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

Examination of Witnesses (Questions 384-399)




  384. Good afternoon, Minister. We are delighted to have you with us. Would you be kind enough to tell us who you are?

  (Mr Spellar) John Spellar, Minister for Transport and I am with Mark Coulshed, Head of the Rail Sponsorship Division.

  385. Thank you very much indeed. Did you want to have a few minutes to yourself to tell us what we should know, Mr Spellar?
  (Mr Spellar) No, I think I am quite happy to move into questions on quite a wide-ranging topic.

  386. Good, so can you assure us firstly that the Department knows the difference between maintenance and renewals as opposed to upgrades and enhancements?
  (Mr Spellar) Yes, I think so, but I wonder why there is a question on that.

  387. Because we have taken quite a lot of evidence that it is not necessarily so that enhancements are going to be given the same priority, but can I ask you is it not commonsense to assess whether a piece of track can be upgraded when it is being renewed?
  (Mr Spellar) Well, all the time, if we are looking at Railtrack, and this would obviously be true right the way across the system, they should be looking towards through-life costing and, therefore, assessing the need for maintenance, but also of course a rolling programme of renewal. Now, in one sense what that means is that they actually have to have a clear view of their assets and a clear register of their assets and, as the Committee will be aware, one of our concerns which has been heightened since Railtrack went into administration and the new management have come in is that there was a significant deficiency in their understanding of their assets, let alone of their cost base, and the new management is having to wrestle with that.

  388. We do understand that, Minister, but I think what concerns us is that we would really like to know whose responsibility it is going to be. Will it be Network Rail, who have no remit for enhancements, or the Strategic Rail Authority?
  (Mr Spellar) Well, the whole question of Network Rail and the role of Network Rail, although it will obviously be more widely discussed when we are able to make an announcement on this subject once negotiations have been completed and the Secretary of State is able to make—

  389. Yes, but presumably you have thought about this division of responsibility because the new company coming in is not exactly a secret, is it? We not only know that we need it, but you have been working on it for some quite considerable time.
  (Mr Spellar) This is true.

  390. So you must have thought about who is going to be responsible for this rather important division.
  (Mr Spellar) True, Chairman, but I think also I am slightly constrained by the final details and the detailed announcement which will probably be made to the full Chamber of the House of Commons.

  391. I see, on something as specific as that?
  (Mr Spellar) Well, just generally on the question of Network Rail and of the new arrangements and the finalisation of the deal.

  392. Well, can I then ask you about engineering works. Their costs are going up in bounds and bounds and they have been criticised for offering poor value for money. What solutions have you got in mind for that?
  (Mr Spellar) Well, I think there are a number of areas which Railtrack will be addressing and of course that applies not just in the north, but right the way—

  393. Network Rail!
  (Mr Spellar) No, but Railtrack at the moment have been addressing under Railtrack in administration, under the management on the operational side, have been examining the system operating, particularly because they have a number of examples where outside contractors, outside of the main contractors, would have been able to bid for doing work considerably less than Railtrack. I had an example yesterday when I was in Yorkshire, this is a small station improvement and a difference of over £1 million between the estimate from Railtrack and the estimate from another builder. That is a good example, I think, of the variation in cost. In quite a number of cases Railtrack have been contracting work out and again, as an example of their failure to understand or control their costs, therefore, paying far more for those services than they would have done in a proper contracted environment, and I am sure that the current Railtrack management and then Network Rail will be looking at how they can rationalise that work and actually get costs which are more comparable with both costs and indeed the rate of return which prevails in the commercial sector.

Chris Grayling

  394. Minister, there has been widespread speculation that extra funding will be announced along with the Network Rail announcement. I do not expect you to confirm the amounts, but can I ask you, particularly given the evidence we have been hearing this afternoon about the situation in Manchester and the proposal for Manchester which has been delayed beyond the ten-year time period, can you give us an indication of whether any of that funding would be available for some of the projects which have been pushed outside the Ten-Year Plan?
  (Mr Spellar) I think there are a number of issues wrapped up there, ones which you rightly indicate I would not be in a position to make a statement on, namely the financial settlement with the Treasury. However, I think also it is fair to say that we still have to resolve the issue of a number of projects which have run substantially over budget, of which one is obviously the West Coast Mainline, and discussions are still taking place between the various parties to scope that problem and then obviously to make decisions arising from it. Now, we then have to look further down the line at other projects, but while we are dealing with the major projects, of course a number of smaller projects, smaller enhancements, Rail Partnership projects are also going ahead, and of course work has been going ahead both at Manchester Piccadilly and, for example, at Leeds where I was yesterday where there has been a very significant enhancement both to the station, but also, therefore, of course to the availability and capacity at Leeds as well.

  395. You mentioned the West Coast Mainline. Who actually is financially accountable if Network Rail gets it wrong, its sums? When you have a private company, it is the shareholders who take the hit and when you have a public company, it is the taxpayer who takes the hit. Network Rail is effectively neither, so if it overestimates or underestimates the cost of the West Coast Mainline and ends up with a bill that is vastly in excess of what is expected, who picks up the tab?
  (Mr Spellar) Well, I do not know that it was always the case that when it was a private company they picked up the tab because they kept coming back to us asking for more money and that was the underlying problem that Railtrack faced and which finally led to them having to be put into administration. Of course the operations of Network Rail, indeed the operations of any infrastructure company on the railway are dependent on the monies that the Government makes available in order to fund the system, and that is the basis on which of course they can borrow in order to run their operation. Therefore, the Government has a very keen interest in ensuring that they are rather robust figures for a scheme and indeed that is the work that is currently being undertaken on behalf of Railtrack, but also obviously of the other parties involved, by Bechtel.

  396. But the Government ultimately, therefore, is going to be liable for any financial errors which take place at Network Rail in costing major projects.
  (Mr Spellar) Well, it is then the case that you have to evaluate how far you proceed with that scheme, which is precisely why an evaluation of West Cost Mainline is being undertaken at the moment, and the same reason why very careful work is being done on East Coast Mainline, because it was quite clear before Railtrack had to go into administration, even more clear since, that they had lost control of the costs of that project and indeed did not even understand the costs that they were incurring and there was a systemic failure within the management system of that company.

  397. Are you confident that that failure has now been removed? I ask the question because there are increasing reports coming out of the industry that it is running even more out of control than a year ago.
  (Mr Spellar) I do not think that. I think that in fact, which I think you might be alluding to, it is becoming clearer, the underlying costs to which Railtrack were committing without actually having clear view as to how that would finally resolve itself in terms of numbers. We do have a greater degree of confidence that there is a better understanding, but also, I think, an understanding of some of the underlying problems which I was alluding to earlier regarding the extra costs that Railtrack are paying over and above that which would be experienced outside in the commercial contracting sector.

  398. Is it, therefore, true that the estimates of the final cost of the West Coast Mainline modernisation, which I think when we met last November was estimated to be running at about £6.8 billion, there is now widespread coverage which suggests that the costs are now sailing on towards £10 billion? Should we be concerned that the price is now soaring well above the £6.8 billion which we discussed last year?
  (Mr Spellar) I think we can be fairly clear that it is going to be greater than that, but we are finalising the balance to be struck between the various parties and looking at the feasibility of alternatives.

  399. Lastly, on the East Coast Mainline which comes in with a number of projects in the remainder of the Ten-Year Plan dependent on the special-purpose vehicles, where do we stand with special-purpose vehicles, first of all, in establishing them and, secondly, in establishing a mechanism for contracts and then an eventual transfer of those projects to Network Rail and, thirdly, for the financing vehicles to be put in place for Network Rail to be able to take them over later in the Ten-Year Plan period?
  (Mr Spellar) At the moment the SRA are driving forward this programme for the prospect of an infrastructure upgrade and they are working closely with Railtrack and they will be taking it forward as a special-purpose vehicle. Indeed we announced in April of last year that it would be taken forward as a joint venture with the SRA in the lead and potentially involving train operators, project managers and financiers, but it is still, I think, a little too early for us to make an announcement on the final shape of the proposals for the upgrade, but you are right, that this is obviously a project that commends itself to a special-purpose vehicle.

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