Railtrack

– in the House of Commons at 5:22 pm on 15th October 2001.

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Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions 5:22 pm, 15th October 2001

With permission, Madam Deputy Speaker, I wish to make a statement concerning Railtrack, to describe to the House the worsening financial crisis facing Railtrack, which led the Government to petition for railway administration on 7 October, and to outline the further measures that we intend to take to put the interests of the travelling public first.

The House will be aware of the history of Railtrack, as will Conservative Members. When the railway industry was restructured following the Railways Act 1993, Railtrack was created by the Conservative Government. In 1996, Railtrack was privatised by the Conservative Government. It was the only publicly floated utility subsidised by the Government. That subsidy made up the majority—in fact, some two thirds—of its revenue.

After the Hatfield train crash nearly 12 months ago, the whole network was urgently reviewed and fundamental safety issues were addressed. That added significantly to costs, with Railtrack claiming that it needed an extra £700 million a year to put the track in a proper condition.

On 2 April 2001, Railtrack asked for help because of its pressing financial difficulties. We brought forward £1.5 billion of investment from the period beyond 2006 to the five-year period starting on 1 April 2001. The first instalment of that deal was paid on 1 October this year in full—£337 million.

However in May, June and July, the company's position worsened dramatically. On 25 July, at a meeting in my office, the chairman said that the position was far worse than he had thought in April. Unless extra financial assistance from the Government was provided, it was clear that on 8 November, when Railtrack was due to give its interim results, it would be unable to make the critical statement that it was "a going concern". The effect of that would have been disastrous. Immediately I ordered intensive discussions with Railtrack.

In August, Railtrack's advisers came back to the Department and said that there were simply three options: restructuring, renationalisation or, as they described it, receivership. Thus it was Railtrack's advisers who first raised the possibility of insolvency if no additional Government funding was available.

I immediately asked my officials to investigate the restructuring option, which involved the provision of yet more funding to Railtrack. Railtrack asked for Government funding to cover all its costs plus a profit and a four-year suspension of the regulatory system. Those were Railtrack's proposals.

Given the company's demands, we began to prepare for the possibility that we might be unable to provide additional funding and that, as a consequence, Railtrack would be insolvent. To protect passengers' interests it was clearly right to explore the need for railway administration on a contingency basis. As a result, preliminary contact was made with Ernst and Young on 23 August.

There were further negotiations and various modified proposals, but it was becoming obvious that the company could not continue unless we offered to fund whatever losses it might have for a period of several years. I took the view that I simply could not responsibly enter into such a guarantee on behalf of the British taxpayer.

We carried on discussions until 3 October, but no way out of the dilemma could be found: either we gave the guarantee on money, or the company became insolvent. So, on Friday 5 October, I reviewed all the relevant papers and considered all the options, including Railtrack's proposed rescue package and the additional Government funding that would be required. Railtrack's proposals were cast in such a way that it was hard to be sure about the precise sum that it was seeking, but it was effectively an open-ended funding request to the Government. I decided that I could not give Railtrack a blank cheque.

That very afternoon, I informed John Robinson, the chairman of Railtrack, of my decision and of my intention to petition the High Court for a railway administration order if the company was insolvent. The order was granted on 7 October. Railtrack was taken into administration because it was, or was likely to become, unable to pay its debts. Our petition to the High Court showed that there would be a deficit of £700 million by 8 December this year, rising to £1.7 billion by the end of March next year.

In granting the order, Mr. Justice Lightman said:

"This is clearly a case where the making of a railway administration order is not only appropriate, but absolutely essential, and I shall therefore make that order immediately."

The press has made much of the position of shareholders. At the time of the April agreement, the Government felt that we should make it clear that our role should be to support the railway network but that we should not be seen as acting as guarantor of individual companies or their shareholders. We therefore agreed with Railtrack a statement of principles. The first point in the statement reads as follows:

"The Government stands behind the rail system but not individual rail companies and their shareholders who need to be fully aware of the projected liabilities of the companies in which they invest and the performance risks they face".

To ensure that that statement had wide circulation in the City, it was released through the stock exchange news service.

The directors of Railtrack have now said that they want £3.60 a share. On our calculations, that would require the transfer of up to £1.5 billion of new money from the taxpayer direct to Railtrack shareholders. We believe that it would be wrong to make new money available, and we will not do it.

In the light of the administration of Railtrack, we believe that we should now consider reshaping the structure of the industry in a way that recognises that the needs of the travelling public must come first. We shall propose to the administrator that a private company limited by guarantee be established to take over Railtrack's responsibilities. Any operating surplus it makes would be re-invested in the railway network. Such a company would have the needs of the travelling public and other users as a priority. As it would have no shareholders, we would remove the conflict between the need to increase shareholder value and the interests of rail passengers.

The company we propose would have responsibility for operations, maintenance and renewals. It would have a small professional board of executive and non-executive directors. Performance targets would be set and linked to levels of service, safety and value for money. The board would work on commercial lines but would focus solely on delivering a safe, well-maintained rail network that is fit for the 21st century.

The company would be able to promote collaboration and co-operation around the wheel and track interface, the absence of which has been one of Railtrack's weaknesses. A private company limited by guarantee would need far less intense regulation. We therefore intend to streamline the existing structure while still recognising that there will be a continued need for some form of independent economic regulation.

We shall discuss these proposals with the industry's key players. We are clear that it is important for the new structure to provide strong strategic leadership; a cut in the burden of day-to-day interference; an end to the self-defeating system of penalties and compensation; clearer accountability; and an end to perverse incentives.

The new company that we shall propose would be able to raise funds in the market. [Hon. Members: "Which market?"] Wait and see. Private sector funding would operate in partnership with Government to deliver the 10-year plan objectives for rail. Under our proposals, we intend to offer all existing lenders to Railtrack plc the opportunity to transfer to the new company with no loss of principal or interest. Any debt transferred to the new company would be financially sound and would have, at the time of transfer, good long and short-term credit ratings.

Many talented and motivated people work in Railtrack. They have worked with dedication, especially over the past seven days, and I thank them for that. I know that they and the rest of the industry want an improved railway system. I believe that, with the demise of Railtrack, that is what they will get. The Government are committing some £30 billion to the network over the next 10 years.

The administration of Railtrack provides us with a golden opportunity to create a railway system that is united and not fragmented; a railway industry with a shared strategic vision; a railway industry that can respond to the needs of our time; and a railway network provider that answers to the millions of passengers and not to private shareholders.

Our decisive action makes all that possible, and I commend it to the House.

Photo of Eric Pickles Eric Pickles Shadow Minister (Transport)

I thank the Secretary of State for providing me with advance sight of his statement. I am sure he will be shocked to realise that it arrived only a few moments before the start of the debate. No doubt he will strive to ensure that, in future, statements arrive on time.

I commend the right hon. Gentleman for his power of prophecy. Does he recall saying on 1 July, on "Breakfast with Frost", that the railways

"need a period of stability", and arguing that nationalisation would

"mean paralysis of the system"?

I congratulate the right hon. Gentleman: that is exactly what has happened today. He was right in saying that it would take a few years to establish the nationalised system, and that the railway network would simply get worse.

The Secretary of State has driven a coach and horses through the Government's 10-year transport plan. The net results of his venture will be higher fares, fewer trains, a reduction in passenger numbers, and a decline in freight. The expansion of the network is now yesterday's agenda; we will return to managing decline.

Interestingly, the right hon. Gentleman said in his statement:

"The company we propose would have responsibility for operations, maintenance and renewals."

So it's goodbye to expansion: the company will clearly have no room for expansion of the rail network.

The right hon. Gentleman also said that the Government would guarantee £30 billion. That is just half of what is due from the Government's plan. Where is the £34 billion of private investment to come from? The best we can hope for is a 12-month delay in investment in such vital services as the west coast and east coast main lines, Thameslink 2000 and the train protection system. For 12 months, nothing much will happen—and who will trust the Government again? [Hon. Members: "Everyone."] Certainly not the City institutions, which will run a mile. If, as the right hon. Gentleman suggests, the new company is able to raise money, it will have to do so at a premium, because the Government, having reneged on an agreement, will not be trusted again.

The Government certainly will not be trusted by ordinary investors. It is all very well for the Secretary of State to talk about what was sent through the stock exchange news service, but what about the signalmen? I do not suppose that many of them consult the stock exchange news service. Why did the right hon. Gentleman not mention this on "Breakfast with Frost"? Was it because he forgot?

Let us consider the plight of the ordinary investor. If the right hon. Gentleman had seen today's edition of The Sun, he would have read about a 33-year-old signalman from Middlesbrough who had worked for Railtrack and British Rail since leaving school at 17. He owns 6,870 Railtrack shares—[Interruption.]

Photo of Sylvia Heal Sylvia Heal Deputy Speaker

Order. The hon. Gentleman is entitled to be heard.

Photo of Eric Pickles Eric Pickles Shadow Minister (Transport)

I am grateful for your protection, Madam Deputy Speaker.

Matthew, the signalman, said:

"I'd saved up hard for many years and, two years ago, decided to buy shares in Railtrack. I knew it was a good company, despite some difficulties, and didn't want to risk my savings".

According to that signalman, what the right hon. Gentleman has done

"is at the expense of the workforce, genuine working-class people like me who've tried to better themselves."

Ninety-two per cent of Railtrack employees participated in the company's share scheme. Many of them exercised their option to purchase additional shares long after the Government had secretly decided to make their savings worthless. They put their trust in the Government, and the Government let them down.

The Secretary of State needs to answer some specific questions. On what date did he take the decision to formulate the plan to put Railtrack into administration as the preferred option? Is it true that he had no face-to-face meetings with the chairman of Railtrack for a whole three months during the summer? What advice did he receive from the Rail Regulator or the Strategic Rail Authority? Is it true that the Government blocked a payment of £162 million to Railtrack, which the company should have received on 1 October, under a funding schedule published by the Rail Regulator in October 2000 and agreed by the Deputy Prime Minister in April 2001?

Is it true that on 3 October, shortly before notifying Railtrack management of the Government's intention to push the company towards administration, the Secretary of State spoke directly to the Rail Regulator and warned him to take no action to assist Railtrack? Is it true that the regulator was threatened with emergency legislation to deprive him of powers if he tried to assist Railtrack?

Most importantly of all, what guarantee can the Secretary of State provide that the rail network will require any less public funding than was requested by Railtrack?

Railtrack is bust because the Government decided to make it so, as the letter from Railtrack today shows. That demonstrates the danger of politicians interfering with the rail industry. The Secretary of State sought a political solution when a financial one was needed. He grandstanded when care was needed. What once appeared to be a carefully crafted political coup now appears to be an ill-thought-out mess.

This action has been the most destructive act to the railways since Dr. Beeching. The Secretary of State clings to office with his despised spin doctor. He should do all of us—including the rail industry—a favour, by quitting today.

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

There we have it.

I congratulate the hon. Gentleman on his position. I am disappointed that it was not the shadow Secretary of State who responded to the statement, but I look forward to crossing swords with her in due course.

The hon. Gentleman is right that on 1 July I appeared on the Frost programme. At that time, we thought that the 2 April deal would finance Railtrack through this year, into next year and for the five-year control period. It was not until 25 July, when John Robinson, the chairman of Railtrack, came to my office, that we were informed of the grave financial circumstances facing the company. From then on, it was clear that we faced a dilemma: either to fund Railtrack with a blank cheque or to put in place a contingency plan in case railway administration was needed. It is prudent and appropriate that we plan on a contingency basis. If we had not done that, Railtrack would have collapsed into receivership and the network would have been in chaos.

Since last Monday, the trains have continued to run and no one has lost their job. We are in a period of railway administration and the company that subsequently emerges will put the interests of the travelling public first. It will be focused on operations renewal and maintenance. We will use special-purpose vehicles for enhancement projects. We are moving in that direction already.

As I said in my statement, I took my decision on 5 October after considering all the relevant documents. The Government have met all our legal obligations regarding payments to Railtrack.

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

Despite what the hon. Gentleman believes—which is a sign of the Conservative party's priorities—the Government are not here to fund the shareholders of private companies. During privatisation, £700 million was paid in dividends to Railtrack shareholders. It was a company in crisis and came to the Government with a begging bowl month after month. It begged for taxpayers' money while handing out dividends to shareholders.

A sign of Railtrack's conflicting priorities is the fact that, while it faced a deficit of £700 million by this December, it paid yet another dividend to shareholders of £88 million at the beginning of October. That is the reality. Shareholders and investors have a choice. The Government made it clear on 2 April that we would stand behind the industry, not behind individual companies or shareholders.

Interestingly, we did not hear a word from Mr. Pickles about the problems that Railtrack faced as a result of the very nature of privatisation. He did not even attempt to explain the dogma that led to the privatisation of Railtrack, but we must be very clear about the fact that Railtrack was taken into administration because it could not control its costs. Its overrun on the west coast main line amounted to billions of pounds, and it had hundreds of millions of pounds of liabilities that were due to be paid, so we had to act. We acted in the interests of rail passengers and the public, and we make no apology for so doing.

Photo of Gwyneth Dunwoody Gwyneth Dunwoody Labour, Crewe and Nantwich

Is my right hon. Friend aware that the fact that Railtrack was, to all intents and purposes, bankrupt has been an open secret in the industry for many months? Indeed, if it had not been able to keep coming back to the Government for more and more money without any evidence of what it would do with it, it would have been automatically put into bankruptcy. Is he also aware that the real problem has been that, when Railtrack was criticised for not keeping up its maintenance, for not seeking proper funding and certainly for not being able to carry out the costings of the modernisation programmes to which it was committed, it was handing out £1 million in compensation to failed executives?

Is my right hon. Friend further aware that, unfortunately, the people who will suffer are the railwaymen who, instead of being offered bonuses, for which they had worked and to which they were entitled, were paid off by Railtrack with more shares, although it must have known what was going to happen because the City of London had made it very clear what it thought of the company?

Will my right hon. Friend give the House a very simple guarantee that the new company will not, in any circumstances, continue to pour money in without guarantees to the travelling public and to those who need a modern and rebuilt railway system that it will be spent on the railway, that it will be paid to those who maintain and build the railway, that it will not go into contractors' pockets and that it will not be handed over to other companies that have proved, in many instances, that they cannot run their existing operations?

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

My hon. Friend makes a number of very important points. The report that her Select Committee—the Transport Sub-Committee of the Select Committee on Transport, Local Government and the Regions—published on 29 March showed very clearly Railtrack's failures in terms of renewal and maintenance and how it had simply failed to manage the railway network.

We want a new company, coming out of administration, that will not face the conflict of having to enhance value for shareholders but will have one overriding priority—the interests of the travelling public and the freight industry. As it will be a not-for-profit organisation, any operating surplus will be reinvested in the industry, doing away with the conflict that existed under Railtrack. That will make a real difference for the travelling public. Railtrack's demise offers a golden opportunity to recast the railway industry in our country and to create a railway industry that is fit for the 21st century, which simply is not the case at the moment.

Photo of Don Foster Don Foster Liberal Democrat, Bath

Given the Tories' record on the railways, does the Secretary of State not agree that a degree of contrition from Mr. Pickles would have been appropriate?

Does the Secretary of State agree that it was vital to end, in a monopoly, the obscene conflict between shareholder profit and passenger safety? Will he confirm that his proposal to turn those parts of Railtrack that relate directly to the running of the railways into a not-for-profit, public-interest company are not only sensible but mirror proposals made by Liberal Democrat Members as early as February this year?

Will the Secretary of State acknowledge, however, that the way in which he has handled this affair over the past few days has led to confusion about who is in charge of what and who owns what? After a botched privatisation, are we not in danger of his botching what is, in fact, a sensible solution?

I agree with the Secretary of State that the public have been rightly concerned that shareholders have received money from Railtrack while, at the same time, the company has been going round with a begging bowl asking for more money from taxpayers. Will he confirm that, even today, Railtrack's website acknowledges that its property portfolio assets are expected to yield a return of £1 billion to shareholders over the next five years? Does he agree that that is the equivalent of £1.80 per share, in addition to the value of all the other assets that have been described elsewhere? Will he confirm yet again, as he has already today, that there will be no more taxpayers' money going to shareholders?

Given that the Secretary of State has at long last accepted the need to start to reintegrate track and train, will he now stop his crazy proposal to do exactly the reverse for the London underground?

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

We are proposing a sensible alternative to Railtrack. When the hon. Gentleman has had time to study the details, he will realise that it our proposals are not the same as his—at least, I hope they are not.

Photo of Don Foster Don Foster Liberal Democrat, Bath

I gave them to the right hon. Gentleman.

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

I am conscious that the hon. Gentleman gave them to me; that is why I think they are not the same, but we can discuss that a little later.

Railtrack plc is the body in administration. Railtrack Group is not in administration; it is still being run by the board of directors and it still has shareholders. There will be assets and value in Railtrack Group, and that value can be used for the benefit of shareholders. That is an important point to make, because it shows the need to ensure that we keep the rail network operating—the Government's top priority—and that Railtrack Group, which is not in administration, can find value from its assets. If it can do that, that value can be made available to shareholders. The important point, however, is that new Government money will not be given to compensate shareholders. We feel that to do so would be inappropriate.

The hon. Gentleman's final point was about the implications for the London underground, whose position is totally different from that of Railtrack. The important thing to remember about our proposal for London Underground is that, although it has been portrayed by our critics as a Railtrack on the underground, the reality is that it will continue to be a publicly run company. London Underground will have contracts with the private sector, so the difficulties that the hon. Gentleman mentioned will not be repeated in our proposals to modernise and invest in the tube.

Photo of Paul Flynn Paul Flynn Labour, Newport West

Does the Secretary of State agree that this calamity was prophesied precisely by the report of the Transport Select Committee in 1993? That Committee opposed privatisation, even though it was chaired by a Conservative and had a Conservative majority. Should we not look for Conservative Members to offer a small apology for privatisation?

The model being proposed now is similar to one that Glas Cymru introduced. We have discovered a genuine third way: a combination of the vigour of the private sector and the security of state enterprises.

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

My hon. Friend is right when he refers to the reservations that many Conservative Members had about privatisation when it was introduced in 1993. At that stage, the proposal was for Railtrack to remain in the public sector, but in 1996 the then Prime Minister, John Major, was desperate for a privatisation and, as there was nothing else left, he went for Railtrack. We are now living with the consequences of that flawed and failed privatisation.

My hon. Friend referred to Glas Cymru, formerly Welsh Water, which provides a similar model to the one that we adopting in this case. He referred to it as a "third way", and it was interesting to hear him say that. It is the first time that I have heard him talk favourably about the third way—long may that continue.

The important point is that Labour Members have made it clear that modernisation and reform of public services are important. We have said that, when we think the private sector can add value, it has a role to play. Railtrack was not adding value; it was destroying the rail network. The Government were therefore prepared to take action to put the public interest first. We have done that for railways and we shall do it for public services as well.

Photo of Dr Brian Mawhinney Dr Brian Mawhinney Conservative, North West Cambridgeshire

When the Secretary of State instructed his officials on 25 August to commence discussions with Ernst and Young preparatory to taking Railtrack into administration, did he also instruct his officials to tell the stock exchange that that is what he was doing?

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

We were very much aware, as is the right hon. Gentleman, of the Government's legal responsibilities and of the legal responsibilities of the directors of a quoted company. We took that into account.

Photo of Mr Peter Pike Mr Peter Pike Labour, Burnley

I congratulate my right hon. Friend on taking this action, which is the best way of saving the railway system in this country. Does he accept that most people in the north-west believe that the failure resulted from the Tories' privatisation of the railway system and the way in which they broke it into many fragments and different companies? Most of the public believe that the system was bankrupt and that it was obscene to pay the latest dividend. Most people in the north-west also believe that we would not have got the second phase of the west coast main line if action had not been taken to save the situation.

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

The west coast main line will be one of the top priorities, and we already discussing with the administrator how we can make sure that the project moves forward far more positively than it has under the stewardship of Railtrack.

I am pleased to hear that the measures that we have taken for Railtrack are popular in the north-west. I am sure that they are, and I am also confident that they will be popular throughout the whole United Kingdom.

Photo of Kenneth Clarke Kenneth Clarke Conservative, Rushcliffe

Did the Secretary of State's reply of a few moments ago mean that it is still the Government's policy that private sector finance will be the major source of future investment in the railways and many other important infrastructure projects? If so, does he not realise that his obvious scorn for the protection of shareholder value and for the notion of a reasonable return on capital will make it impossible to raise genuine private finance for the west coast main line, for the London underground and for many other projects unless they are accompanied by Government guarantees, the minimal transfer of risk or a hugely increased cost of the borrowing required? If he does not accept that, he does not realise how much damage he has done to the interests of the railway network, the travelling public and many other people looking for much-needed investment in our public services and utilities.

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

What is very instructive is how some of the main architects of the crisis that was Railtrack—[Hon. Members: "Answer the question."] I shall—[Interruption.]

Photo of Sylvia Heal Sylvia Heal Deputy Speaker

Order. The Secretary of State is responding to questions.

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

I shall answer the question, but the public need to note that the architects of Railtrack and its privatisation have failed to utter a single word of apology during this statement.

On the specific points made by Mr. Clarke, Railtrack comprises Railtrack plc and Railtrack Group. I thought that I made it clear that the value of the assets that are held in Railtrack Group can and will be allocated to shareholders if the directors so determine. I give the commitment on behalf of the Government that we will do all that we can to enhance, if it is appropriate, the value of those assets, but no new public money will go into Railtrack because that would be wrong and inappropriate.

I do not scorn the position of shareholders, but I recognise that in a dynamic market they have to decide where they invest their money. We made it clear on 2 April that as a Government we do not stand behind individual companies or shareholders. Mr. Pickles asked who told the shareholders that. What is interesting is that on 11 April Railtrack's chief executive, Steve Marshall, was clear about it. He said:

"Yes, the Government

"would allow us to go bust. It's quite clearly item one on the agreement" that we have entered into

"with the Government. While the Government stands behind the industry, they don't stand behind any particular company, of course they don't."

That is the situation.

Most people recognise that Railtrack was unique in the involvement of the private sector. There will be opportunities for private finance to work with Government funding. With the assurances that we have given over the past seven days, we are confident that the private sector will continue to want to be involved in public-private partnerships.

Photo of Mr Bill O'Brien Mr Bill O'Brien Labour, Normanton

Will my right hon. Friend accept that the majority of hon. Members and the public welcome his statement and his action to try to save Railtrack? Mr. Pickles had difficulty justifying any statement that opposed my right hon. Friend because the privatisation of Railtrack has failed. There is no doubt about that, and it is difficult for Conservative Members to do anything but accept that failure. When the hon. Member for Brentwood and Ongar sat on the Transport Committee he joined all his Committee colleagues in criticising Railtrack.

I want my right hon. Friend to assure me that when the new company is established it will implement the improvements planned for Railtrack and for stations, including Wakefield in my neighbouring constituency, so that we have the railway system to which we are entitled in the 21st century.

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

My hon. Friend makes an important point about the need to ensure that the money that is being invested in the railway network is used for the purpose for which Parliament votes it.

As for the view of the hon. Member for Brentwood and Ongar on Railtrack, I do not know whether it was recorded in 1993, but it is interesting to know that as a member of the Committee he signed up to all-party recommendations on the need to change Railtrack's nature. I regret that his elevation to shadow Transport Minister means that he has to deny his good work all those years ago. It just shows that, for the Conservatives, dogma and ambition will always triumph over reason.

Photo of Peter Bottomley Peter Bottomley Conservative, Worthing West

It is public knowledge that one of my brothers-in-law runs a railway.

Does the Secretary of State understand that he is being tested, at least for today, and that the House is concerned as to whether there are flaws in his conduct? Has his office denied the words quoted in the business news section of The Sunday Times yesterday, in which a journalist was told that he would look like an—expletive—"idiot" if he said that the company was bankrupt? One of the final paragraphs of that article states:

"A source close to Byers said that the minister now regretted not forcing" his special adviser

"to resign over her leaked memo."

Has the Secretary of State denied that?

When did the offices of the Chancellor and the Prime Minister know that the Secretary of State thought that Railtrack's most likely outcome would be administration? Will his way of funding capital investment be cheaper? Finally, how many workers in the rail industry either owned or potentially owned shares?

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

I am aware that the hon. Gentleman's brother-in-law is involved in a good railway company, which I often use.

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

I take the hon. Gentleman's word for that.

On the substance, I know that the conversations that did or did not take place will be of great interest. The important point is that no one briefed on our approach to railway administration before we moved in that direction.

On action that might be taken against serving civil servants, the position is clear: official disciplinary procedures should be followed, and that is appropriate.

As for the value of the private sector funding that we can achieve, I believe, as a result of assurances that we have given, that there will be continued interest from the private sector to support public-private partnerships.

Several hon. Members:

rose

Photo of Alan Haselhurst Alan Haselhurst Deputy Speaker and Chairman of Ways and Means

Order. I am aware that many hon. Members understandably have an interest in this subject and, in many cases, a deep knowledge of it, but after two very long supplementary questions I appeal for questions to be much more concise. Otherwise, many hon. Members will be disappointed.

Photo of Gavin Strang Gavin Strang Labour, Edinburgh East and Musselburgh

As my right hon. Friend considers the best future structure for the railway industry, may I remind him of the finding in Lord Cullen's report on the Ladbroke Grove accident? He found that the fragmentation of the railway industry made it difficult for it to take united action on safety. Rather than set up another private company to which we give billions of pounds of taxpayers' money, should we not take this opportunity to bring the railways back into public ownership?

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

The recommendations in Lord Cullen's two reports into the tragic accident at Ladbroke Grove just over two years ago should be followed and implemented with all due speed. They are sensible and will improve the safety record of our railways. My right hon. Friend knows that Cullen did not recommend renationalisation. He gave careful consideration to the structure of the rail network and felt that that was not appropriate. We agree with Lord Cullen's recommendations.

Photo of Mr Nick Hawkins Mr Nick Hawkins Conservative, Surrey Heath

As co-chairman of the all-party railways group, may I tell the Secretary of State that a large number of shareholders, many of whom are Railtrack employees, will find his statement astonishingly complacent? Is he prepared to appear before any of the regulatory bodies of the City of London that may wish to commence formal inquiries into whether he has properly informed City regulatory bodies about his steps in this matter? When he talks about his planned company having future opportunities to raise credit, does he not recognise that, as a result not only of this fiasco but of his failure to sack Jo Moore, his political credit rating is now zero?

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

The important thing is that my actions were taken fully in line with all the legal advice and opinions that I received. I am confident that we have addressed all the issues with regard to the regulation of the City and to obligations that I might have had to declare information relevant to shareholders. I shall certainly appear before any relevant body to explain exactly what the circumstances were.

Photo of Brian H Donohoe Brian H Donohoe Labour, Cunninghame South

My right hon. Friend took the right decision. Had he not, the Opposition would be baying for his blood because the company would have been going bankrupt.

My right hon. Friend said that he was going to consider due compensation with regard to the cherry picking that is taking place among shareholders. Will he give a commitment to me and the House that the channel tunnel, which was funded almost exclusively by public money, will not be part of that process?

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

My hon. Friend is right to say that the channel tunnel has been a great success. There is an issue about the liabilities and financial interests that Railtrack might have in the channel tunnel, and that was raised with me by Railtrack directors on Friday. I want my response to be as positive as possible, but it must reflect my responsibilities as Secretary of State. If we can ensure that the channel tunnel rail link section 1 continues on time, on schedule and on budget, we will do so. There will need to be detailed negotiations about any value that the project might have, and there are differing views about that value.

I am prepared to discuss the matter with Railtrack without compromising the position that we have consistently adopted since last Sunday, which is that we will assist with Railtrack Group's assets but we will not provide any new Government funding to compensate shareholders.

Photo of Anne McIntosh Anne McIntosh Shadow Spokesperson (Culture, Media and Sport)

May I commend to the Secretary of State the leading article in yesterday's Sunday Business, which points out that far from being a catastrophe, railway privatisation has been, in parts, a stunning success, with 35 per cent. more passengers carried and 45 per cent. more freight transported?

I declare an interest to the House in that I am a minor shareholder, on a much more modest scale than some RMT-sponsored Members, and like the Secretary of State, a regular user of GNER.

Following the Secretary of State's statement and press release of 18 July, in which he stated that Railtrack and the Strategic Rail Authority would be joint providers overseeing the infrastructure improvements to the east coast main line, what reassurance can he give the House that the line will be improved before the postponed renewal of the franchise in 2005?

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

The hon. Lady will be pleased when she sees the exact details of our proposals, and I believe that GNER will be pleased. I have discussed with the company the way in which we can restructure the railway industry to provide a better service to the travelling public, which is what GNER is trying to do. The hon. Lady will be aware of the frustration felt by that franchise holder about the way in which Railtrack was dealing with the upgrade of the east coast main line. We are now in a far stronger position to implement those improvements in time and in a way that will benefit the holder of the east coast franchise.

Photo of Martin Salter Martin Salter Labour, Reading West

Will my right hon. Friend accept my congratulations and those of my constituents on his welcome, if long overdue, decision to put the interests of the travelling public ahead of those of Railtrack's shareholders and directors, one of whom used to be Mr. Norman, and a member of the Opposition Front Bench?

Is the Secretary of State aware that his proposal to run a not-for-profit company is very similar to the suggestion made by many Labour Members for running National Air Traffic Services?

My right hon. Friend will have heard the bleating from Opposition Members about the need for an inquiry into Railtrack. If he concedes the need for such an inquiry, will its terms of reference include investigating why a public asset was sold off, just before a general election, at a bargain basement price, and why the share value rose in a matter of months from £3.90 to £17?

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

My hon. Friend states very clearly the facts about the value of Railtrack shares. It is interesting that their value did not do much good at the 1997 general election.

My hon. Friend mentioned air traffic control. Railtrack's situation is quite different from that of air traffic control, and when he has time to look at the models that we are proposing for each he will see that we are trying to find the right model for each set of circumstances.

Photo of Andrew MacKay Andrew MacKay Conservative, Bracknell

Does not the Secretary of State understand that outside the House there is deep cynicism about the timing of this decision? Is he surprised about that, bearing in mind the disgraceful leaked e-mail from his special adviser? Is he aware that he has brought public and political life into disrepute by his lack of action in failing to sack Jo Moore?

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

As I said, the person concerned has been dealt with through the official disciplinary procedures.

The timing of this decision was dictated by the need to take decisions as soon as all the relevant information was available. As some Opposition Members know, stock market-sensitive information is often communicated on a Friday after the stock market has closed, especially in a case such as this, when administration may follow as a result. That is what we did in this situation, to ensure that any move to railway administration might be made in an orderly way.

I repeat the point that I made in my statement: the thousands of railway workers who turned up for work on Monday after the railway administration was announced have done a great service to the network. They have worked normally; what has happened has not distracted them. Most of them believe that an opportunity now exists to build a railway network of which they can be proud as workers and of which we can be proud as a country, as is simply not the case at the moment.

Photo of Gerald Kaufman Gerald Kaufman Chair, Culture, Media and Sport Committee

Is my right hon. Friend aware that if there is a criticism of him it is that he did not make his decision sooner? Public disquiet has long existed at the fact that vast sums of public money were being pumped into a system to allow the bosses of the industry to pay themselves huge salaries and bonuses, to subsidise shares without following market principles and, of course, to create a shambles of a railway system. Would my right hon. Friend accept that, now he has done this worthwhile deed, the travelling public is waiting for him to tackle the problem of the operating companies and the shambles that some of them are in? If he has that on his agenda, could he please start with Virgin?

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

My right hon. Friend makes some interesting points, as always. When the scale of the crisis was revealed on 25 July, we moved quickly to consider all the options with Railtrack and to make contingency plans for railway administration, if that proved to be necessary, as it did. Finally, on 5 October, we took the decision when all the relevant factors had been considered and all the relevant issues taken into account.

My right hon. Friend raises an important point about the role of the operating companies. We should revisit the way in which franchises are awarded to ensure that the travelling public benefit. I said in my statement that we should use this decision on Railtrack as an opportunity to restructure the whole railway industry. I intend to do that, and I would like to think that we could do that in partnership with all the key players in the industry, because that was what was lacking as a result of the privatisation imposed by the Conservatives.

Photo of Pete Wishart Pete Wishart Opposition Whip (Commons), Shadow Spokesperson (Culture, Media and Sport), Shadow Spokesperson (Environment, Food and Rural Affairs), Shadow Spokesperson (Transport)

I think that everyone in the House would agree that the demise of Railtrack was as predictable as it was overdue. Does the Secretary of State agree that its demise presents distinct opportunities for Scotland, in particular to pursue a new type of not-for-profit investment policy for which we in the Scottish National party have argued—successfully, it seems, given the Government's conversion to that policy—over the past few years?

In Scotland we have a single Railtrack zone. ScotRail provides some 95 per cent. of all train services. Is it not now time for Scotland to break with the failures of the national Railtrack past and to improve public accountability by making the Scottish Executive and Parliament directly responsible for rail services in Scotland?

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

I am delighted that yet another Opposition party is claiming authorship of our proposals, but the hon. Gentleman's proposition does not have immediate appeal.

Photo of John Cryer John Cryer Labour, Hornchurch

Does my right hon. Friend agree that privatisation was a complex method of achieving the relatively simple goal of shifting massive amounts of money from taxpayers into the pockets of shareholders? I congratulate him on saying "enough is enough" to the cowboys who have been running Railtrack for the past few years, but does he agree that one of the most important things that the successor to Railtrack could do would be to begin to employ a direct labour force? That would at least start to remove some of the fragmentation, confusion and lack of accountability that have turned Britain's railways into a lethal network.

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

The issue of employment will be a matter for the company once it is established. Joint work between the company and the Government could be conducted in the field of training. Training in the railway industry has been neglected for many years, especially during the past few years of privatisation. There is a skills shortage in the railway industry, and a productive conversation can be held about the need to ensure that we have a properly skilled work force on the railway network.

Photo of John Redwood John Redwood Conservative, Wokingham

As the Secretary of State has now accepted that cash, property and some other assets belong to group shareholders and not the receivership company, can he not see that he will have to persuade the Chancellor to put a lot more cash into the Railtrack company in administration, in order to rebuild its balance sheet now that the group and individual shareholders are shorn of those assets, and to make the company more viable for borrowing and private finance? Given the huge damage that he has done to the private finance initiative and the public accounts, will it not be impossible for his going concern certificate to be renewed by the Chancellor?

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

The right hon. Gentleman has called for my resignation on—I think—three occasions. Two of the calls were made while we were trying to save jobs at Longbridge in Birmingham. He was prepared to see the company sold off to a venture capitalist resulting in the loss of 6,500 jobs. That was his approach; we ignored him and we saved 6,500 jobs as a result. This action is saving the railway network for the travelling public. I have no intention of resigning for doing that.

Photo of Jonathan R Shaw Jonathan R Shaw Labour, Chatham and Aylesford

My right hon. Friend referred to the channel tunnel rail link. As the first stage of that massive infrastructure project nears completion, does he agree that it is vital to the regeneration of north Kent and its people, who have endured disruption, some blight and upheaval—it has been a sacrifice for the greater good of the United Kingdom—that the second stage is built? Will he give a guarantee that it will be built along the same route, with environmental safeguards, to ensure the economic prosperity that we so need throughout Kent and London?

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

My hon. Friend makes a powerful case on behalf of his constituents and the people of north Kent. I reassure him that major projects that were under way, whether on section 1 of the channel tunnel rail link or on the west coast main line, will continue. We are talking to the administrators about the steps that can be taken to drive forward the projects more positively and without the cost overruns that we saw under Railtrack. This is the opportunity to ensure, through special purpose vehicles, that we deliver on time and on budget. I give my hon. Friend an assurance that those projects will not be affected by this decision and will be able to continue.

Photo of Chris Grayling Chris Grayling Conservative, Epsom and Ewell

I am sure that the Secretary of State is aware that since privatisation passenger numbers have been rising by approximately 17 per cent. a year, to the point at which the network is suffering considerable capacity problems. Now that we are one year into his 10-year plan for the railways, will he confirm that he has secure funding to complete that plan? Will he also give some examples of enhancements to the railway network that we can expect to be open for business during this Parliament?

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

The hon. Gentleman should probably be aware that passenger numbers are up not because of privatisation but because of the strength of the economy and the fact that more people are in work. [Interruption.] That is why passenger numbers are on the increase. People will see improvements in the railway network as a result of the decision that we have taken. We expect that, during this Parliament, for example, section 1 of the channel tunnel rail link will be completed. That will bring real benefits to the travelling public.

Photo of Eric Martlew Eric Martlew Labour, Carlisle

I congratulate my right hon. Friend on the action that he has taken, about which my constituents in Carlisle are delighted. He may be aware that in April I promoted a private Member's Bill that anticipated today's situation. I ask him for an assurance regarding the west coast main line. Next year, we shall have tilting trains, which are capable of 140 mph. Will the west coast main line be upgraded to meet that standard?

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

I am pleased that the people of Carlisle are celebrating our decision. For too long, they have suffered inadequacies on the west coast main line. The upgrade is important. I know that there has been concern that the work has been falling behind schedule and that all the enhancements that we want will not be delivered. As I said, we are talking actively to the administrator about the major infrastructure projects. We want to ensure that we can improve on the performance under Railtrack.

If there is one example of Railtrack's failure as a company, it is the way in which it allowed costs to escalate on the west coast main line. The work was originally costed at just over £2 billion; the latest estimate is some £7 billion. That has been the real problem. It is a problem not of the Government's making, but of Railtrack's failures to control its own costs.

Photo of Mr Lawrie Quinn Mr Lawrie Quinn Labour, Scarborough and Whitby

As the other co-chairman of the all-party railways group, I want to say how much I liked the part in my right hon. Friend's statement about recognising the loyalty, talent and commitment of the Railtrack staff who have gone on working for a 21st century railway. Will he give a commitment about the future of freight on rail and say whether the proposals that Railtrack had developed will be followed through by the proposed new company?

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

Freight has often been the forgotten part of the railway network. I know from the discussions that my Department and ministerial team have had with representatives of freight companies that there has been real concern about the way in which the railway network has developed. I assure my hon. Friend that we want to ensure as part of the 10-year plan—in which we have a clear objective on the growth of freight—that we deliver on that commitment.

Photo of Eleanor Laing Eleanor Laing Shadow Spokesperson (Education)

Has the Secretary of State forgotten that his Government have been in power for the past four years? Surely he must recognise that what has happened to Railtrack is a direct result of the success of the policies of his right hon. Friend the Deputy Prime Minister, who set out deliberately to undermine Railtrack and the theory of privatisation by interfering, centralising and destroying a potentially successful company, undermining all future private sector involvement in public matters.

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

According to the Conservatives, Railtrack is not to blame. That is very interesting. I ask the hon. Lady to look at Railtrack's record, which says it all. She cannot blame an individual Member for Railtrack's position. When she reflects on her comments, she will realise that that is the reality. Railtrack is responsible for the fact that, by December this year, it would have had a deficit of £700 million and that, by March next year, it would have had a deficit of £1.7 billion. That is due to Railtrack's mismanagement, not this Government's policies.

Photo of Robert Smith Robert Smith Opposition Deputy Chief Whip (Commons)

Will the Secretary of State make it clear who in years to come will be responsible for delivery or failure to deliver? He has not yet answered the question about section 2 of the channel tunnel rail link. It is important to the economic regeneration of the area involved, and to ensure that the north and specifically Scotland have direct links to the channel tunnel.

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

The hon. Gentleman will be aware that section 2 of the channel tunnel rail link has already commenced. The work started on time and I understand that it is going well. Section 2 will be completed. The hon. Gentleman need not be too concerned about that. The company, limited by guarantee, will have funding from the Government by way of grant, it will have access to income from track access charges and it will be able to raise money on the private markets. It will therefore be adequately funded to deliver its part of the 10-year transport plan.

Photo of Clive Betts Clive Betts Labour, Sheffield, Attercliffe

My hon. Friend was absolutely right to refuse to write Railtrack another blank cheque, but will he explain in greater detail the funding arrangements he has in mind for the new company? In particular, will any of its future borrowing, debt, or losses—if it makes any—be underwritten or guaranteed in any way by the Government? How will those funding arrangements sit alongside the public sector borrowing requirement?

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

The proposed company to take over Railtrack's liabilities that we will put to the administrator will be a private company; therefore its borrowing and finance will not score against public borrowing, but will be in the private sector.

Photo of Andrew Lansley Andrew Lansley Conservative, South Cambridgeshire

The Secretary of State will recall that just over a year ago the Government announced an investment plan for the railways of £49 billion over 10 years, £34 billion of which was to be funded by the private sector. Will he explain now how such investment is to be funded in future? Does he stand by those figures? If the Government expect the source to be private sector funding not guaranteed by the public sector, will he explain to the travelling public for whom he has such regard what that will mean in terms of access charges and passenger fares in future?

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

In terms of financing, the 10-year plan that we announced last year will not be affected by our decision on Railtrack or in other ways. It is important to remember that the City regards Railtrack as a unique body and that it recognises the reasons why the Government had to take the action we took. As the details and exactly what it is that we want to take over from Railtrack are explained to the City, it is becoming interested in the opportunities that will result from our proposals. We are confident that the targets and objectives outlined in the 10-year plan can be met as a result of the demise of Railtrack.

Photo of Gillian Merron Gillian Merron Labour, Lincoln

In welcoming my right hon. Friend's public-spirited action—an action welcomed not only by Labour Members but by people throughout the country—may I emphasise the important role that Railtrack has played in the search for a solution to the problem of increased rail traffic as it is experienced in Lincoln, where a track cuts the city in two? Will he confirm that the new organisation will have the scope to work in co-operation with regional, local and national partners so that we can get the regeneration and the rail services that Lincoln and the east midlands deserve?

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

I know that my hon. Friend has already met my right hon. Friend the Minister for Transport and stressed the importance of that development to Lincoln. There is no reason why the changes that are now to be introduced will affect her ideas on how to improve the quality of life for the people of Lincoln. I am sure that the new organisation, when it comes into being, will note the representations that she has made in the House and to my ministerial colleague.

Photo of Tony Baldry Tony Baldry Chair, International Development Committee, Chair, International Development Committee

Does not the Secretary of State agree that the integrity of the London stock exchange is important to the commonwealth of the United Kingdom as a whole? Does he recognise that by creating a false market in Railtrack shares for a number of weeks, he has undermined the integrity of the London stock exchange and damaged investor confidence in London as a whole?

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

Let me answer that important point about creating a false market in Railtrack shares. As I outlined in my statement, I faced a choice on 5 October: either to guarantee further funding to Railtrack—an option that I could have chosen—or to apply to put the company into railway administration. No decision had been taken until that date. As one who follows such matters, the hon. Gentleman knows where the responsibility to inform shareholders lies if a company is in particular difficulties: he knows that it is not for the Secretary of State to do that. As soon as I took a decision, my responsibility was to make sure that the chairman of the company was informed immediately, and that is exactly what happened on 5 October.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

First, I add my congratulations to my right hon. Friend on his timely action. Had that action been taken during the first week of May 1997, we would have saved a vast amount of grief and public money.

Will my right hon. Friend institute an investigation into the problem of gauge corner cracking? I understand from newspaper reports that the problem—it can cause broken rails and lead to accidents—is now worse than it was before Hatfield, and that, as a result of Railtrack's incompetence, it is now occurring in rails that are less than a year old.

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

My hon. Friend is right to stress the importance of gauge corner cracking, which was responsible for the accident at Hatfield a year ago this Wednesday. When we consider recommendations—especially those of Cullen—on network safety and we implement those recommendations, we can address precisely that sort of issue. Most importantly, the new company that we want to take over after administration will have a clear objective: it will deal with operations, renewals and maintenance. Above all, it will not face the terrible conflict that arises from the need to increase shareholder value. Its single, overriding priority will be to provide a safe, efficient and effective railway network. The issues my hon. Friend raises can be met by the new company that we intend to create.

Photo of John Pugh John Pugh Liberal Democrat, Southport

Has the Minister noted that many Labour Members have today complained about the fragmentation of the railways? Will he explain to them, and to us, how the proposals for London Underground can subtly avoid that ill?

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

The important point about London Underground is that our proposals for its modernisation and reform will result in a publicly owned London Underground in control of only three contracts with the private sector. Therefore the fragmentation about which the hon. Gentleman is so concerned will not occur under our plans for London Underground. We are not repeating the mistakes made in the privatisation of the railway network.

Photo of John Robertson John Robertson Labour, Glasgow Anniesland

I, too, thank my right hon. Friend for his announcement. I was especially pleased to hear how he intends to treat shareholders. Everybody knows that entering the shareholding stakes is a gamble: the people who win are happy when it happens, but if they lose, they lose, and that is part of the game. I also thank him for his announcement regarding the west coast main line.

Will my right hon. Friend re-emphasise that safety and service to the customer are paramount, and that any new company will take that on board? In relation to the rail industry as a whole, will he ensure that no company uses the creation of any new company as an excuse to shed workers and so get more profit for its shareholders?

Photo of Stephen Byers Stephen Byers Secretary of State, Department for Transport, Local Government and the Regions

My hon. Friend is right to stress the importance of safety: there must be no compromise on railway network safety. He voices concern about the position of railway workers. The company that takes over responsibilities from Railtrack will make decisions on that matter, but it is important to note that the new company will be able to invest its money in the work force, whereas Railtrack has compromised on that. Real improvements are possible.

My hon. Friend will welcome the fact that we have, through the administrator, made sure that all existing pension benefits for former railway workers will be met in full. There is no question that administration will affect the pension benefits of former railway workers.

Several hon. Members:

rose

Photo of Alan Haselhurst Alan Haselhurst Deputy Speaker and Chairman of Ways and Means

Order. We must now move on. I suspect that there will be other opportunities to debate this matter.