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Lord Macdonald of Tradeston: I am aware that Members opposite wish to oppose the whole of this clause and that that will be the most appropriate opportunity for me to address any concerns on the fundamental principles of what the clause does and why we consider it necessary. With the indulgence of the Committee I should therefore like to confine my remarks to the amendments before us.

We recognise that a direction is a powerful tool, possibly requiring a lot of work from a facility owner to carry out and possibly requiring him to change his business and investment plans for a period. That is why the safeguards of procedure exist in the Bill, so that the regulator can be assured that he is requiring action from the right person and that those affected have been consulted.

Amendments Nos. 322 and 323 change the periods for written representation from a period specified by the regulator to a "reasonable" period specified by the regulator. These amendments are really not necessary. I can assure the Committee that the regulator, as a matter of public law, must always act reasonably and this general rule would apply to the period for a written representation. If he gave an unreasonable period to respond to a notice, then he would be open to legal challenge.

Amendments Nos. 324 and 325 add the authority to those persons from whom the regulator can request information to help him determine an application. This seems to us not only unnecessary but also, I fear, inappropriate. The Rail Regulator and the SRA are both regulators, and both have an equally important role to play. This is a relationship of equals, distinct and complementary. It would, I feel, be wholly wrong for the regulator to be able to direct the SRA. If this were truly necessary, then it would be for the Secretary of State to direct. However, noble Lords will not be surprised to learn that we do not, in fact, consider these provisions necessary. This process is not initiated by the regulator, but either by the SRA or with the support of the SRA. It will, therefore, be the SRA that is keen to promote a scheme as part of its strategic plan

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for the network. This power will only ever be used when the improvements cannot be obtained by other means and the SRA will have to be fully behind them.

Amendment No. 326 is also unnecessary. It states that the regulator may not use information given to him for the purposes of the direction; that he may not disclose such information; and that he would be liable for compensation should he disclose information. The issue here is of course commercial confidentiality and the need to protect sensitive information. We are aware of the importance of such confidentiality and it would be improper for any public body to misuse information. But, in common with other regulated utilities, the matter is already dealt with: in this case in the Railways Act 1993 into which the provisions in Clause 222 will be inserted. Section 145 of the Railways Act provides that information obtained under that Act shall not be disclosed without consent. It also makes such disclosure a criminal offence. There are exceptions to the prohibition on disclosure, such as disclosure of information to other regulators for the purposes of their functions, but that is wholly appropriate and the same as for other utilities.

Amendments Nos. 327, 328 and 329 look at variation or revocation of a direction. In another place, the Opposition raised the case in variation or revocation where the facility owner had already carried out work, which, because of the variation or revocation, proves abortive. They argued that, in such a case, compensation should be payable. We agreed and amendments to provide compensation were put forward and accepted on Report in another place. However, I welcome the opportunity to be able to assure the Committee that the Bill now provides compensation if work proves abortive. The regulator will be able to determine the appropriate level of such compensation.

I shall now deal briefly with the effect of new Section 16G(4) and (5) to the Railways Act 1993, to which these amendments relate. Where the regulator gives a direction under new Section 16A of the Railways Act to develop a facility he must be satisfied that the facility owner will be adequately rewarded for it through a combination of payments by the applicant, future receipts, and so on. There may be circumstances where the applicant seeks to vary a direction, either wishing to extend or to cut back on the facility. This does not change the presumption that the varied facility must be the subject of an adequate reward--hence new Section 16G(4).

Sometimes, however, the facility owner may have put a large amount of work and resources into a facility in pursuance of a direction which will be wasted work if the direction is varied or revoked. In the case of a variation, the adequacy of the reward under Section 16G(4) relates to the new facility and not what was originally planned. Therefore, it is difficult to apply Section 16G(4) to liabilities that may have been incurred in connection with the original facility but are of no relevance for the new facility. Where a direction is revoked, Section 16G(4) may be of no use at all.

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It is because of this that we amended Section 16G to give the regulator an additional power to determine liabilities, incurred in accordance with the old direction, which have been wasted. I am sure that Members of the Committee will agree that the principle of this is right. I can assure noble Lords that these amendments are unnecessary, as a result of the changes that we have already made.

Amendment No. 327 provides that the regulator cannot order compensation under Section 16F(5) if the facility owner is to be adequately rewarded under Section 16G(4). I agree with this. It is why Section 16G is expressed in terms of a discretion for the regulator. He will only exercise the power where he needs to, such as where something is not caught through the adequate reward mechanism of Section 16G(4). It would be unreasonable to exercise the power if it amounted to double compensation and it is not necessary to express this.

Amendments Nos. 328 and 329 require that compensation should determine what loss has been, or is likely to be, suffered and set off any sums received against this net from this benefit. I assure the Committee that the regulator will be in the business of assessing the appropriate level of compensation and this will constitute the wasted works less any receipts. Again, these amendments are unnecessary. It would be unhelpful to limit the regulator's discretion by specifying a formula. The regulator will look at all the circumstances of a variation or revocation and act in the most appropriate way. With those explanations, I hope that the amendments will be withdrawn.

Earl Attlee: I am grateful for the Minister's informative response to my amendments. With the usual caveat, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 323 to 329 not moved.]

On Question, Whether Clause 222 shall stand part of the Bill?

Earl Attlee: This key clause goes to the heart of the new powers which the Government are taking in this Bill. It gives the regulator powers to direct investment. This seems to be unwarranted interference in the operation of a private company and is of considerable concern to Railtrack. Ministers have said that this power will be used only as a last resort, but we do not see why it is necessary at all.

There are some limits on the power, which is some comfort, but it remains the case that the regulator has only to ensure that "adequate return" is provided for this compulsory investment. Nowhere is it set out how the regulator is to determine what an adequate return is, or even where the capital is to come from.

This clause seems unnecessary and gives powers to the regulator and the SRA which have the potential to be used unwisely. The current incumbents may proceed with caution but their successors would not be bound to take a similar approach. We remain uneasy at the extent of these powers to direct a private

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company where it must make its investment. We therefore oppose the Question that Clause 222 stand part of the Bill.

Lord Macdonald of Tradeston: Clause 222 is a new power for the rail regulator to give a direction to a person in a position to do so to improve an existing facility or to provide a new facility. This power can be exercised only on an application from the authority or a third party with the consent of the authority. This power will ensure that improvements can be made to the network where the authority considers that they are in the public interest.

The clause is not designed to replace the normal commercial judgments and investments of facility owners such as Railtrack or EWS. Nor does the new section preclude voluntary arrangements between a facility owner and someone wishing to agree terms for an enhancement. The clause will enable a facility to be built which is in the public interest. In such a case the SRA can invest in the facility and the clause provides the element of compulsion necessary to ensure that an investment takes place.

The clause does not replace Condition 7 of Railtrack's licence which requires Railtrack to make reasonable enhancements. However, Condition 7 applies only to Railtrack and not to other facility owners. In the case of Condition 7 only the regulator can enforce a direction and third party rights arise only in the event of a breach of a final or provisional order. Under this clause, in contrast, the applicant will be able to take action to enforce the direction and third parties may also be able to take action if they are prejudiced by non-compliance with the directions.

There may well be cases where the SRA considers that there is a strategic need for a new or improved facility and the person in control of the facility may have a short-term view not wishing to make the investment or may have other priorities. It is in these cases that this clause will provide the balance between the interests of facility owners and the long-term strategic needs of the railway.

An improvement may be sought by a third party applying direct to the rail regulator, but they must have the consent of the SRA. This will ensure that there is a genuine interest wider than the commercial interest of one part and that it fits with the wider aims of the authority. In all cases the rail regulator must be satisfied that there will be adequate reward for the improvements or new facilities. This will depend on the facts and circumstances of the case. It means that the regulator will take a view that the facility owner will not be out of pocket. This does not mean that the facility owner must be remunerated for the facility in advance. We have made it clear that the regulator is able to take into account indirect receipts and other benefits that are likely to accrue to the facility owner. Where the rail regulator agrees to revoke or vary a direction to provide facilities, he must ensure that there is adequate compensation, as appropriate, for the work that has already been carried out.

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The person who is to be directed must be consulted. While he will have to do everything reasonably practical to carry out the direction, a person will not remain liable if he does not have the necessary powers or rights. For example, it may be reasonable for a person directed to use all reasonable endeavours to apply for planning permission, or even to promote a Transport and Works Act order, but it may not be reasonable to say that he has failed to comply with the direction if planning permission is refused.

There are some cases where it would be disproportionate to apply this power--for example, in the case of heritage railways, which are not part of the strategic network. We have therefore given the Secretary of State the power to exempt certain railway facilities from the power.

This is a power that we would only expect the SRA to request as a last resort. As a check, the final decision belongs to the rail regulator. He will be operating under his duties in Section 4 of the Railways Act 1993, including the duty to act in a way which he considers will not make it unduly difficult for the holders of network licences to finance their activities.

We agree that it is normally the duty of the railway industry, facility owners, franchise holders and others to invest sensibly for the development of the railway, but there may be cases where investment which should occur does not. It is reasonable in those cases for the regulator to have the power to ensure that vital improvements are carried out where there is no voluntary means of securing them.

1.45 a.m.

Lord Berkeley: Before my noble friend sits down, does he agree that although condition 7 of Railtrack's licence requires it to provide for the reasonable requirements of its customers, there is a let-out which states that it does not need to do anything that would put its finances in jeopardy. There have been an awful lot of requests for investment to Railtrack, which has not happened. I believe that it is essential that the clause remains in the Bill for that very reason. If the SRA, in trying to be strategic, says to Railtrack "Will you invest?"--and it says "No"-- there is nothing the SRA can do about it without this clause.

Secondly, if the industry is lucky enough to get a few crumbs from the announcements tomorrow and later this week--which I hope it does--that investment has to be invested where the Government want it to be, presumably through the SRA. I certainly believe that this clause must stand part of the Bill.

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