly to the Committee because there was some confusion in the House when I made the statement about the Government support for an early exit, there seemed to be an implication that there was an alternative proposal that had been tabled—the implication being that that was from Swiftrail. I have to say no such proposal has been tabled by Swiftrail. Swiftrail did have discussions with my officials: I think they also met the administrator and they may also have met the CLG as well at some stage, but they never got to a situation where they had a detailed proposal which they put forward to my officials which we could then respond to in terms of the level of financial support that might be available.

  115. Did Network Rail then specifically come to you and ask for that support, or did you offer it to them?
  (Mr Byers) We said, and I said this in the House, that we want to treat all interested parties equally. Just to repeat the point I made a minute ago, Swiftrail did not come to my Department with a worked up proposal which would have allowed us to respond about the level of support available from the Government. Had they done so, we would have wanted to have treated them in the same way provided they offered the same benefits as we believe Network Rail do.

  116. So did Networkrail come to you and ask for the £300 million, or did you offer it to them?
  (Mr Byers) Network Rail came to Strategic Rail Authority with a detailed proposition: we believed it had merits, as we have said: we do believe a company limited by guarantee under which any operating surplus is invested back into the railway network is a model which is attractive: we believe it is a viable successor to Railtrack and it was on that basis that we were prepared to support a grant of £300 million provided it achieves an early exit from administration. If we do not achieve an early exit from administration, then the savings we would get from that will not be accrued and, therefore, the money will not be available.

  117. Let us be clear because it is important: Network Rail asked you for financial support for their bid. Swiftrail did not, but you would have offered it to either?
  (Mr Byers) Well, we did not get to a situation where Swiftrail came forward with a detailed proposal that would have allowed us to have the discussion about the level of financial support. We are not prepared to give £300 million to anybody who might come along with any proposal.

Chairman

  118. That is comforting!
  (Mr Byers) I thought you would be pleased to hear that, Chairman. What we were prepared to do with Network Rail is to support a proposition that we feel has merit because it does achieve an early exit from administration; Swiftrail never got to the situation where they were tabling detailed proposals that would have allowed the Government to respond.

Mr Donohoe

  119. Which budget is this £300 million coming out from?
  (Mr Byers) It will come out of the 10 Year Plan, but we do believe that the money will be self-financing. We do not expect this money to be taken away from my budget because it will be financed by other savings which will accrue to my budget. I can take the Committee through in some detail the savings that we will expect to get—


 
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