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Lord Macdonald of Tradeston: These amendments challenge the SRA's powers to give financial assistance to the railway industry. Perhaps I may deal first with some specifics and then turn to the wider issues.

Amendment No. 297 would remove the power of the authority to give grants, make loans, give guarantees and invest in bodies corporate. Bluntly, this would emasculate the SRA. We intend the authority to be the main conduit for franchise payments, for freight grants and for the rail passenger partnership scheme, all of which are inherited functions that involve paying grants. In addition, it must be able to support the industry, should this be necessary, when there is no other viable source of strategic investment.

Amendment No. 296 would require the authority to run a tendering exercise for any financial assistance which it gives. But this is unnecessary and to some degree inappropriate. The authority already has a duty to exercise its functions in the most economic and effective manner. That may often involve a process of competitive tendering; sometimes it will not--for instance when the SRA pays freight grants in accordance with a published grant scheme.

Amendment No. 299 is a requirement that any agreements made by the SRA must be consistent with its strategies. This also is unnecessary because Clause 206(1) requires the authority to exercise its Clause 206 powers in accordance with the strategies it has formulated.

Amendments Nos. 290, 291 and 298 would remove the power for the authority to enter into agreements, or other arrangements, to invest in bodies corporate as a means of financial assistance. That restriction would be undesirable because it would limit the flexibility available to the SRA and reduce its ability to invest in the railway itself, or to get others to do so.

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Amendment No. 298A would insert a provision that the authority may only put terms on its financial assistance provided that these,

    "do not interfere with commercial practices which are essential to industrial investment".

That is unnecessary as Clause 206(2)(f), which determines the manner in which the authority must exercise its functions, states that it must,

    "enable persons providing railway services to plan the future of their businesses with a reasonable degree of assurance".

That incorporates the concept behind the amendment and would protect commercial practices.

Flexibility is at the heart of the clause. We want to ensure that public sector financial support is available from the SRA when it is needed in whatever form is most appropriate to the particular case. That is why the powers in the clause are wide and extend to grants, loans, guarantees and direct investment.

I should make it clear that we do not envisage any change in the existing system of franchise payments to passenger train operators. That is how the core of all public funding reaches the railway network and it will remain so. But the franchising system was originally designed to support a "steady state" railway. It is not necessarily the only way, or perhaps in some cases even the best way, to promote investment in, and development of, the network. We want the SRA to be able to develop new approaches to investment where they seem worthwhile and we want the Bill to enable it to do so.

I am reluctant to offer specific examples. But there is nothing unique about the idea that investment by the public sector in projects may help to lever in private funding. In principle, it provides some degree of assurance to investors and can help to bridge any gap between the scale of investment required and the likely returns on that investment. That may be particularly relevant in the railway industry where major capital projects require all the investment up front and pay back literally over decades. I ask the noble Earl to withdraw the amendment.

Earl Attlee: I am extremely grateful to the Minister for that response. I shall read carefully what he has said. I may return to the matter. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 291 to 293 not moved.]

Clause 206 agreed to.

Clause 207 [Directions, guidance and advice by Scottish Ministers]:

Baroness Thomas of Walliswood moved Amendment No. 294:

    Page 121, line 45, leave out ("or with the Authority's financial framework").

The noble Baroness said: In moving Amendment No. 294, I shall speak also to Amendment No. 295. Clause 207 allows Scottish Ministers to give directions and guidance to the authority in relation to passenger rail services which start and end in Scotland and for passenger rail services which either start or end in

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Scotland, and advice to the authority in relation to services which either start or end in Scotland and are provided under a franchise agreement. The authority can decide not to comply with these directions. Amendment No. 295 adds at the end of Clause 207,

    "Where the Authority propose not to comply with the directions or guidance of Scottish Ministers they shall notify the Scottish Ministers of this and their reason for so doing",


    "Where Scottish Ministers do not agree with the reasons given by the Authority for not complying with their directions they may refer the matter to the Secretary of State".

There has been correspondence between the Minister's colleague in another place, Mr Keith Hill, and the passenger transport authority most closely associated with the amendments. I understand that that passenger transport authority is satisfied that the amendments have gone as far as they can go. But for the benefit of those who may want to know more, and to know more from the public record, about what has happened in relation to the amendments, I should be most grateful if the Minister could, as it were, read into the record some of the reasons that his colleague gave to that passenger authority for not accepting the amendments and the assurances that he was able to give on that matter. I beg to move.

Lord Macdonald of Tradeston: As requested, it may be helpful to explain why the devolution provisions in the Bill are constructed as they are. We have given considerable thought to the issues raised, which, as has been said, were also raised in another place, but we and the Scottish Ministers remain assured that the present construction is both the most workable and the most effective in terms of devolution.

The Committee will be aware that railways remain largely a reserved matter. The reason for that is to ensure that there is a Great Britain strategic policy framework for railways. That is a very real concern. The fragmentation brought about by privatisation left the industry with no direction and no ability to develop the network as a whole to respond to increasing demand, still less to encourage demand. The problems which that structural weakness has created are one of the main reasons that we need Part IV of the Bill. Where devolution is appropriate--for example, for roads--we have provided for it, so it should not be thought that the reservation for railways is due to any lack of confidence in devolution; far from it. In the case of railways, even within the reserved framework we have agreed an appropriate level of devolution, but we must not lose sight of the overarching need for a national infrastructure in order to ensure that we meet the needs of the whole nation.

It was against that background that, during the passage of the Scotland Act, the "McLeish settlement" was agreed. That settlement, among other matters, provided for the Scottish Ministers to have power to issue directions and guidance to the SRA about passenger services which start and end in Scotland--essentially the services currently provided by Scotrail. The settlement also promised that the Scottish

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Ministers would have the power to give directions and guidance on Scottish sleeper services, provided that there was no impact on other passenger or freight services or on the non-Scottish budget. Furthermore, it was agreed that the Scottish Ministers should be able to give what was then called "non-binding guidance" on other cross-Border services. In the Bill that is called "advice". I am happy to say that the Bill delivers on those promises.

In all cases it was agreed that the powers of the Scottish Ministers should be exercised "within the GB policy framework". It was agreed between ourselves and the Scottish Ministers that the best way to preserve the GB policy framework was to ensure that directions and guidance from the Scottish Ministers were not inconsistent with directions and guidance from the Secretary of State. That is not a watering down of the McLeish settlement. Scottish Ministers will be addressing Scottish specific issues and they are content that we have delivered on the McLeish settlement.

I turn to the specific concerns addressed by the amendments. Amendment No. 294 would remove the requirement that the SRA may not comply with the Scottish Ministers' directions and guidance when those conflict with the authority's financial framework. Amendment No. 295 would set up a new structure so that where the SRA decides there is a conflict between the Scottish Ministers' directions and guidance and those of the Secretary of State, the Secretary of State is brought in to arbitrate.

I should like to address Amendment No. 295 first. The concern, I understand, is that it is felt that the unelected authority should not be able to judge between two conflicting sets of directions and guidance from elected Ministers and act, thereby, as "judge and jury". However, I consider that this is a misapprehension. The SRA can in no way act as judge and jury. The Bill is crystal clear: the SRA must carry out the Scottish Ministers' directions and guidance unless they are inconsistent with those of the Secretary of State, in which case they must not carry them out. There is no discretion here; no power of an unelected body over an elected one. The SRA simply looks at the facts and takes a view of what it must do on the facts and only on those facts.

In reality, I expect that this position will never arise because the Secretary of State and the Scottish Ministers are not likely to be giving directions, guidance, or advice without first talking to one another. If, however, there is any doubt about a matter, the SRA will always be able to ask the Secretary of State or the Scottish Ministers for clarification. However, should the SRA interpret its directions, guidance or advice in a way in which no reasonable body could, anyone adversely affected may seek a remedy in the courts. This is far more effective devolution than giving additional arbitration powers to the Secretary of State. I can imagine how that suggestion would play in the Scottish Parliament.

Moreover, as I have already suggested, the case of conflict between two sets of directions and guidance is hypothetical and all parties will be able to ensure that it does not happen.

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Amendment No. 294 looks to the financial framework and takes away the provision that the authority may not carry out the Scottish Ministers' directions and guidance where they conflict with the SRA's financial framework. Perhaps it may help noble Lords if I explain that the financial framework is another form of direction from the Secretary of State. It has been separately mentioned in the Bill because it does not deal with strategies and only indirectly with the manner in which the SRA is to carry out its functions and the other directions and guidance powers are linked to the SRA's strategies and functions.

The financial framework will be a type of direction which specifies the rules and principles which the authority is to observe when exercising its functions in relation to financial and employee matters. It will incorporate such housekeeping matters as salaries, pensions and budgetary management. It will be an essential document in order to ensure the proper working and accountability of the authority as a non-departmental public body, and, frankly, it is normal good management practice for these matters to be directed by one person. As the SRA remains a reserved body, it is proper that the Secretary of State be the person to give directions about these issues. This is entirely consistent with the McLeish settlement and the Scottish Ministers are content with this approach. As the matters covered are housekeeping, I can reassure noble Lords that the possibility of any inconsistency with the Scottish Ministers' directions and guidance, which are about railway services, is very remote.

1 apologise for the length of my reply, but I was invited to respond so that these matters could be placed on the record. I hope that, with those reassurances, the noble Baroness will feel able to withdraw her amendment.

11.30 p.m.

Baroness Thomas of Walliswood: I am grateful to the noble Lord for his wide and precise response to my question and for the fact that he was willing to read it into the record. I beg leave to withdraw the amendment.

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