Examination of Witness (Questions 820
WEDNESDAY 14 NOVEMBER 2001
820. Good afternoon, I am grateful to you for
coming. Would you be kind enough to identify yourself for the
(Mr Byers) I am Stephen Byers, the Secretary of State
for Transport, Local Government and the Regions.
821. Can I ask you, Secretary of State, if you
have anything you would like to say.
(Mr Byers) Mrs Dunwoody, if I could make a relatively
brief opening statement to the Committee. And can I begin by saying,
as this is the first time I have had the pleasure of appearing
in front of your Select Committee since my appointment on 7 June,
that I would like to think that we will have a long and constructive
822. Seldom have men made offers like that to
me so I can assure you I accept!
(Mr Byers) Thank you so much!A long and constructive
relationship with you as Chairman of the Committee and myself
as Secretary of State for the Department. Mrs Dunwoody, it was
a year ago that the rail industry was just recovering from the
aftermath of the terrible events at Ladbroke Grove when the accident
at Hatfield threw the industry, and particularly Railtrack, into
turmoil. Partly as a result of Hatfield, Railtrack came to the
Government for more money and in April of this year we agreed
a deal with them based on their business plan at that time. We
agreed to bring forward £1.5 billion of investment, the first
installment of which was paid on 1 October this year, a sum of
£337 million paid in full. My decision on 5 October to refuse
further funding to Railtrack was not an easy one, but I firmly
believe that Railtrack had become not part of the solution for
our railways but indeed was a major problem. We had to say, "Enough
is enough, let's get to the root cause of this. Let's look at
the structure and put it right so that the extra money we intend
to put into railways secures real value for money and an improved
service to the travelling public." Railtrack went into administration
because it was insolvent. My petition to the High Court was unopposed.
Our evidence showed a deficit for Railtrack of £700 million
by 8 December this year rising to £1.7 billion by March of
next year. Little wonder that faced with these facts Mr Justice
Lightman, the High Court Judge said: "This is clearly a case
where the making of an Order is not only appropriate but absolutely
essential; I shall therefore make the Order immediately."
Mrs Dunwoody, you will know that the House has had the opportunity
to discuss on three separate occasions the circumstances leading
up to the granting of that petition on 7 October. We now need,
I believe, to concentrate on the measures that have to be introduced
and the steps that need to be taken if we are to create a railway
system which is fit for the 21st Century, and I would certainly
very much welcome the views and recommendations of the Committee
on the action necessary to achieve this particular objective.
As the Committee has identified in your earlier reports to the
House, Railtrack had many failings, but Railtrack, in reality,
is only part of the jigsaw that is the modern railway system,
and I want this afternoon to share with the Committee part of
mine and the Government's wider vision for the railway network.
We first must consider the successor to Railtrack. There are some
excellent people working at Railtrack and throughout the railway
industry, but Railtrack was not delivering and these excellent
people deserve to work in a structure that does. The Committee
knows that we are proposing to the administrators a company limited
by guarantee to take over Railtrack's stewardship of the network.
It would include membership representing the industry and those
with an interest in it, and that is only right, but the membership
would not be involved in running the railway or taking any day-to-day
decisions. The company would be run by a professional board of
directors. The directors of that board would be charged with one
aim and one aim only; to deliver a safe and efficient railway
system. But the company limited by guarantee is only one possible
model. We welcome the interest that has been shown by other third
parties in Railtrack and look forward to seeing if and how that
interest will be translated into firm proposals for the administrator.
All will be considered fairly and on their merits and I have issued
guidelines detailing the principal issues which I will consider
before approving a transfer of Railtrack's undertaking. We will
only proceed when we are happy that the successor to Railtrack
can really deliver for industry and for the travelling public.
The Ten-Year Plan, published last year, and coming into effect
in April this year, was a milestone in transport planning. It
contains key targets for the railway: a 50 per cent increase in
passenger growth; up to 80 per cent growth in rail freight; and
less over-crowding, particularly on busy commuter lines. We remain,
in Government, committed to these targets despite the disruption
caused by last October's crash at Hatfield. Among other things,
Hatfield proved a stark warning to the industry of the continuing
need to maintain and improve safety standards. Hatfield also caused
massive disruption across much of the network. Some of the effects
are still being felt. Six months after Hatfield there were still
1,000 temporary speed restrictions in place. As the Committee
will know, the Strategic Rail Authority is our principal delivery
agent. I am pleased that Richard Bowker is to become its new Chairman.
He brings commitment, energy, clear vision and a great knowledge
of the industry. The Strategic Rail Authority will be publishing
its first Strategic Plan shortly. It will set out how the Ten-Year
Plan is to be delivered and how to create a safer, better and
bigger railway. The publication of the Strategic Plan will be
a major event in the development of our railway for the future.
As the Committee will also know, I have issued in draft form new
Directions and Guidance to the Strategic Rail Authority. These
are not about prescription or second-guessing. When finalised
they will set the overall framework in which this Government body
will operate. I have no intention of getting involved in detailed
operational issues that properly belong to the Strategic Rail
Authority, but I do believe on behalf of Government that it is
right to set objectives and the 12 objectives set out in the draft
Directions and Guidance are, I think, the key priorities for the
future: to secure progressive improvements in the performance
of the franchised rail services and improve levels of customer
satisfaction with the quality of stations and services (and, as
we have just heard from the Honourable Member for Wakefield, we
know that is something that clearly does need to be addressed
as a matter of urgency); to manage passenger franchises actively;
to take opportunities to achieve improvements in terms of existing
passenger franchises both in relation to performance and otherwise;
to extend or replace existing passenger franchises in due time
before expiry, or earlier where to do so is warranted by the potential
benefits to passengers and other users, and is affordable; to
carry out a national passenger survey twice a year; to keep under
review the level of regulated and unregulated fares; to implement
an improved system of support to freight operations; to replace
the existing freight facilities and track access grant schemes;
to secure increases in the capacity of the railway to accommodate
the expected growth in passenger and freight traffic; to develop
a policy for the allocation of capacity amongst users; and to
ensure that rolling stock is available so that train operators
are able to accommodate expected passenger growth in appropriate
model standards of comfort and safety and, specifically, in order
to replace the existing Mark I stock as it is progressively removed
from the network between now and 2004. And the final two objectives:
to achieve a significant improvement in the resilience of railway
operations; and to promote co-operation among different parts
of the rail industry. In addition to the Directions and Guidance,
I also want the Strategic Rail Authority to be flexible in its
approach to franchising. In some cases 20-year franchises will
be appropriate. Indeed, the Strategic Rail Authority is now in
the final stages of negotiating a new 20-year franchise on Chiltern.
In other cases short extensions may well be the answer, as with
the East Coast Main Line. Here a new long franchise may be appropriate
but it would be premature to commit to it at this particular stage.
I also want to see franchise bids invited againsta clear specification
of core outputs so that everybody can be clear what they are trying
to achieve and we can enable bids to be properly evaluated one
against the other. The Ten-Year Plan backs up our vision with
a commitment to massive investment. Over the ten years of the
plan, public support to the railway will be some £30 billion,
far higher than in the past ten years. Public funding will lever
in some £34 billion of private finance on the Channel Tunnel
Rail Link, on new rolling stock, and on major schemes to expand
the network such as the planned upgrade of the East Coast Main
Line. Mrs Dunwoody, money and commitment alone will not be enough
to transform the railway over the next ten years. We also need
to tackle some practical problems, including the current shortages
of drivers, signalling engineers and other key staff. The Strategic
Rail Authority is working with the industry and government agencies
to ensure that the right people are trained and available in the
right places. The short-term approach to training and skills development
that we have seen over recent years is now leading to real difficulties.
We must now invest for the long term and that means providing
a structure in which the talents of individuals are enhanced by
high-quality training. Mrs Dunwoody, the action we have taken
in relation to Railtrack is an important first step towards creating
a railway system fit for the fourth largest economy in the world.
But I am clear that much more needs to be done. We need to have
a successor to Railtrack that concentrates on operations, maintenance
and renewals; a strategic plan which is an agenda; a franchising
regime which uses its powers as a key lever to drive up quality,
investment, both public and private, which brings real benefits
for passengers and freight; a skilled workforce to meet the demands
of the industry. Some might say that this is too bold and ambitious
but I do believe it is a vision that can be achieved.
823. Thank you, Secretary of State. We will
want to question you on various aspects of that statement. I want,
if I may, just to ask you a couple of questions. You will have
read the evidence given to us by the Rail Regulator and you will
also know that, whatever form the successor to Railtrack takes,
one of the ways in which certainly the private sector and banking
sector will expect to have their interests protected is by the
role of the Regulator who acts as a vital arbitrator in the case
of any difficulty. Do you feel that the Rail Regulator was sufficiently
consulted in the talks between yourself and other members of the
industry before your decision to go for administration was announced
to him on the Friday before the relevant date?
(Mr Byers) It was Friday 5 October, Mrs Dunwoody,
when I met the Regulator to inform him of the decision that I
had taken earlier that day in relation to Railtrack's request
for further additional funding from the Government. In practice,
it was very difficult to consult the Regulator before that decision
for a simple reason, which was the discussions that had been taking
place with Railtrack and with their advisers were taking place
in the strictest of confidence. As you will be aware, as Secretary
of State I am under no legal obligation to inform the Regulator
of discussions of that nature. It would have been openand
I think the Rail Regulator in his evidence to the Committee made
this very clearto Railtrack to have made an approach to
the Regulator at any time during that period?.
824. Were you aware that he had not done that?
(Mr Byers) I learned that from the Regulator in his
evidence last week. I was aware from Railtrack that they had not
approached the Regulator; that was clearly a decision for Railtrack.
825. Did you ask them why they had not done
that when this was a recognised route by which they could have
(Mr Byers) I understood it was a decision that Railtrack
themselves had taken.
826. That was what they said to you at the time?
(Mr Byers) I cannot recollect in detail but it was
clearly a decision Railtrack had taken. Whether they expressed
it openly in those terms I really cannot remember.
827. Were you surprised that they had not chosen
that route to raise extra cash?
(Mr Byers) I would have thought that they would have
considered some of the comments which have been made by the Rail
Regulator about the position of Railtrack. Clearly it was an avenue
open to them and, for whatever reasons, Railtrack chose not to
go down that particular avenue.
828. Were you aware that Sir Alistair Morton
regarded the right of the Regulator to raise money in this fashion
as the right to take money out of the pockets of the Strategic
(Mr Byers) Sir Alistair Morton expresses himself in
his own colourful way and I am aware of his own particular views,
829. Do you feel that the reaction of the Regulator,
which was one of considerable shock according to the evidence
he gave us, was justified by the fact that he felt his role had
been undermined and it was impossible for him to continue?
(Mr Byers) I did not read the Regulator's evidence
in that way, Mrs Dunwoody. Thankfully, because of the transcript
that you made available yesterday, I was able to read the transcript
and the message I got from the Rail Regulator's evidence was that
if Parliament, both the Commons and the Lords, had agreed to proposals
to constrain him, then his independence would have been affected.
But clearly he said to the Committee for him it was "business
as usual" and I think what is particularly noteworthy is
on the evening of 6 October he indicated, certainly in evidence
before the Select Committee last week, that he said to Railtrack
if they applied for an interim review then he would certainly
give it appropriate consideration.
830. He also said they did not ask for that
because they had put a 24-limit on the length of time this should
(Mr Byers) I cannot really understand that because
Railtrack was aware that there was a petition being made to the
High Court on the Sunday. That petition of course was from myself
because I had evidence which led me to believe that Railtrack
was not solvent. Railtrack attended in the High Court on the Sunday
afternoon with counsel and they did not oppose or challenge the
petition that I presented.
831. You do not think you undermined the role
of the Regulator?
(Mr Byers) No, the nature of conversationand
it is important for the Committee to be aware of thiswas
it was the Regulator himself who said almost "what if?"
It was not me volunteering that there was a potential for the
introduction of emergency legislation if that were necessary.
It was a consequence arising from a comment that Mr Winsor himself
had made. I put it to the Committee that had I not disclosed the
decision that Government had taken then, quite rightly, people
could have alleged that we were misleading the Regulator as to
the approach of the Government. I was simply very open and very
honest with the Regulator in response to an issue that he himself
832. I would like to ask the Secretary of State
questions in two areas, if I may. The first is on the options
that may be forthcoming from the administrator which might determine
the successor to Railtrack. One of those options that I think
is being suggested is that a private sector buyer headed by a
consortium that may be based in Germany would be interested in
buying Railtrack lock, stock and barrel. Could the Secretary of
State confirm that as a possible option?
(Mr Byers) What the Government has done is to make
sure that there is what we regard as an appropriate vehicle to
take Railtrack out of administration and that is why we have worked
up the model of a company limited by guarantee which we feel is
an appropriate model. It overcomes many of the flaws and weaknesses
that we have seen with Railtrack. However, we do believe it is
right that we should not close the door on other proposals coming
forward. I think some two weeks ago I issued some guidelines when
I answered in a Parliamentary question outlining the sorts of
issues that we would want to take into account when considering
whether or not I should approve a successor for Railtrack under
the powers that I have under the Railways Act of 1993, and you
are right to say that one of those organisations so far which
has expressed some interest is a German company called WestLB.
They have made an approach in outline to the administrator and
it is the administrator who will deal with these issues as the
first port of call. I understand that they are now working up
a more detailed proposal which they will put to the administrator
in due course.
833. But I understand, Secretary of State, that
you will make the final decision?
(Mr Byers) The sequence will be that the administrator
will effectively make a recommendation. Railway administration
is a very unique form of administration in that normally if would
be for the administrator to take the final decision. With railway
administration it is unique in that the administrator will take
a decision as to what he believes is the right conclusion, taking
into account all of the interests but then that has to be approved
by the Secretary of State.
834. Fine. Given that you have, I think, consistently
indicated, and yesterday you specifically said, that Railtrack
plcand I think I quote you not too incorrectlyhad
put the interests of its shareholders before that of the railway
infrastructure. Given that is the case, how are you going to ensure
that another private company is not going to do exactly the same
(Mr Byers) This is going to be one of the issues that
will need to be considered when we look at whatever proposals
come from the administrator.
835. Could I pass on to my second area. You
describe, Secretary of State, the rail system as a "jigsaw",
some may describe it as a "maze" and you will be aware
of the consistent evidence that the Committee has received over
recent times from, I think I am correct in saying, every organisation
that has given evidence to this Committee, that one of the major
problems confronting the industry is fragmentation. You are aware
(Mr Byers) Yes.
836. It is consistent right across the board.
That being the case, how do you think that Railtrack Mark II (or
Renewco, whatever it may be) plus up to 15 special purpose vehicles,
Renewco having responsibility for maintenance and renewal but
the Strategic Rail Authority and special purpose vehicles having
responsibility for major new infrastructure, plus the possibility
of six or more regional companies, is going to reduce fragmentation
in the industry?
(Mr Byers) I am not sure that is the model that we
will end up with at the conclusion of the period of administration.
837. Are you saying that you are not in favour
of special purpose vehicles?
(Mr Byers) What I am saying is we should not see it
in terms of special purpose vehicles causing the fragmentation
that you are perhaps concerned about. My own view is that the
bodies that will take over those major upgrades, for example the
East Coast Main Line, the one that is due to come up in the not-too-distant
future, would be a very good example of where special purpose
vehicles might be used, and there we would expect the Government,
the Strategic Rail Authority and the private sector to be involved
in working up the details but there will need to be an oversight
by the successor of Railtrack or else you create the sorts of
divisions that you are particularly concerned with.
838. It is not a matter of any individual creating
the divisions; surely it is that sort of structure that inevitably
will lead to further fragmentation? I fail to understand, perhaps
you could help me, given that the system which included Railtrack
plc was described as "blighted by fragmentation" from
the word go, how the creation of up to 15 special purpose vehicles,
how a distinction between Renewco for maintenance and renewal
and SRA special purpose vehicles for major upgrades, and up to
six regional companies, is going to reduce fragmentation. I simply
do not understand that and perhaps you might be able to help me.
(Mr Byers) I will certainly do my best to try to explain
how I think it might be a better system that overcomes some of
the problems we have at present. One of the big issues that we
have at the momentand this was also referred to in one
of the reports from this Select Committeehas been the lack
of what I would call a "clear line of sight". In other
words, sometimes it is very difficult to identify who is responsible
for certain events which take place which means very oftenand
we have all been aware of this within the railway industry in
recent years there has developed almost a blame culture where
people point the finger at each other but no one part of the industry
is prepared to put up their hand up and say, "Yes, we are
responsible for this and we need to improve it in the future."
I do think it is important to bear this in mind, and I can understand
why given what has happened since October 5 that people, understandably,
are concentrating on Railtrack, but I think it would be a terrible
mistake if that is all we looked at because what has happened
with Railtrack, as I said in my opening remarks, is really one
part of the jigsaw, of the maze if you like. What we have got
do is to make sure that when this period of administration is
over we have not only have a successor to Railtrack but we also
address some of those key issues like the role of the Regulator,
like the Strategic Plan from the Strategic Rail Authority, like
how we can use the franchising regime in a more positive way than
perhaps it has been so far. I do believe that by using all of
those levers then we can overcome the sorts of fragmentation you
are so concerned about.
839. I have listened very carefully to your
answers and we will have to assess how persuasive your answers
are. Given that whatever successor to Railtrack is, it will have
to be backed up by considerable amounts of public money, I think
that is a foregone conclusion, and that money will in the main,
if not entirely, be directed through the Strategic Rail Authority
who will be responsible for the dispersement of that money consistent
with policy objectives and also responsible for major infrastructure
developments with special purpose vehicles, and the need to simplify
the industry is an overriding consideration. I put it to you what
do we need a successor to Railtrack for? Why can it not be done
through the SRA?
(Mr Byers) We need a body which will hold the operating
licence and will do simple things and do them well, which means
operations, maintenance and renewal, and that is their overriding
priority, and not to be distracted by the big enhancement projects.
The difficulty, so I have been told, at the heart of the Railtrack
was that in order to enhance shareholder value and make a profitthere
is not much profit from operations, maintenance and renewals works,
the real profit comes from the major upgradea lot of time
is spent looking at that particular part of their responsibility.
I believe that with the new company that we are proposing taking
over from Railtrack, concentrating just on running the track and
getting that right as far as the network is concerned and the
other responsibilities as well, then that is what they need to
be concentrating on. I do think we need a dedicated body to do
that and it does not fit in with the role of a Strategic Rail
Authority which is really a body at arm's length from government
but which sets the strategic objectives of the railway network.
Some would say it is a bit ironic that we have got a Strategic
Rail Authority at the moment which does not have a Strategic Plan
but we will have an Strategic Plan in the not-too-distant future
and the SRA also has the responsibility for the franchising programme
as well. I think there are distinct roles to play and that has
to be done by the Strategic Rail Authority and I do believe a
successor to Railtrack is necessary in order to do those basic
thingsoperations, renewals and maintenance and do them
well and do them on time.