Examination of Witness (Questions 620-639)
RT HON STEPHEN BYERS
WEDNESDAY 6 MARCH 2002
620. It is suggested that a real "anti-motorist" policy would be to do nothing about congestion on our roads. The fact that motorways are now becoming conjested, Secretary of Statewould it not be in the best interests to wait until the London scheme has been proved (which could take another two or three years) but tackle congestion in some of our urban areas and cities and the motorways?
(Mr Byers) As far as the cities are concerned, I do think it is right to leave it to local authorities to come forward with their own proposals.
621. You have of course calculated, have you not, that some of those areas will have congestion charges?
(Mr Byers) There is an assumption that there will be some congestion charging schemes introduced but the assumption is that it will be in the life-time of the Plan itself, not in the next two, three, four or five years. If the London scheme starts as is proposed in March of next year, it is going to be very much the litmus test. Lots of local authorities are looking to see how that scheme operates. If it is a success I think we will see a number bringing forward their own proposals. There is an issue which is the responsibility of my Department directly, which is in relation to the motorway system in particular and the congestion we are seeing there. Part of that is a road-building programme in a sensitive way, which the Committee will be aware of, but also about managing the network far more effectively. We do not run the network. We build the roads and then we leave them and we do not manage the network. I think we can do a lot more in terms of managing the road network. We had an example a couple of weeks ago where there was a very serious accident on the M3. The consequence of that was that there was total-grid-lock for about eight hours because the incident was not effectively managed and the road was not cleared as quickly as it could have been. There are lessons to be learned and we have got some pilot projects operating at the moment to see how we can manage the network far more effectively and efficiently than we do at the moment. That might be one way in which we can relieve congestion.
622. Does that include motorway tolling? "Management" rather implies that you could take control of all sorts of things.
(Mr Byers) By running the network I mean, for example, on the M25 if there is an accident, hy does it takes four hours to clear it?
623. That was the only aspect that you were thinking of?
(Mr Byers) I was not thinking beyond that in the context of what I have just been saying, Chairman.
624. Can we build ourselves out of congestion on the motorways? Can we build motorways to ease congestion on other motorways?
(Mr Byers) There can be targeted road improvements that will help but I do also believe that the challenge that we face is to look at how we manage the motorway network system more effectively than we do at the present time.
625. Does the letter from so many investment bodies published in today's national newspapers make you doubt whether you are going to get the £34.3 billion investment in rail?
(Mr Byers) No. I can understand the motives behind those that have written the letter. I have to say, and I think Richard Bowker confirmed this when he gave evidence before the Select Committee, there is no indication that the private sector is shying away from the Public-Private Partnership approach to transport projects. Most of them do make a clear distinction between the contractual relationship that the private sector has with the government in relation to a PPP partnership as opposed to the situation that is applied with Railtrack where you had a company which was quoted on the stock market in a quite different situation.
626. Have you made any alternative plans should the investment not arrive?
(Mr Byers) We are confident that the investment that we believe will come from the 10 Year Plan as far as the private sector is concerned will still be there. As I have said, since the turn of the year in relation to two specific franchise, a renewal in relation to Chiltern and an extension in relation to GNER, the Strategic Rail Authority calculate that something like £100 million of private investment will come linked to the GNER two-year extension. I think they are projecting something like £370 million potentially of private investment on the Chiltern franchise, so there is £470 million in the last eight or nine weeks coming from private investment in just two franchises. There is no indication that the City and financial institutions are walking away from transport PPPs.
627. Are you saying then that you are disregarding the possibility of lack of confidence from private investors?
(Mr Byers) As I say, there is no sign that that is the case and that is why we are confident that the sums which have been mentioned in the 10 Year Plan will be achievable. I was concerned about some of the comments contained in the newspapers today about the view of the Strategic Rail Authority in relation to private investment, and I reminded myself that in the Strategic Plan published by the Strategic Rail Authority, page 25, states very clearly: "The total amount of private sector investment leveraged by this Plan is expected to be very similar to that envisaged in the 10 Year Plan"and that is £34 billion. I also because of comments made from the Strategic Rail Authority spoke to Richard Bowker who made the following comment which I am allowed to quote publicly. "It is rubbish to say that I found the Secretary of State's funding estimates to be wildly optimistic. The SRA's Strategic Plan contains sufficient results to deliver the 10 Year Plan targets, subject to the clear assumptions made. Many people seem intent on talking the railway down, suggesting that the private sector is not interested in investing in the railway. Look at the facts. The private sector has invested in the Chiltern franchise and in the East Coast franchise. Private investor interest in major infrastructure upgrades is growing. I know that because I am in daily discussions with them." So it is very clear from the comments which have been made by the Strategic Rail Authority and by the Chairman Richard Bowker that there is no indication that the City is walking away from investing in the railways or indeed elsewhere in the transport system.
628. What about the impact of the delays caused by Railtrack being in administration longer than anticipated and the delays in setting up the Special Purpose Vehicles? Have you incorporated the impact of that into your estimates?
(Mr Byers) The Special Purpose Vehicles are a new entity that we want to use particularly for the upgrades that we want to see on the network, and they will be in place when we are ready to move as far as the upgrades are concerned. On the original plan we were never going to be in that situation in the period that we are now at, so there has not been a delay as far as they are concerned. It is worth reminding the Committee that Railtrack in administration is not just sitting there doing nothing. Railtrack in administration is actually in the last few months doing a far better job of running the railway network than was the case in the autumn of last year when we had management in chargesenior executives, the Chief Executive and the Chairmanwho, understandably, were interested in securing shareholder value and arguing the case for shareholders. They have now moved to Railtrack Group where they can pursue that particular objective, but we have been able to move in engineers who know about railways to head up Railtrack plc. As a result of that, certainly anecdotally talking to train operating companies, there has been a dramatic improvement since the turn of the year as far as the performance of Railtrack is concerned. Railtrack in administration is not lost time. It has provided the opportunity of focusing on the day job of getting the network running effectively as well as making sureand this is the responsibility of the Administratorthat when Railtrack comes out of administration there is a strong vehicle that will be focused on putting the interests of the travelling public first.
Q: Could that tempt you to keep Railtrack in administration for a little longer than necessary?
(Mr Byers) No. I think for reasons that I am sure the Committee would understand I personally would like to get Railtrack out of administration as soon as possible. However, there is a proper process that has to be completed by the administrator because the period of administration and the task of the administrator is not just to make sure that we have a strong successor to take over from Railtrackthat is the part of the administrator's responsibilitybut it is also to make sure that the shareholders get the value in Railtrack to which the shareholders are entitled, and that is a clear responsibility on the administrator and he will want to make sure over the next few months that, whatever happens, he secures the best deal that he can for those shareholders. So he will want to take time to do that, although I think the administrator as well recognises that it is in everybody's interests to get Railtrack out of administration as soon as is possible, bearing this mind his legal obligations to shareholders and, also, to have a strong successor to Railtrack.
629. Yes. He did tell us he thought 4-6 months.
(Mr Byers) From when he gave evidence?
(Mr Byers) He certainly indicated to myself as Secretary of State that September this year would be the time at which he would hope to be out of administration.
Chris Grayling: Mr Byers, you just said that special purpose vehicles would be there when they were needed, and that they would be according to plan, if I understood correctly. I spoke to two senior executives in franchises this morning who told me the opposite. They told me of one specific project that is timetabled within the Strategic Rail Authority's plan that is running at least two years behind schedule
Chairman: Could you give us their names? If you are going to quote, I think you should make it clear who they are.
631. These are two of the London franchises who are directly involved with SPVs.
(Mr Byers) The question I think the record will show was in relation to Railtrack being in administration being the cause for delays in the SPVs and, if they are already two years behind schedule, I do not think that could be put down to Railtrack being in administration.
632. It is two years behind what is specifically stated in the Strategic Rail Authority plan. Can I encourage you to go back? Is it the case that in your view the SPVs are in development, ready to meet the plans as set out by yourselves and the Strategic Rail Authority, or is that not the case?
(Mr Byers) As I say, I think the particular question was in relation to Railtrack being in administration and the delays to SPVs as a result of that. There is no secret, because I think this may be evidence I have given to this Committee before, that the Strategic Rail Authority was struggling to set up the concept of SPVs, and this may be a reflection of that. I think the Committee has heard from me before about the delay that there has been in establishing special purpose vehicles which is regrettable. The work is now going on but the specific question I think, if I am correct, and the record will show this, was in relation to Railtrack being in administration delaying SPVs yet further and I do not think that is the case.
633. Could I follow that up? If September is the date when Railtrack comes out of administration this year, it will take, we are advised, something like six months before special purpose vehicles can be set up. If that is the case, and I think that is a reasonable assessment to make, then we could be looking atwhat, three years into the plan before any private money is available for infrastructure development? Would you accept that as a possibility?
(Mr Byers) I would not because it assumes that no work is being done at the moment: that somehow everything is being put on hold until Railtrack comes out of administration. I think it is worth reminding ourselves that the Strategic Rail Authority is now taking a lead role in developing the concept of SPVs to a far greater extent than perhaps they were before. So Railtrack, or its successor, will clearly have a key part to play and it will be one of the parties in a special purpose vehicle, most probably. It does not have to be the case but most probably will be, but that does not stop the detailed financial and legal work going on at the momentand, indeed, that work is going on. As we have heard from Mr Grayling, there are quite detailed discussions going on with some of the existing franchise holders, or some groups to whom an in principle agreement has been made to award a renewed franchise, where they are talking in detail about using an SPV for the future. They may be going rather more slowly than we would like, but the work is going on.
Chairman: But you could give us a timetable?
634. I always defer to you Mrs Dunwoody, as well you know, but that was my next question. If you would not accept that albeit generalised possible timetable of September coming out of administration and it being six months later before the SPVs can be set upwhich you say you do not, can you give us some indication, Secretary of State, when you do believe SPVs will kick in, assuming that Railtrack comes out of administration in September?
(Mr Byers) There are discussions going on at the moment, commercial discussions, with various franchise holders about using SPVs as far as they are concerned. It is on-going, so this is happening whilst Railtrack is in administration, so we do not have to hold back until Railtrack comes out of administration. As we have heard from Mr Grayling, that is the case, so there is work going on at the present time.
635. Finally, on that, before I move on, do you accept or not that it could be six months, something of that timescale, after Railtrack comes out of administration, before SPVs are set up?
(Mr Byers) I honestly do not think it is crucial and dependent on Railtrack coming out of administration. I think it is dependent on the parties concerned (1) reaching a commercial deal that they are all satisfied with and (2) special purpose vehicles are far more difficult than people originally thought they would be
636. Not this Committee!
(Mr Byers) Some people thought they were going to be the solution to all of the problems of investment in the railways and I think you, Chairman, will know who I have in mind when I say that. They are proving to be far more difficult in terms of the legal complexity, the financial arrangements and so on. They have to be worked through and that is what is happening at the present time. There are one or two commercial negotiations which are going on at the moment based on the SPV model; some of them are going very slowlysome of them apparently are making better progress; and I think we will have to let the commercial negotiations take their course
637. According to the memorandum from your Department, something like £8.1 billion remains contractually uncommitted out of a total of public investment in the project of £18.6 billion. Do you see that as a problem and how, if that is the case, is that sum of money going to lever in the £34 billion that it is anticipated from the private sector in the Ten Year Plan?
(Mr Byers) You are right to say that we have already allocated some of the unallocated provision that was contained within the Ten Year Plan. Some of that, as the Committee will be aware, has been allocated to provide additional funds for the railway network.
638. It looks like the majority of it.
(Mr Byers) Well, I think there are issues to do with railways that need to be addressed, to be honest, and I think we need to get on with the job, and I hope the Committee got a memorandum this morning showing the spend in this year, the first year of the ten year plan, showing that we are looking to spend something like half a billion pounds, £562 million pounds more than we had originally planned in the first year. That is because, if the Ten Year Plan is going to be a success, we need to frontload the spending because there are real issues that have to be tackled very quickly if we are to hit those targets in ten years' time, and that is why we need to get the money going out sooner rather than later. If that does mean making an allocation early on in the Ten Year Plan that is something we have to be prepared to do, bearing in mind that we will probably see something like another three or four spending reviews completed before the Ten Year Plan reaches its final conclusion. So there are always opportunities to revisit the assumptions, the needs and the aspirations contained within the Ten Year Plan.
639. Yes. The Ten Year Plan in terms of its aspirations envisaged that a number of schemes such as Crossrail and the Great Western Line up-grading would be completed within the budget. We now know that the SRA's strategic plan pushes these schemes post the Ten Year Plan. How, therefore, Secretary of State, is it possible to conclude that the same amount of private sector money will be levered in the Ten Year Plan with less schemes within that plan?
(Mr Byers) We are confident, as I said, that the £34 billion we are talking about for railways from the private sector will be secured. We calculate that something like £3 billion of public sector investment will be needed to underpin that private sector commitment, and that is one of the reasons why we net off £3 billion from a total figure so there is not a double count as far as £3 billion is concerned. We are confident that, with that level of public sector investment, we will be able to secure the £34 billion. On the specific issue of the projects mentioned in the Ten Year Plan, they are contained on page 47 of the Ten Year Plan. There is only one of those projects which, in fact, is not committed within the Strategic Rail Authority's strategic plan and, even then, they do talk about the up-grading of the Great Western Main Line possibly being brought within the Ten Year Planif at all possible. So the difficulty that perhaps Mr Stevenson is referring to is not as great as some commentators have perhaps stated.