Examination of Witness (Questions 880
WEDNESDAY 6 DECEMBER 2000
MR T WINSOR
880. The Government will have to pay more.
(Mr Winsor) Yes and the Strategic Rail Authority have
welcomed the proposed controls on the disposal of land and they
know that if I make a compensating adjustment in the periodic
review that will flow through to the Strategic Rail Authority
and therefore the Treasury. That is what being strategic about
the railway means; or it is part of it anyway.
881. What is your reaction to Railtrack expressing
the view that the periodic review may not have provided Railtrack
with a capacity to fund £8 billion of investment over the
next five years?
(Mr Winsor) I disagree, but then they would say that
would they not?
882. Where does your disagreement lie? You have
already said that they cannot sell off land. We have already seen
the numbers of passengers and the amount of freight falling in
the emergency conditions in which we find ourselves, so where
does your disagreement with Railtrack lie?
(Mr Winsor) The disagreement with Railtrack so far
on the periodic reviewthey have not said they will not
accept it, they are just huffing and puffing a bit for nowdoes
not really focus on the controls on the disposal of land. That
is a relatively minor matter. They dislike the efficiency assumptions
of 17 per cent, they dislike the performance improvements that
we are requiring of them and they dislike the fact that some of
the income they are going to get will be deferred until 2006.
Those are the key things which Railtrack dislike, but Railtrack
is going to have to assess the periodic review as a package rather
than individual elements. The company cannot expect to go through
a period of 18 months, 15 consultation documents, 24 consultants'
reports, endless hearings and meetings and workshops and everything
and then, when the final conclusions are announced as a package,
decide that they will accept all of them except three and carry
on negotiating. I am afraid that is not the way these things are
done. Railtrack now has a decision to make. It either accepts
the review or it goes to the Competition Commission or it gets
the money from some other source.
883. Could you just tell the Committee where
the compensation in a different way will come from?
(Mr Winsor) How we would compensate them for the land
884. Or if the numbers of passengers and the
amount of freight are not those which have been forecast and factored
into the projected figures.
(Mr Winsor) I am trying to improve Railtrack's incentives
so that it has more of an interest in the volume of traffic moved
on the railway. Until now for each additional train that ran it
actually cost Railtrack more money than the revenue it would get
from the additional train. I have introduced the volume incentive
as part of the periodic review so that Railtrack has an economic
interest in getting more trains on the track, getting more passengers
on the railway. Nevertheless, if Railtrack is in significant difficulty,
having been an efficient and competent company, then there are
ways in which the company can be compensated in the 2006 periodic
review by adjusting the regulatory asset base.
885. Could you just remind the Committee what
the fundamental requirements of Railtrack's licence are?
(Mr Winsor) As it stands at the moment the fundamental
requirement is a rather dull and weak document but it does have
a number of important respects, the most important of which is
condition 7 which requires Railtrack to maintain, enhance, renew
and develop the network in accordance with best practice.
886. Would you agree that Railtrack are a private
(Mr Winsor) They certainly are.
887. You have mentioned on two occasions during
your evidence this afternoon 50:50 fare box and Government of
the £15 billion over ten years and, I am paraphrasing slightly,
50:50 Railtrack and Government on the £8 billion for the
next five years. I think that is what you said. Are you able to
advise the Committee how much of what percentage of Railtrack's
revenue is coming from the public purse and are you able to advise
the Committee what percentage of Railtrack's capital requirements
is coming from the public purse under the plans which have been
(Mr Winsor) I would rather give you a note about that
but it is broadly, as far as the future is concerned, 50:50.
888. On both counts 50 per cent of revenue is
coming from the Government, the taxpayer, and 50 per cent of Railtrack's
revenue for the future is coming from access charges and so on.
(Mr Winsor) Yes. I do not wish to mislead you. The
way in which Railtrack receives its money is a variety of sources,
but the principal two are: direct Government grant from the Strategic
Rail Authority of £4.7 billion in the next five years; and
the rest from passenger track access charges and a significant
proportion of those track access charges comes from Government.
889. You do describe yourself as the economic
regulator, so economic questions are your forte. I am interested
in what proportion of Railtrack's revenue in total is coming from
the public purse.
(Mr Winsor) Broadly 50 per cent.
890. Including access charges.
(Mr Winsor) Yes; sorry, that includes access charges.
891. Could you let us have a note on that and
the capital as well?
(Mr Winsor) Yes, I shall do that.
892. That would be helpful. May I ask you now
about this 50:50 and the sort of partnership which you imply:
50 per cent from Railtrack and 50 per cent from Government? We
received evidence from Mr Marshall, who has been appointed Chief
Executive of Railtrack, in answer to our questions that if the
£4 billion grant which has been provided to Railtrack, although
it is not directly identified for the West Coast Main Line, he
did accept that if that £4 billion which has come through
your offices and through the Government's SRA were not available
then the West Coast Main Line would not go ahead. Were you aware
of that before you decided to recommend this £4 billion grant?
(Mr Winsor) The £4 billion grant is not earmarked
for the West Coast Main Line but nevertheless you are right, if
the money simply did not materialise, if the Government decided
not to give the grant of £4 billion, then Railtrack would
have a massive hole in its revenues and would be unable to afford
to do large projects such as the West Coast Main Line. Yes, I
893. You say that and officially that is the
case but in questioning last week in this room I asked Mr Marshall
whether the West Coast Main Line would go ahead if it were not
for the £4 billion grant. He said no, it would be impossible.
Were you aware of that?
(Mr Winsor) Yes.
894. You were. Is it fair then to assume that
you understood that without that direct grant this private monopoly
company simply would not fulfil its licence condition?
(Mr Winsor) The licence condition requires the company
to do these things, maintain, enhance, improve the network, in
accordance with the reasonable requirements of customers and funders
to the greatest extent reasonably practicable having regard to
financial considerations. We cannot compel the company to do something
for which it does not have funding.
895. Unless of course the Government provides
(Mr Winsor) The funding must come from somewhere;
it must either come from the Government or customers.
896. When Railtrack decided in September 1999
to revise its West Coast Main Line upgrade dramatically from £2.3
billion to £5.8 billionI am not sure whether you were
in office then . . .
(Mr Winsor) Yes, I was.
897. . . . were you aware of that decision or
was it one taken by Railtrack alone?
(Mr Winsor) Yes, I was aware of the decision because
they came and told us.
898. Was that before or after the decision?
(Mr Winsor) The company made the decision and then
they told us about the decision. That does not mean to say we
accepted the decision.
899. The point I am trying to elicit from you
is that they, a private monopoly company, took this decision,
which meant the cost went up from £2.3 billion to £5.8
billion, and you were told about it afterwards.
(Mr Winsor) We were told about it but it was not the
company's decision to put the costs up and put all the costs onto
the public purse. That was a decision for me as the economic regulator
and for the Government as to how much it was prepared to pay.